Shimshon v MLC Nominees Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2021 0027

DAVID SHIMSHON	Applicant
v
MLC NOMINEES PTY LTD (ACN 002 814 959)	First Respondent
and
NULIS NOMINEES (AUSTRALIA) LTD (ACN 008 515 633)	Second Respondent

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JUDGES:	SIFRIS, WALKER and WHELAN JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	27 September 2021
DATE OF JUDGMENT:	20 December 2021
MEDIUM NEUTRAL CITATION:	[2021] VSCA 363
JUDGMENT APPEALED FROM:	[2020] VSC 640 (John Dixon J)

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PRACTICE AND PROCEDURE – Group proceeding under Part 4A Supreme Court Act 1986 – Determination of preliminary question – Whether proceeding concerns property subject to a trust and is thereby excluded from Part 4A by s 33B(2)(b)(ii) (‘the exclusionary provision’).

STATUTORY CONSTRUCTION – Whether the word ‘concerning’ in the exclusionary provision should be given a narrow or broad construction – Construction of beneficial legislation – Narrow construction adopted – Exclusionary provision applies to proceedings about property subject to a trust – Young v Murphy [1996] 1 VR 279, Occidental Life Insurance Co of Australia Ltd v Bank of Melbourne (1993) 7 ANZ Ins Cas 61–201, discussed.

SUPERANNUATION – Trustees – Superannuation fund – Proceeding against trustees alleging breaches of general law and statutory duties under the Superannuation Industry (Supervision) Act 1993 (Cth) – Proceeding not about property subject to a trust – Exclusionary provision not applicable – Proceeding properly commenced as a group proceeding under Part 4A.

SUPERANNUATION – Nature of member’s interest in superannuation fund prior to entitlement to a benefit – Member has equitable proprietary interest in the fund but no proprietary interest in specific assets – Interest best described as ‘prospective’ rather than ‘contingent’ – Nature and extent of available remedies for breach of duty by trustee – Finch v Telstra Super Pty Ltd (2010) 242 CLR 254, Commonwealth Bank Officers Superannuation Corporation Pty Ltd v Beck [2016] NSWCA 218, Caboche v Ramsay (1993) 119 ALR 215, Commonwealth v Cornwell (2007) 229 CLR 519, Re Coram; Ex parte Official Trustee in Bankruptcy v Inglis (1992) 36 FCR 250, Permanent Trustee Australia Ltd v Perpetual Trustee Co Ltd (1994) 15 ACSR 722, TargetHoldings Ltdv Redferns (a firm) [1996] AC 421, Benson v Cook (2001) 114 FCR 542, considered.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr J T Gleeson SC with Mr N J Owens SC, Ms M Szydzik and Ms S Chordia	Maurice Blackburn
For the Respondent	Mr M J Darke SC with Ms K E Foley	Allens

TABLE OF CONTENTS

SIFRIS and WALKER JJA

Introduction

1

Explaining the relationship between this judgment and that of Whelan JA

7

The statutory landscape for superannuation

8

Understanding proposed grounds 1(a) and 2 of the appeal as argued

10

Proposed ground 1(a): do the beneficiaries have individual claims against the trustees?

11

Submissions on proposed ground 1(a)

11

Analysis of proposed ground 1(a)

14

Proposed ground 2: the significance of the appropriate remedy

19

Submissions on proposed ground 2

19

Analysis of proposed ground 2

20

Proposed ground 1(b): the claim under s 55(3) of the SIS Act

21

The judge’s reasons concerning s 55(3)

22

Submissions on s 55(3)

23

Analysis of the s 55(3) claim

23

The correct application of s 33B(2)(b)(ii)

27

Conclusion

28

WHELAN JA

The pleaded claim

30

The judge’s reasons

34

Understanding the reference to Young v Murphy and the basis of the judge’s decision

43

Proposed grounds of appeal and the notice of contention

48

‘Concerning … property subject to a trust’ — broad or narrow interpretation — the notice of contention

50

Submissions

50

Analysis

52

Proposed grounds 1 and 2

56

The issues as argued

56

Submissions

57

Analysis

58

Beneficiaries’ superannuation entitlements and the remedies available

63

Contingent or prospective interest — provisions of the trust deeds

73

Clarifications and qualifications

77

Conclusions

78

SIFRIS JA
WALKER JA:

Introduction

We have had the benefit of reading in draft the reasons for judgment of Whelan JA. We agree with his Honour that leave to appeal should be granted and the appeal should be allowed. We also agree with his Honour that the notice of contention should be dismissed, for the reasons he gives. Paragraph [17] below sets out the extent to which we agree with his Honour’s findings and observations. However, in some respects our reasons differ, and so we will state our own reasons for allowing the appeal.

As Whelan JA explains, the applicant’s allegation is that, as a consequence of the respondents’ breach of their duties as trustee of the relevant superannuation fund, additional fees and commissions were charged to the account of the members of those funds, thereby directly reducing the amount recorded in each member’s account and also causing a consequent reduction in investment returns. This is said to have resulted in a reduction in the amount which the members received or could expect to receive upon the occurrence of an event permitting them to receive payments from the fund. As explained further below, it also resulted in the members having, prior to such a payment, an incorrect account balance. The claim is one by a beneficiary, on behalf of a group of beneficiaries, alleging breach of duty by a trustee resulting in consequential losses to the members of the group.

The applicant seeks the following remedies[1] for the alleged breaches:
[1]The relief, as reformulated is set out by Whelan JA at [98] below. The relief includes restitution of the account balances of the beneficiaries.

(a) declarations that the first respondent (‘MLC’) and/or the second respondent (‘NULIS’) contravened the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SIS Act’);

(b) declarations that MLC and/or NULIS breached their duties at general law;

(c) an order for the payment of compensation by MLC and/or NULIS to the beneficiaries pursuant to s 55(3) of the SIS Act;

(d) in the alternative to (c), an order for the payment of equitable compensation by MLC and/or NULIS to the beneficiaries;

(e) in the alternative to (c) and (d), an order that MLC and/or NULIS pay compensation for the general law breaches by restoring the MLC Super Fund.

The critical issue is whether this proceeding is ‘a proceeding … concerning property subject to a trust’ within the meaning of s 33B(2)(b)(ii) of the Supreme Court Act 1986. If it is, it cannot continue as a group proceeding under Part 4A of the Supreme Court Act, because such proceedings are excluded from Part 4A by s 33B(2)(b)(ii).

The trial judge held that the proceeding is of that kind. Thus he found that the proceeding had not been validly commenced as a group proceeding under Part 4A. We agree with Whelan JA[2] that his Honour’s reasons for so concluding were based on two interrelated reasons:

(f) The first reason was because the judge considered that the claims made, properly analysed, were claims ‘to enforce causes of action to restore trust property diminished through breaches of duty by the trustee’. Given that, his Honour said, it could not ‘sensibly be contended’ that a claim for equitable compensation or restoration of the funds would not ‘flow from causes of action that are about trust property’.[3] That is, his Honour focused on the nature of the appropriate relief, should breach be made out.

