Rhodes v Tower Superannuation Fund

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FEDERAL COURT OF AUSTRALIA

Rhodes v Tower Superannuation Fund [2004] FCA 510

SUPERANNUATION – appeal from Superannuation Complaints Tribunal – termination of membership – exit fee – whether reviewable by Tribunal – non-discretionary – fixed by terms of insurance policy – no basis for Tribunal to interfere – appeal dismissed.

Superannuation (Resolution of Complaints) Act 1993 (Cth) s 6, s 12, s 14, s 14AA, s 37

Attorney-General (Cth) v Breckler (1999) 197 CLR 83 cited
Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd (1998) 79 FCR 469 cited
Briffa v Hay (1997) 75 FCR 428 cited
Retail Employee Superannuation Pty Ltd v Crocker [2001] FCA 1330 cited
Colonial Mutual Life Assurance Society Limited v Brayley [2002] FCA 1333 cited

ALLYSON JANE RHODES v TOWER SUPERANNUATION FUND
W87 OF 2003

FRENCH J
27 APRIL 2004
PERTH


IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

W87 OF 2003

BETWEEN:

ALLYSON JANE RHODES
APPLICANT

AND:

TOWER SUPERANNUATION FUND
RESPONDENT

JUDGE:

FRENCH J

DATE OF ORDER:

27 APRIL 2004

WHERE MADE:

PERTH

THE COURT ORDERS THAT:

1.        The appeal be dismissed.

2.The parties to file and serve written submissions as to the costs of the proceedings within 14 days.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

W87 OF 2003

BETWEEN:

ALLYSON JANE RHODES
APPLICANT

AND:

TOWER SUPERANNUATION FUND
RESPONDENT

JUDGE:

FRENCH J

DATE:

27 APRIL 2004

PLACE:

PERTH

REASONS FOR JUDGMENT

Introduction

  1. Allyson Jane Rhodes, a schoolteacher, entered into a superannuation plan with the FAI Life group in 1994.  In 1999 she decided to transfer her benefit into another superannuation policy as she had three such policies and regarded the level of their fees as uneconomic.  Her account with the FAI Plan had a balance of approximately $29,000 at the time.  She was told however that there would be an exit fee in excess of $13,000 which would be retained by the insurer if she were to transfer the benefit.

  2. Eventually Ms Rhodes lodged a complaint with the Superannuation Complaints Tribunal (‘the Tribunal’).  The complaint was made on various grounds relating to the bases upon which she was induced to enter into the FAI superannuation plan and the level of exit fee.  Ultimately the Tribunal affirmed what it described as the Trustee’s decision, holding that the exit fee was equitable.  She then appealed to this Court against the Tribunal’s decision on the basis that there was no evidence to support its finding that the exit fee was equitable.  Counsel for the Trustee, however, took a threshold point that there was no relevant decision by the Trustee which could be reviewed by the Tribunal as the exit fee was required to be deducted under the terms of the policy and the Rules comprising the Trust Deed.

  3. For the reasons that follow, I am satisfied that that threshold point is correct and fatal to the applicant’s appeal.

    Factual Background

  4. Allyson Jane…

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Details
Case
[2004] FCA 510
Decision Date

CaseChat Overview and Summary

Rhodes v Tower Superannuation Fund was an appeal heard by the Federal Court of Australia. The appellant, Allyson Jane Rhodes, sought to challenge the decision of the Australian Prudential Regulation Authority (APRA) Superannuation Complaints Tribunal, which upheld the decision of the respondent, Tower Australian Superannuation Limited, to charge an exit fee to Ms Rhodes upon her early termination of a superannuation plan. The primary issue before the court was whether the exit fee imposed by the respondent constituted a penalty under the law, and if so, whether it was void and unenforceable.

The court considered the nature of the exit fee, its calculation, and the circumstances under which it was imposed. The Tribunal had found that the fee was in accordance with the terms and conditions of the policy and the relevant trust deeds. Ms Rhodes argued that the fee was a penalty and should be void, as it was not justified and the respondent had failed to provide evidence of the true loss incurred from early termination or proper justification for the fee formula. The court needed to decide whether the Tribunal's finding on the validity of the exit fee was correct and whether the appeal should be dismissed.

The court held that the Tribunal's decision was well-reasoned and supported by the evidence. It found that the Tribunal had properly considered the arguments presented by both parties and had reached a conclusion that was consistent with the applicable law. The court was satisfied that the threshold point regarding the validity of the exit fee was correctly decided by the Tribunal and was fatal to Ms Rhodes' appeal. The court dismissed the appeal and ordered the parties to file and serve written submissions on the costs of the proceedings within 14 days.