(g) The second reason was that the judge held that the claims could not be about the individual entitlements of the beneficiaries because, in the relevant sense, ‘there are none’.[4] That was because the applicant did not have a present entitlement to an interest in either of the funds.[5] That is, his Honour focused on the nature of the members’ interests in the superannuation funds of which they were beneficiaries.

[2]See [152] below.

[3]Shimshon v MLC Nominees Pty Ltd [2020] VSC 640, [124] (‘Reasons’).

[4]Ibid [125].

[5]Ibid.

The applicant now seeks leave to appeal. He advanced three proposed grounds of appeal. It appears to us that proposed ground 1, properly understood, encompasses two distinct grounds. We have thus divided proposed ground 1 into ground 1(a) and ground 1(b). The proposed grounds, so divided, are as follows:

Ground 1(a)
The primary judge erred in finding that members of the fund had not suffered ‘loss or damage’ under general law, such that those members did not have a general law cause of action against the trustee.
Ground 1(b)
The primary judge erred in finding that members of the fund had not suffered ‘loss or damage’ under s 55(3) of the SIS Act, such that those members did not have a statutory cause of action against the trustee.
Ground 2
The primary judge erred in holding that the chose in action for breach of trust must belong to the trustee to the exclusion of the beneficiaries where the remedy on successful prosecution involves any element of restoration of the trust property; whereas, having regard to the terms of the relevant trust deed and the applicable regulatory framework, the appropriate remedies under statute or at general law include:
(a)restitution by the defaulting trustee of the account balances of beneficiaries in the fund to the position they ought to have been in but for the breach of trust, and the consequential reinstatement of the corpus of the trust to meet those account balances as at the date of judgment; and
(b)compensation in an amount that would have put the account balances of former beneficiaries of the fund, as at the time those beneficiaries left the fund, in the position they would have been in but for the breach of trust.
Ground 3

The primary judge erred making findings that the [applicant] was a member whose interest remains contingent upon the occurrence of a future event and who cannot allege a present entitlement to an interest in a relevant superannuation fund.

The respondents filed a notice of contention, by which they sought to uphold the judge’s orders on the basis that his Honour erred in adopting a narrow construction of s 33B(2)(b)(ii), and that he should have adopted a broader construction.

As indicated above, we would grant leave to appeal and allow the appeal. In summary, our reasons are as follows.

We commence with the notice of contention, as it logically arises first. We reject the proposition that the judge erred in adopting a narrow construction of s 33B(2)(b)(ii), for the reasons given by Whelan JA. The judge was correct to conclude that s 33B(2)(b)(ii) is directed to proceedings that are ‘about’ property that is subject to a trust. That requires that such property is the direct subject matter of the proceeding; it is not sufficient that the proceeding incidentally touches or concerns such property.

As to the proposed grounds of appeal, proposed ground 1(a), as argued, was directed to the judge’s conclusion that the beneficiaries of the funds had only a contingent interest in the funds, and proposed ground 2, as argued, was directed to the related proposition that the claims made in the proceeding were causes of action directed to the restoration of trust property. So understood, we consider that proposed grounds 1(a) and 2 are made out. The judge erred in his characterisation of the beneficiaries’ interests as ‘contingent’, such that they had no entitlement to bring a claim, and in focusing on the remedy that, in his view, would ultimately be appropriate if a breach was made out.

Further, it is important to observe at the outset that the question for the judge was not whether the applicant’s pleaded claim would succeed. That is a question for trial. Rather, the question was whether the claim as pleaded was such that the proceeding is properly described as one ‘concerning property subject to a trust’ — or, to put it in the terms discussed above, whether it was a proceeding ‘about trust property’. In our view, the judge erred in embarking upon a consideration of the merits of the claims made by the applicant. The separate question was directed to the nature of the proceeding. That required attention to the matters pleaded in the amended statement of claim and an assessment of whether the claim, as pleaded, was a proceeding of the relevant kind. It was not appropriate for the judge to determine whether the applicant had a sufficient interest to bring the claim, or the remedy that might be granted if the claim succeeded, in order to determine the character of the proceeding.

Having discerned error in the judge’s reasons, the critical question is whether the proceeding is one to which s 33B(2)(b)(ii) applies. We have concluded that it is not, for the reasons given by Whelan JA. As his Honour explains, this is a proceeding seeking statutory and equitable compensation payable to individual beneficiaries for breach of statutory and general law duties by a trustee. A proceeding of that kind is not a proceeding ‘concerning … property subject to a trust’. It is not ‘about’ such property, it is ‘about’ whether the trustee breached its general law and statutory duties to the beneficiaries. The fact that an alternative remedy, of restoration of the trust property, is sought does not convert the proceeding into one concerning property subject to a trust.[6]
[6]For completeness, we note that, if the inclusion of that alternative remedy did have that effect, the applicant could avoid the operation of s 33B(2)(b)(ii) by amending his statement of claim to remove that remedy.

In short, the members are making a personal claim (which may or may not succeed at trial). They are entitled to make the claims they have pleaded, and those claims are not about property subject to a trust. As the authorities referred to by Whelan JA demonstrate sufficiently for present purposes, members have an equitable proprietary interest in the funds. They have a present entitlement to the future enjoyment of their allocation of the funds. Further, as Whelan JA points out, their interest is best described as prospective rather than contingent. This interest is sufficient to enable the members to hold the trustee to account; to ensure that the fund is operating according to statutory, regulatory and legal requirements; and to ensure that the covenants in the trust deed are being complied with. That a member has such standing is not and cannot be in dispute. The availability of relief, and the nature of such relief, is of course another matter. The claims as pleaded are a proper and entirely permissible manifestation of the members’ rights. The claims are not about property subject to a trust.

The nature, extent and characterisation of any loss suffered by the members as a consequence of breach, should breach be established, and the appropriate remedy, are matters for trial and do not control the proper characterisation of the claim. Nonetheless, it is appropriate to observe that the members are clearly prejudiced by the alleged breaches and the consequential impairment of their beneficial interest. Their account balances in the fund are incorrect. The trustee is obliged to maintain correct balances. The correct balance is important in relation to tax, family law and financial planning matters. It is also relevant for other purposes, such as transferring or rolling over to another fund, or giving the trustee directions as to alternative investment options. This prejudice is, in our opinion, sufficient to give the applicant standing so far as the pleaded claims are concerned. That is, prior to the ultimate payment from the fund, a fund member has rights and is entitled to protect and vindicate those rights.

In light of the above, it is not strictly necessary to determine ground 1(b), concerning whether the beneficiaries suffered loss or damage for the purposes of s 55(3) of the SIS Act. Nonetheless, given the significance of s 55(3) for the proceeding, it is appropriate to explain why we consider that the judge erred in relation to that provision.

Nor is it necessary to determine proposed ground 3, for the reasons given by Whelan JA.[7] We adopt his Honour’s remarks to the effect that the findings made by the judge will not give rise to any issue estoppel at trial in relation to the matters raised by proposed ground 3.
[7]See [210] below.

Explaining the relationship between this judgment and that of Whelan JA

As noted above, we have agreed with Whelan JA’s overall conclusion, and with some of the reasons his Honour has given in reaching that conclusion. It is appropriate for us to set out precisely those aspects of his Honour’s judgment that we are adopting:

(h) First, we adopt Whelan JA’s summary of the pleading.[8]
[8]See [82]–[100] below.

(i) Second, we adopt Whelan JA’s summary of the judge’s reasons[9] and his Honour’s analysis of the judge’s reliance on Young v Murphy.[10]
[9]See [101]–[133] below.
[10][1996] 1 VR 279. See [134]–[151] below.

(j) Third, we agree with Whelan JA that the judge rejected the applicant’s characterisation of the general law claims for two inter-related reasons, as described at [5] above.[11]
[11]See [152] below.

(k) Fourth, we adopt Whelan JA’s reasons for rejecting the notice of contention.[12]
[12]See [169]–[182] below.

(l) Fifth, we adopt Whelan JA’s summary of the case law relevant to the nature of the interest a beneficiary has in a superannuation fund of which they are a member,[13] although we will add some additional observations concerning the case law.
[13]See [212]–[250] below.

(m) Sixth, we adopt Whelan JA’s conclusion that the entitlement of a member of a superannuation fund prior to the occurrence of a prescribed event is properly characterised as ‘prospective’, rather than ‘contingent’.[14]
[14]See [253] and [263] below.

(n) Seventh, we adopt Whelan JA’s four clarifications of and qualifications to the reasons of the judge.[15]

(o) Eighth, we adopt Whelan JA’s reasons for concluding that the present proceeding is not a proceeding ‘concerning property subject to a trust’, and that it thus falls outside s 33B(2)(b)(ii).[16]

(p) Ninth, we adopt Whelan JA’s reasons in relation to proposed ground 3.[17]

[15]See [264] below.

[16]See [191]–[208] below.

[17]See [210] below.

The statutory landscape for superannuation

While it is not necessary to set out in detail the provisions of the legislative regimes that govern superannuation in Australia, it is of some assistance to provide an overview of the way in which superannuation is regulated.

There are three key legislative instruments:

(q) the Superannuation Guarantee Charge Act 1992 (Cth) and the Superannuation Guarantee (Administration) Act 1992 (Cth) (collectively, the ‘Superannuation Guarantee Scheme’), which provide Australian employees with a guarantee of minimum superannuation contributions by employers;[18]

(r) the SIS Act, which provides for superannuation contributions (including those made by employers) to be deposited into complying superannuation funds or retirement savings accounts; and

(s) the Superannuation Industry (Supervision) Regulations 1994 (Cth) (the ‘SIS Regulations’) which provide standards that set out how superannuation benefits should be maintained, protected, paid and transferred (the ‘Prescribed Operating Standards’).

[18]In short, the Superannuation Guarantee Scheme establishes a guarantee of superannuation benefits by way of a ‘charge’ payable by employers. Under the scheme, employers who fail to provide the minimum required percentage of support incur a charge equivalent to prescribed amount which the employer failed to pay: Superannuation Guarantee (Administration) Act ss 16 and 19. In effect, if an employer pays the required amount of superannuation to a retirement savings account or complying superannuation fund by the 28^th day following the end of each quarter, no charge will be payable: Superannuation Guarantee (Administration) Act s 23.

It is appropriate in the present context to say more about the Prescribed Operating Standards found in the SIS Regulations. Section 31 of the SIS Act provides for the regulations to prescribe standards applicable to the operation of regulated superannuation funds. Under s 34(1) of the SIS Act, a trustee of a superannuation entity must ensure that the prescribed standards applicable to the operation of the entity are complied with at all times. Failure to comply with a prescribed standard is an offence under s 34(2).

The following aspects of the Prescribed Operating Standards are relevant for present purposes:

(t) Trustees of all regulated superannuation funds are required to allocate a contribution to a member of the fund within 28 days after the end of the month in which the contribution is received or, if it is not reasonably practicable to do so, within such longer period as is reasonable in the circumstances (reg 7.08(2)).[19]
[19]This is subject to certain discrete objections not presently relevant: see regs 7.08(1)(b)–(c).

(u) A trustee of a regulated superannuation fund must maintain minimum benefits for the benefit of fund members and ensure that the members’ minimum benefits are kept in the fund until they are cashed, rolled over or transferred in accordance with the SIS Regulations (reg 5.08).[20] A member’s minimum benefits in an accumulation fund are all of the member’s benefits in the fund (reg 5.04(2)).
[20]This is subject to certain discrete objections not presently relevant: see regs 5.08(1A)–(3).

(v) A beneficiary’s right or claim to accrued benefits, and the amount of those accrued benefits, must not be altered adversely to the beneficiary by amendment of the governing rules or by any other act carried out, or consented to, by the trustee of the fund (reg 13.16(1)).[21]
[21]This is subject to certain discrete objections not presently relevant: see reg 13.16(2).

(w) The trustee of an accumulation fund that maintains reserves is required to determine the investment return to be credited or debited from time to time to a member’s benefit (or benefits of a particular kind) in the fund, having regard to certain specified factors (regs 5.01A and 5.03(1)). A trustee is also required to determine the investment return to be credited or debited in a way that is fair and reasonable between all the members of the fund and the various kinds of benefits of each member of the fund (reg 5.03(2)).

(x) A trustee must only pay a member’s benefits in a fund in accordance with the cashing rules set out in div 6.3 or in accordance with the rules relating to transfer, rollover or allotment set out in div 6.4 of the SIS Regulations (reg 6.17(2)(b)).

(y) A member’s benefits in a regulated superannuation fund comprise of either preserved benefits, restricted non-preserved benefits or unrestricted non-preserved benefits. The distinguishing feature of preserved benefits (and restricted non-preserved benefits) is that the benefits may only be accessed (‘cashed’) if a condition of release has been satisfied (regs 6.18(1) and 6.19(1)). The conditions of release are specified in sch 1 to the SIS Regulations, with restrictions attaching to some conditions. Examples of a condition of release are a superannuation member reaching the age of 65, becoming permanently incapacitated or suffering severe financial hardship.[22]

(z) Where a member satisfies a condition of release with no cashing restrictions, the member’s preserved benefits or restricted non-preserved benefits cease to be preserved benefits and become unrestricted non-preserved benefits (reg 6.12). Unrestricted non-preserved benefits may be cashed at any time (reg 6.20(1)).