Orders

Orders of the court

1. The appeal be dismissed.

2. The parties to file and serve written submissions as to the costs of the proceedings within 14 days.

Background

Background to the litigation

For the reasons that follow, I am satisfied that that threshold point is correct and fatal to the applicant’s appeal.Factual Background Allyson Jane Rhodes was born on 10 November 1959. She lives at Serpentine in Western Australia. On 1 September 1994, she applied for membership of a superannuation plan under which FAI Australian Superannuation Limited was the Trustee of the relevant fund. FAI Life Insurance Society Limited was the fund manager under the plan. Both companies were part of the FAI Life group. At the time she joined the plan her annual salary as a teacher was $29,000. She committed to monthly contributions of $500. The class of plan which she joined involved a fund which was called a ‘performance fund’. It was called the FAI Superannuation Fund. A Customer Information Brochure current in 1994 described the FAI Life Personal Superannuation Plan as:‘… a regular contribution plan which may return less than the premiums paid if you terminate the plan during the early years.’The plan essentially comprised a policy taken out by the Trustee in favour of Ms Rhodes and held on trust for her by the Trustee. It provided no contribution charge, no policy fee and no entry fee. However, according to the Customer Information Brochure: ‘An exit fee applies to your account balance in respect of:- -Regular contributions cashed in prior to attaining the Target Account Balance; and -Additional contributions (such as transfers or casual deposits), cashed in within 5 years of investment.’According to the Customer Information Brochure after taking out a policy and receiving policy schedules from FAI Life, the member would have fourteen days to check that the policy met her needs. Within that period the policy could be cancelled by contacting FAI Life in writing and all of the money paid would be returned. Ms Rhodes commenced making contributions under the plan and as at 30 June 1999 her account had a balance of approximately $29,226. In 1999 she decided she wanted to amalgamate three superannuation policies and contacted FAI Life to inquire about transferring her benefit. She was told that if her account were closed and rolled to another fund on 30 June 1999 the payout figure to which she was entitled would have been approximately $16,000. This meant that some $13,226 would be retained by the insurer. Ms Rhodes wrote to the Complaints Manager at FAI Life on 23 August 1999. She said she had decided to amalgamate her three superannuation policies as each was being eaten away by fees. She complained that certain information had not been disclosed to her prior to becoming a member of the Fund. One of these matters was the level of exit fees. She complained that she had not been told that she could lose half her superannuation as a fee based upon a formula that a lay person would not understand. Companies in the Tower Life group succeeded FAI Life as Trustee and Insurer. There was no dispute that the new Trustee and Insurer had taken over the rights and liabilities of their predecessors in FAI Life. Tower Australian Superannuation Limited succeeded FAI Australian Superannuation Ltd as the Trustee. It acknowledged Ms Rhodes’ letter on 1 October 1999 and responded substantively to it on 22 November 1999. It pointed out that the current exit fee only applied if she were to roll over her investment at that time. The fee was not an ongoing charge against the policy as it had no effect on the growth of the account balance. The exit fee, it said, did not represent a loss against the value of Ms Rhodes’ investment as the value of the investment at any time was the current account balance. Although the formula for calculation of the exit fee was complicated they believed the effect of ‘this penalty’ was clearly demonstrated in the Illustrative Retirement Benefit Projection set out at p 4 of the Policy Information Statement.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

FRENCH J (dissent)
The Tribunal subsequently organised a conciliation conference. This was unsuccessful. The Tribunal then reviewed the complaint on the papers under s 23 of the Superannuation (Resolution of Complaints) Act 1993 (Cth). The initial review meeting, held on 28 June 2002, was adjourned to seek clarification from the Trustee of the Fund regarding the governing rules of the Fund and the issue of exit fees. There was a further exchange of correspondence between the Tribunal and Ms Rhodes. The Tribunal again wrote to the Trustee on 9 October 2002 seeking further details on exit costs. The Trustee responded on 29 October 2002. On 26 March 2003, the Tribunal affirmed the Trustee’s decisions. The Tribunal’s Reasons for Decision It is sufficient for present purposes to refer only to those parts of the Tribunal’s reasons for decision which relate to the matter of the exit fee. The Tribunal found that Ms Rhodes had set up a personal superannuation plan through her agent on 6 September 1994 and that following its inception her employer made regular monthly contributions of $500 so that at 30 June 1999 the account had a balance of $29,226. It also found that if the account were closed and rolled over to another fund on 30 June 1999 the payout figure would be approximately $16,000. The Tribunal referred to Ms Rhodes’ allegations which included a contention that she was not properly advised about the extent of the exit fees. The Tribunal noted that the Trust Deed which applied on the date when Ms Rhodes joined the Fund was a Deed amended to 6 June 1994. The Trustee advised the Tribunal that it had not been able to find a copy of that Deed. The Trustee also advised that an undated consolidated deed was prepared after an amendment dated 10 May 2000. The Tribunal then referred to relevant provisions of the consolidated deed. In relation to the exit fee the Tribunal referred to submissions made on behalf of Ms Rhodes which included the following: ‘The allegation that the exit fee is a penalty was fairly raised as an issue on the 9th August 2001. For [the Trustee] to properly meet that allegation it was necessary for [the Trustee] to either adduce evidence of its true loss arising out of any earlier exit or justify its formula. …[The Trustee] has elected to justify the formula. However its attempt to justify the formula in its letter dated the 9th August is circular and ought to be rejected by the Tribunal. In the absence of evidence as to its true loss or a proper justification for the exit formula the Tribunal, in the complainant’s submission should make a finding that the exit fee is void because it is a penalty. The consequence of that finding is that the complainant should be permitted to exit the fund without any exit fee.’ The Trustee’s submission on the exit fee was to the effect that the policy value on early termination of the contract was in accordance with terms and conditions agreed on commencement and the relevant trust deeds. In response, Ms Rhodes put to the Tribunal that the fact that the exit fee was calculated in accordance with the policy was irrelevant. The question was whether it constituted a penalty. The Trustee had produced no evidence that the fees were reasonable. In a further submission made on behalf of Ms Rhodes it was said that the Trustee had not put into evidence Actuarial Standard 4.01 upon which it evidently relied nor any of the costs relating to the policy such as commission and administration costs.

Ratio Decidendi

Legal Principle Established

Established by:

Full text does not contain this section.