(aa) If a member of a regulated superannuation fund makes a request to the trustee in writing to roll over or transfer an amount that is the whole or part of the member’s withdrawal benefit, the trustee must roll over or transfer the amount in accordance with the request (regs 6.33 and 6.34(2)).[23]

[22]SIS Regulations sch 1 pt 2 items 201, 203 and 206.

[23]This is subject to certain discrete objections not presently relevant: see regs 6.35 and 6.38.

Understanding proposed grounds 1(a) and 2 of the appeal as argued

Whelan JA observes that, on their face, proposed grounds 1 and 2 (as originally formulated) are each founded on a premise that the judge found that a chose in action exclusively belongs to the trustee where the remedy will be part of the trust corpus or, in other words, where the remedy is restoration of the trust fund.[24] While there are passages of the judge’s reasons that support such a reading of his Honour’s judgment, we agree with Whelan JA that this does not accurately reflect the judge’s reasons, read as a whole.
[24]See [184] below.

However, proposed grounds 1(a) and 2, as argued, can be understood to address the two related aspects of his Honour’s reasoning identified at [5] above, in support of his conclusion that the proceeding was one concerning property subject to a trust, namely:

(bb) that the beneficiaries did not have individual or personal claims, to which proposed ground 1(a) is directed; and

(cc) that the appropriate remedy was restoration of the trust property, to which proposed ground 2 is directed.

Proposed ground 1(a): do the beneficiaries have individual claims against the trustees?
Submissions on proposed ground 1(a)

The applicant submitted that by the operation of the terms of the trust deed, the SIS Act and the SIS Regulations (including the Prescribed Operating Standards), all beneficiaries have a subsisting set of rights attaching to their beneficial interest in the superannuation fund, and a commensurate claim against the trustee to have the fund administered in accordance with those rights. It followed, he submitted, that:

(dd) first, a failure by the trustee to administer the trust in accordance with the beneficiary’s rights constitutes a breach of trust in respect of which the beneficiary has standing to bring a claim against the trustee; and

(ee) secondly, where the trustee’s breach of trust deprives an affected beneficiary of the set of rights that would otherwise attach to its beneficial interest in the fund, the beneficiary suffers loss and damage at the time of the breach.

The applicant accepted that a beneficiary was not entitled to claim any right to any particular asset of the fund, but submitted that nonetheless each member had the right to direct the trustee to invest all or part of the member’s account into one or more investment options for the sole benefit and at the sole risk of the member. Any income, gains, losses or expenses incurred in respect of that investment option were required to be attributed to the member. Net earnings were also required to be determined and allocated to member accounts, or otherwise dealt with in accordance with the trust deed. A member’s ‘benefit’ was equal to the balance of all accounts maintained for the member. The trustee was also required to transfer the ‘benefit entitlement’ of a beneficiary to another superannuation entity or the regulator in certain circumstances, including by rolling over, transferring or allotting the beneficiary’s interest to another fund.[25]
[25]See SIS Regulations divs 6.4, 6.5, 6.7 and 7A.

The applicant submitted that these matters demonstrated that it was a mandatory requirement for the trustee to maintain an account for each beneficiary of the fund, and to be in a position to calculate the value of that account at each and every point in the life of the trust. In that sense, he submitted, an account was far more than a mere ‘accounting allocation’.[26] Rather, a beneficiary had a series of specific rights in relation to his or her beneficial interest in the fund, including the right to:
[26]Contrast Reasons [134].

(ff) direct the trustee to invest all or part of their account into investment options for the sole benefit and at the sole risk of the beneficiary;

(gg) require the trustee to determine net earnings, the manner in which net earnings were to be allocated to accounts, and the timing of such allocations;

(hh) require the trustee to allocate net earnings to the beneficiary’s account in accordance with the above determinations or otherwise deal with them in accordance with The Universal Super Scheme (‘TUSS’) trust deed; and

(ii) elect to rollover, transfer or allot their interest (and therefore the value of their account) in the fund in accordance with the relevant statutory regimes.

The applicant contended that, if he established breach, then he and the other beneficiaries suffered loss or damage from the date of the breach and that such loss or damage was quantified by the effect of the breach on the value of the member’s account in the relevant fund.

In light of these matters, the applicant submitted the judge was wrong to hold that the beneficiaries had no proprietary interest in the superannuation fund and was wrong to characterise their interest as ‘contingent’ or as a ‘mere expectancy’. He submitted that the beneficiaries’ interest in the superannuation fund was ‘vested in interest but not yet vested in possession’.

In contrast, the respondents contended that the judge was correct to find that the applicant and group members had only contingent interests and no present right to an identifiable portion of the funds. They submitted that a right to payment of a superannuation benefit does not arise until:

(jj) the retirement of the member;

(kk) the member becomes totally and permanently disabled;

(ll) if the member is insured under a policy against temporary disablement, a benefit is paid under that policy to the trustee because the member is temporarily disabled;

(mm) death; or

(nn) when the trustee is required to make the payment by the relevant superannuation legislation and regulations.

Further, they submitted, depending on which of these contingency events occurs, the right to payment could crystallise into one of a number of different forms, such as:

(oo) the benefit being paid as one or more lump sums or one or more income streams;

(pp) a transfer of assets to or for the benefit of the relevant beneficiary; or

(qq) the payment by an insurer of the benefit.

Thus, the respondents said, ‘far from being a right vested in interest, a member’s right to enjoy payment of a superannuation benefit in this case is — like that considered by the High Court in [Macoun v Commissioner of Taxation[27]] — “at best an inchoate right in process of accrual but subject to a variety of contingencies”’.
[27](2015) 257 CLR 519, 535–6 [55] (French CJ, Bell, Gageler, Nettle and Gordon JJ); [2015] HCA 44 (‘Macoun’).

The respondents contended that, once it is accepted that a member’s interest is contingent, rather than vested, it follows that the member cannot have suffered any individual loss or damage. That is because, it was said, ‘a plaintiff cannot sustain actual loss or damage to an interest that is only contingent, and the mere risk of loss or prospective or even likely loss or damage do not themselves constitute loss or damage’.[28]
[28]Emphasis in original.

Analysis of proposed ground 1(a)

As noted at [23] above, proposed ground 1(a), as argued, is directed to the judge’s conclusion that the beneficiaries do not have individual or personal claims in relation to the superannuation funds of which they are or were members. That conclusion appears most clearly in the following passages in the judge’s reasons:

The relief sought in the proceeding cannot be about the individual entitlements of the beneficiaries, because there are none that can be or have been alleged. That is because the terms of the governing rules under which a member may become entitled to a payment have not yet been satisfied…
…
I agree with the defendants’ submission that what consistently emerges from these authorities is the emphasis on a fund member’s interest being contingent upon particular events occurring in the future, such that the fund member otherwise has no present or immediate right to payment. A fund member, on the basis of the analysis preferred in the cases, cannot be said — prior to the occurrence of a contingency event — to have an interest in an identifiable portion of the superannuation fund.
A member’s account is an accounting allocation of that member’s entitlement to a share of the trust assets in accordance with the governing rules. It is an expression of a legitimate expectation to an interest in trust property…
The absence of attachment of any rights in equity to specifically identifiable parts of the corpus of the fund is significant. The causes of action against the trustee affect the value of the corpus of trust assets available to be notionally allocated to the member’s account. It is only through the diminution of the corpus of the fund by the breaches of duty alleged that the calculation of the individual member’s entitlement is affected, because the allocations to member’s accounts is formulaic. There is no other direct causal relationship alleged between the proper quantum of the plaintiff’s member account and the trustee’s breaches of duty.[29]

[29]Reasons [125], [133]–[135].

The authorities to which his Honour referred in the second quoted paragraph above are Re Coram; Ex parte Official Trustee in Bankruptcy v Inglis,[30] Caboche v Ramsay,[31] Finch v Telstra Super Pty Ltd,[32] Commonwealth Bank Officers Superannuation Corporation Pty Ltd v Beck[33] and Macoun. However, in our view, two of those authorities — Macoun and Beck — are of limited relevance to the present case. Macoun did not concern a trust. And Beck was of limited relevance because, although it concerned a superannuation fund, it concerned a discretionary benefit under such a fund, not the basic entitlement of a member of a fund to payment upon the occurrence of a prescribed event and prior to payment the right to have the correct account balance properly recorded and reflected. Indeed, we consider that to the extent that it is relevant, Beck supports the applicant, rather than the respondents.[34] As to the other cases, in Coram the interest of a member of a superannuation fund was described as ‘inchoate’ (rather than contingent); and in Caboche Gummow J described such an interest as an ‘equitable proprietary interest in the fund, albeit one which did not carry an immediate right to payment’, and used the term ‘conditional’, rather than ‘contingent’.[35] Finally, Finch, which we deal with further below, supports the applicant, rather than the respondents.
[30](1992) 36 FCR 250 (‘Coram’).
[31](1993) 119 ALR 215 (‘Caboche’).
[32](2010) 242 CLR 254; [2010] HCA 36 (‘Finch’).
[33][2016] NSWCA 218 (‘Beck’).
[34]See, eg, Beck [2016] NSWCA 218, [89]–[91] (Bathurst CJ, Macafarlan JA agreeing at [189]).
[35]Caboche (1993) 119 ALR 215, 230.

For the reasons Whelan JA gives,[36] we consider that the interest of a member of a superannuation fund is not properly characterised as contingent. It is better characterised as prospective. It is certain that there will be an entitlement, and the member cannot be deprived of it. The timing and amount of payment is conditional on future events, but its quantum can, and in certain circumstances must, be calculated from time to time and reflected in the members account balance.
[36]See [253] below.

In reaching this conclusion, we consider it is important to emphasise the particular nature of modern superannuation funds. A trustee of a superannuation fund is not to be equated to a trustee of a discretionary trust. As the High Court observed in Finch:

For some people, superannuation is their greatest asset apart from their houses; for others it is even more valuable. Different criteria might be thought to apply to the operation of a superannuation fund from those which apply to discretionary decisions made by a trustee holding a power of appointment under a non–superannuation trust. Employer superannuation is part of the remuneration of employees. Membership of the employee superannuation fund may be compulsory … Superannuation is not a matter of mere bounty, or potential enjoyment of another’s benefaction. It is something for which, in large measure, employees have exchanged value — their work and their contributions. It is ‘deferred pay’.[37]

[37](2010) 242 CLR 254, 271 [33] (French CJ, Gummow, Heydon, Crennan and Bell JJ) (emphasis added) (citations omitted); [2010] HCA 36.

As Whelan JA observes,[38] the High Court said that further factors of significance were the taxation concessions granted to superannuation, and the detailed statutory regulation which applied to superannuation funds under the SIS Act and the SIS Regulations. These factors led the Court to conclude that principles developed in other trust contexts could not be applied without qualification in the context of superannuation. The Court observed that superannuation funds are not discretionary trusts, and said that ‘a beneficiary is entitled as of right to a benefit provided the beneficiary satisfies any necessary condition of the benefit’.[39]
[38]See [246] below.
[39]Finch (2010) 242 CLR 254, 281 [66]; [2010] HCA 36.

While it is of course the case that the funds in question in the present proceeding are constituted as trusts, it is nonetheless important not to lose sight of the fact that they are trusts for superannuation, operating under a detailed statutory regime. It is for that reason that it has been said that ‘superannuation funds are different in nature from traditional trusts’,[40] as the judge acknowledged.[41] It seems to us that, having acknowledged that, his Honour did not apply that proposition to his analysis.
[40]Beck [2016] NSWCA 218, [89] (Bathurst CJ).
[41]Reasons [107].

In argument we were taken by the respondents to an extract from Cheshire’s Modern Law of Real Property, directed to the ‘law affecting future interests’ prior to 1926.[42] While that might give some historical context, in our view the general law has developed in the last 100 years to recognise the particular features of a member’s interest in his or her superannuation as a proprietary right. In particular, we consider that the interest is more than a ‘mere expectancy’[43] or a ‘legitimate expectation’. It is an equitable proprietary interest in the fund, although there is no immediate right to payment.[44] Prior to payment, the member has a right to preserve that interest and ensure that it is adequately reflected in the records of the fund and in particular the members account.
[42]GC Cheshire, Modern Law of Real Property (Butterworths, 11^th ed, 1972) 240–3.
[43]Kayler-Thomson v Colonial First State Investments Ltd [No 2] [2021] FCA 854, [66] (Colvin J).
[44]Caboche (1993) 119 ALR 215, 230 (Gummow J); Benson v Cook (2001) 114 FCR 542, 551 [20]–[21] (Beaumont J), 561 [80] (Kiefel J); [2001] FCA 1684.

Ultimately, in evaluating the nature of the members’ interests in the superannuation funds, we give greater weight to cases concerning such funds (while of course noting that it is necessary in every case to pay attention to the trust deed, and to the state of the legislative regime at the relevant time). We give considerably less weight to cases concerning discretionary trusts, or solicitors’ trust accounts.

It is necessary, however, to say something more about Commonwealth v Cornwell,[45] which Whelan JA discusses in his reasons.[46] His Honour considers that ‘Cornwell … can be said to support a general proposition that, in the case of a member who has not yet satisfied the conditions requisite for the payment of a benefit, a loss is not suffered until the entitlement to payment arises by virtue of satisfaction of the relevant condition’.[47] However, his Honour also acknowledges that Cornwell ‘concerned defined benefit funds established by statute, which may give rise to different considerations to contributory funds governed by trust deeds and the SIS Act’.[48]
[45](2007) 229 CLR 519; [2007] HCA 16 (‘Cornwell’).
[46]See [233]–[243] below.
[47]See [243] below.
[48]Ibid.

We agree with Whelan JA that there are points of distinction between Cornwell and the present case. We would add that Cornwell was a case concerning a limitation period. It was thus directed at a different issue from the present case. It concerned two defined benefit funds established by statutory regimes that pre-date the modern superannuation regime by many years. It pre-dated Finch. Moreover, Cornwell concerned a claim in negligence, not a claim of breach of trust; and the remedies sought were thus different. Ultimately, we do not need to reach a concluded view on the impact of Cornwell on the present case; and it would not be appropriate for us to do so in the absence of hearing argument from the parties on it.

In conclusion on proposed ground 1(a), for the reasons explained above, the judge erred in the manner in which he characterised the nature of the beneficiaries’ interests and the conclusion he drew from that — namely that the relief sough in the proceeding ‘cannot be about the individual entitlements of the beneficiaries’.

For completeness we also note that, in our opinion, a breach by the trustee of its obligations to the beneficiaries of a superannuation fund that results in the diminution of a beneficiary’s account, as calculated from time to time, may give rise to a cause of action resulting in appropriate consequential relief[49] by a proceeding brought by the beneficiaries prior to them becoming entitled to receive any payment from the fund.

Proposed ground 2: the significance of the appropriate remedy

[49]The relief may include declaratory relief and orders requiring the trustee to do all things necessary to reflect the correct account balances. The precise form of relief, including but not limited to compensation, is ultimately a matter for trial. Further, there may be different sub-classes of members that may require different relief.

Proposed ground 2, as argued, was directed to whether the judge erred in concluding that, where the appropriate remedy on successful prosecution of the claim involves restoration of the trust property, the claim is one ‘concerning property subject to a trust’.

Submissions on proposed ground 2

The applicant submitted that the judge was wrong to focus on the fact that ‘the remedy received for successful prosecution of the cause of action will be part of the trust corpus, legally owned by the trustee’.[50] He submitted that the relevant distinction between proceedings that fall within s 33B(2)(b)(ii) and those that fall outside it, is between proceedings against an existing trustee that concern breaches of trustee duties (where trust property is not the direct object of the chose in action), on the one hand, and proceedings concerning property subject to a trust brought by the trustee against others in the discharge of its duties, on the other hand.
[50]Reasons [57].

It was said that in the first category — proceedings for breach of trust — the chose in action properly belongs to the beneficiaries. It involves a personal claim against the trustee. In contrast, the second category concerns wrongdoing by a third party involving the rights or property of the trust. In this category, where the legal relationship between a third party and the trustee as the legal owner of the trust property is the basis for the claim (in contract or tort, for example), the proceeding would be one concerning trust property.

The applicant submitted that the nature of the remedy that may ultimately be granted for a successful prosecution ought not to be determinative of whether the exclusion applies. That is because a remedy by way of restoration of the trust property may be obtained in either category of case. It is not possible, it was said, to reason backwards from that form of relief to the conclusion that the chose in action is properly that of the trustee. The applicant submitted that the decision in Permanent Trustee Australia Ltd v Perpetual Trustee Co Ltd,[51] upon which the judge particularly relied, should be distinguished.
[51](1994) 15 ACSR 722.

In contrast, the respondents submitted that the judge had been correct in finding that the proceeding was one concerning trust property because ‘in reality, what is sought by the applicant is restoration of the corpus of the trust, of which the trustee is the legal owner and therefore has suffered the relevant loss and damage’.

Analysis of proposed ground 2

As discussed at [5] above, one of the two interrelated reasons for the judge’s conclusion was that he considered that the case was one for restoration of trust property. That is, his Honour focused on the remedy he considered available should the alleged breach be made out. This aspect of his Honour’s reasons is most clearly seen in the following passage:

There is no doubt that the general law claims made in this proceeding are claims to enforce causes of action to restore trust property diminished through breaches of duty by the trustee. It cannot be sensibly contended that any equitable compensation ordered for general law breaches, or alternatively, any orders for restoration of the MLC Super Fund, would not flow from causes of action that are about trust property, in the narrow sense discussed above. The cause of action is about the proper administration of the trust and the proper protection of the corpus of the trust fund, having regard to the breaches of trustee’s duties that are alleged.[52]

[52]Reasons [124] (emphasis added).

We agree with Whelan JA that it seems extraordinary that the issue of whether the proceeding may be instituted under Part 4A is to be determined on the basis of a remedy (restoration of the trust fund) which might eventually be granted,[53] and which is sought in the present case only as an alternative to the principal relief. We also agree with Whelan JA that the question of what relief might eventually be granted if the applicant establishes a breach of trust is a matter to be determined after trial and that such relief could potentially include orders directed at compensating individual members, rather than relief directed to restoration of the trust corpus.[54] And we agree that the position of MLC and that of NULIS will likely be different, given that the assets of the TUSS Fund were transferred by MLC to NULIS as trustee of the MLS Super Fund.[55] Restoration of the TUSS Fund would not seem to be appropriate in those circumstances.
[53]See [198] below.
[54]Ibid.
[55]See [199] below.

For those reasons, we consider that ground 2, as argued, is made out.

Proposed ground 1(b): the claim under s 55(3) of the SIS Act

Proposed ground 1(b) is directed to the statutory cause of action under s 55(3) of the SIS Act. Section 55 relevantly provides as follows:

Recovering loss or damage for contravention of covenant
Breach of covenant may result in action to recover loss or damage
(3)Subject to subsection (4A), a person who suffers loss or damage as a result of conduct of another person that was engaged in in contravention of subsection 54B(1), 54B(2) or 54C(1) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

The exception in sub-s (4A) is not presently relevant.

Proposed ground 1(b) requires consideration of whether the judge erred in finding that the members of the two funds had not suffered ‘loss or damage’ for the purposes of s 55(3) of the SIS Act, with the consequence that the members did not have a statutory cause of action against the trustee under that section.

In light of our conclusion that proposed grounds 1(a) and 2 are made out, it is not strictly necessary to determine proposed ground 1(b). Nonetheless, given the significance of s 55(3) to the proceeding, it is appropriate to explain why we consider that the judge erred in his consideration of that provision.

The judge’s reasons concerning s 55(3)[56]

[56]See Reasons [139]–[151].

In relation to this aspect of the applicant’s claim, the judge held that the applicant had not suffered loss or damage, notwithstanding that his expectation — that he may suffer loss or damage in the future — could be legitimate.[57] As a consequence, his Honour considered that the applicant could not bring a claim under s 55(3). The key passages from his Honour’s reasons are as follows:
[57]Reasons [146].

[T]he plaintiff contended that this expectation loss fell comfortably within s 55(3) of the SIS Act. Applying established statutory construction principles, I accept the defendants’ contention that the plaintiff’s submission — that ‘loss or damage’ in s 55(3) should be read more broadly than those concepts are understood at general law — cannot be correct. The text of the section, using the word ‘suffers’ rather than ‘will suffer’, does not admit of an expectation. Loss and damage does not extend to prospective loss.
To so construe s 55(3) does not deprive it of meaningful operation. Assuming breach of relevant covenants, two examples of plaintiffs who might seek compensation under s 55(3) are:
(a)a member of a superannuation fund whose interest in their member’s account has vested through the occurrence of a contingency event, but was lost or in a diminished sum, suing the trustee for compensation for the loss; and
(b)a proceeding by a new trustee against a former trustee for restoration of the loss suffered by the trust fund.

The defendants are alleged to be the persons whose conduct was in contravention of s 55(1) of the SIS Act. Accepting that contention to be capable of being proved, it does not follow that the plaintiff and group members are the persons who suffers loss or damage. What has been diminished is trust property, namely the corpus of funds, both contributed and accumulated through investment activity. The trustee is the legal owner of that trust property, and it is the trustee who suffers the loss or damage in the sense to be understood from the statutory text and context of s 55.[58]

[58]Reasons [147]–[149] (citations omitted).

The judge accordingly concluded that the causes of action under the SIS Act did not alter the result and that the proceeding was a proceeding concerning property subject to a trust.[59]
[59]Ibid [150].

Submissions on s 55(3)

The applicant contended that the judge erred in his construction of s 55(3) of the SIS Act. The applicant submitted that the provision was specifically intended to confer upon any person who has suffered ‘loss and damage’ the right to seek compensation, unconstrained by general law principles, and that ‘loss or damage’ was to be construed broadly. In contrast, the respondents contended that the judge’s construction of s 55(3) of the SIS Act was correct.

Analysis of the s 55(3) claim

In our opinion the judge erred in relying on a finding of the kind described in ground 1(b) as the basis for concluding that the s 55(3) claim was not a claim ‘concerning property subject to a trust’. The question as to whether a member of a fund can bring a claim under s 55(3) at a given time — that is, when can it be said that a member is a person who ‘suffers loss or damage’? — is quite unrelated to the separate question. The pleaded case includes claims for declaratory relief, restitution of the account balances and statutory compensation. A conclusion that the s 55(3) claim must fail because the applicant’s interest in the fund has not yet vested does not affect the nature of the claim. In our opinion, the judge was wrong to have relied upon his views about who could bring such a claim, and in what circumstances, to conclude that the s 55(3) claim was ultimately one concerning trust property. Indeed, we consider that the judge should not have embarked upon that inquiry. It was not raised by the separate question. Further, upon inquiry from his Honour’s chambers, the applicant said that this was an issue that would need to be addressed at trial.

In that sense, we consider that proposed ground 1(b) is made out.

Although it is not strictly necessary to decide whether the judge was correct in his approach to s 55(3), we consider it is appropriate to make some observations about the judge’s finding that the applicant has not suffered loss or damage within the meaning of s 55(3) and, as a consequence, has no statutory cause of action against the trustee. That is because this issue is squarely raised by proposed ground 1(b), and will no doubt be important for the continuation of this proceeding.

The question of when a person ‘suffers loss or damage’ under s 55(3) is a question of statutory construction. Thus it is necessary to have regard to the text, context and purpose of the section.[60] It is also appropriate to have regard to the principle of construction that beneficial legislation should be accorded a ‘fair, large and liberal interpretation’, rather than one which is literal or technical,[61] because we consider that the SIS Act generally, and s 55(3) in particular, is beneficial legislation.
[60]SAS Trustee Corporation v Miles (2018) 265 CLR 137, 149 [20] (Kiefel CJ, Bell and Nettle JJ), 157 [41] (Gageler J), 162–3 [64] (Edelman J); [2018] HCA 55. See also Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27, 46–7 [47] (Hayne, Heydon, Crennan and Kiefel JJ); [2009] HCA 41 and the several cases referred to at fn 105.
[61]See, eg, New South Wales Aboriginal Land Council v Minister Administering the Crown Lands Act (2016) 260 CLR 232, 255 [32] (French CJ, Kiefel, Bell and Keane JJ); [2016] HCA 50, quoting IW v City of Perth (1997) 191 CLR 1, 12, 39; [1997] HCA 30. See also ADCO Constructions Pty Ltd vGoudappel (2014) 254 CLR 1, 16 [29] (French CJ, Crennan, Kiefel and Keane JJ); [2014] HCA 18.

The judge held that the meaning of that phrase is its ordinary meaning as a matter of general law. His Honour placed particular emphasis on the word ‘suffers’, indicating a requirement for present loss or damage.[62] But even accepting as much, in our view attention must be given to the scope of the phrase ‘loss or damage’. And, in so doing, it is vital to have regard to the statutory context and the purpose of s 55. That statutory context includes the following matters.
[62]Reasons [147].

(rr) A superannuation fund, while established as a trust, receives contributions from workers and their employers that are directly related to the workers’ work. As noted above, employer contributions have been described by the High Court as ‘deferred pay’.[63]
[63]See [36] above, referring to Finch (2010) 242 CLR 254, 271 [33] (French CJ, Gummow, Heydon, Crennan and Bell JJ); [2010] HCA 36

(ss) As the judge observed, the SIS Regulations describe the individual members as having ‘benefits in the fund’,[64] and a trustee of a superannuation fund is required to maintain minimum benefits for members.[65]

(tt) Further, and as the judge again observed, under the SIS Regulations, trustees of regulated superannuation funds are obliged to allocate contributions to members.[66] That is, superannuation trustees are required to keep individual accounts for members, which correspond to their own and their employers’ contributions, plus the returns (or minus the losses), and less the expenses, of the fund. The scheme requires that it is possible to identify within the fund an amount to which the worker is entitled at a particular time, should a relevant event occur, even though the worker is not entitled to particular assets of the fund.

(uu) Superannuation is portable; that is, the identified amount can be moved from one fund to another at any time[67] and, as noted in Whelan JA’s judgment,[68] can be dealt with as an asset of the worker for the purposes of a division of assets under family law.

[64]Reasons [134], referring to regs 5.02 and 5.03.

[65]Regulation 5.04.

[66]Reasons [134], referring to reg 7.08 and more generally to pt 5 divs 5.2 and 5.3.

[67]Regulations 6.33 and 6.34.

[68]See [254] below.

In our opinion, each of these matters supports a reading of ‘loss or damage’ in s 55(3) as sufficiently broad as to include a diminution in the member’s individual account within the fund, even where the member’s entitlement to payment out of the fund has not crystallised.

Further, that approach to s 55(3) would also best achieve the purpose of the section.[69] In our view an important purpose of s 55(3) is to provide a meaningful remedy to members of superannuation funds whose interests are affected by a breach of the statutory covenants. That view finds support in the extrinsic materials relating to the Superannuation Industry (Supervision) Bill 1993. That bill was introduced to give effect to the new prudential arrangements for superannuation that had been announced in a statement by the Treasurer entitled ‘Strengthening Super Security: New Prudential Arrangements for Superannuation’.[70] It is thus appropriate to have regard to that statement in understanding the intended operation of the legislation, including s 55(3). In the Treasurer’s statement it was said, under the heading ‘Members Rights’ [sic], that ‘[f]und members will be given a statutory right to recover any loss or damage suffered as a result of a breach of specific trustee obligations’.[71] To like effect was the following statement in the debates on the Bill:

Trustees will have a range of duties spelt out for them — for example, to act honestly at all times in the best interests of the beneficiaries; to keep the fund’s assets separate from the trustee’s own assets or the employer sponsor’s own assets; to exercise the same degree of care, skill and diligence as an ordinary prudent person would in dealing with the property of another for whom the person felt morally bound to provide; and, lastly, in formulating an investment strategy, to have regard to liabilities, risk return, diversification and liquidity considerations.
A codification of these duties will represent a significant milestone for trustees and fund members. For trustees, it will mean that their basic duties and fiduciary responsibilities are spelt out clearly. Any member who suffers a loss or damage due to a breach of these covenants will have a statutory right of action against the trustee. [72]

[69]See Acts Interpretation Act 1901 (Cth), s 15AA.

[70]Parliamentary Debates, House of Representatives, 27 May 1993, 1101 (Gary Johns), referring to John Dawkins, ‘Strengthening Super Security: New Prudential Arrangements for Superannuation’ (Australian Government Publishing Service, 1992).

[71]John Dawkins, ‘Strengthening Super Security: New Prudential Arrangements for Superannuation’ (Australian Government Publishing Service, 1992) 46.

[72]Commonwealth, Parliamentary Debates, House of Representatives, 27 September 1993, 1089 (Roger Price) (emphasis added). This was not the second reading speech, but recourse to ‘any relevant material in … any official record of debates in the Parliament’ is permitted by s 15AB(2)(h) of the Acts Interpretation Act 1901 (Cth) to determine the meaning of a provision where the provision is ‘ambiguous or obscure’ or the ordinary meaning would lead to a result that is ‘manifestly absurd or unreasonable’.

Bearing in mind that superannuation contributions, by law, are required when a person enters employment, if ‘loss or damage’ for the purposes of s 55(3) does not arise until the occurrence of a prescribed event then a member might have to wait many, many years to bring a claim under s 55(3). It could be the case that by that time the entity that breached the relevant covenants no longer exists. Such an approach could leave members without effective recourse under s 55(3). Further, to leave a claim for compensation against a trustee under s 55(3) in the hands of a new trustee, as the judge suggested,[73] means that unless and until a new trustee is appointed, no compensation could be sought (and even then, might not be sought). It would suggest that a member might be deprived of effective compensation unless he or she takes the step of having a new trustee appointed to his or her superannuation fund. That is not an interpretation of s 55(3) that best achieves its purpose.
[73]Reasons [148(b)].

In our opinion a construction of s 55(3) that has the effect that, in many cases, a member will have no claim under s 55(3) against a trustee, and that only the trustee will have such a claim, is at odds with the purpose of that sub-section and should not, for that reason, be adopted.

Finally, we note for completeness that we do not consider that Cornwell has any real bearing on the proper construction of s 55(3).[74] It concerned a general law claim in negligence, not a claim under s 55(3). Further, it concerned a defined benefit scheme under a different statutory regime that considerably pre-dated the modern superannuation regime.
[74]Contrast Whelan JA at [265] below.

The correct application of s 33B(2)(b)(ii)

Having concluded that the judge erred in the manner identified in proposed

grounds 1(a) and 2 as argued, the question is whether the proceeding as instituted falls within s 33B(2)(b)(ii).

In that regard, as noted at [17] above, we adopt Whelan JA’s analysis.[75] As his Honour observes, it is appropriate to focus on the text of the statute, properly construed. When the statutory question is asked in relation to the claims made in this proceeding, in our opinion the answer is different from that given by the judge. Is this proceeding, as pleaded, one concerning — that is, about — property subject to a trust? No, it is about the duties of the trustees and the trustees’ liability for alleged breaches of duty. Perhaps the remedy for such breaches, for some members of the class, will be restoration of the trust property. But, as explained above, that does not mean that the proceeding is one ‘concerning trust property’.
[75]See [191]–[208] below.

Conclusion

For these reasons, leave to appeal should be granted and the appeal should be allowed. The question for preliminary determination should be answered ‘Yes’.

WHELAN JA:

The applicant (‘Shimshon’) is or was a member of two regulated superannuation funds, of which the first respondent (‘MLC’) and the second respondent (‘NULIS’) were, at the relevant times, the respective trustees.

Consequent upon legislative reforms in 2012, amounts held in superannuation funds known as ‘accrued default amounts’ (‘ADA’), were, save in certain designated circumstances, required to be transferred to a form of superannuation holding referred to by the designation ‘MySuper’.

Prior to 1 July 2016 MLC was trustee of a superannuation fund called The Universal Super Scheme (‘TUSS’). On 1 July 2016 MLC transferred the assets of

TUSS to a super fund of which NULIS was trustee called the MLC Super Fund. Shimshon was a member of TUSS with an ADA prior to 1 July 2016 and was a member of the MLC Super Fund with an ADA after 1 July 2016.

On 3 December 2016 and 25 March 2017 NULIS transferred ADAs, including that of Shimshon, to a MySuper fund.

Shimshon issued this proceeding under Part 4A of the Supreme Court Act 1986 against MLC and NULIS. Part 4A provides for the institution of group proceedings, sometimes also referred to as class actions. Shimshon issued the proceeding on behalf of himself and others who held relevant ADAs which were transferred in December 2016 and March 2017 by NULIS. It is alleged in the proceeding that MLC and NULIS did not undertake the transfer of the ADAs as soon as was reasonably practicable. It is alleged that this failure constituted a contravention of covenants imposed upon the respective trustees by the Superannuation Industry (Supervision) Act 1993 (Cth) (the ‘SIS Act’), and a contravention of implied terms in the relevant trust deeds and duties owed by the respective trustees at general law.

In substance, the allegation is that for so long as the ADAs were not transferred, additional fees and commissions were charged to the respective members’ accounts, the amount of each member’s account was reduced, investment returns were reduced, and there was a resulting reduction in the amount which the member received or could expect to receive. Thus, the claim is by a beneficiary on behalf of a group of beneficiaries alleging breach of duty by a trustee resulting in a consequential loss to the members of the group.

Part 4A of the Supreme Court Act relevantly provides in s 33B(2)(b)(ii) that the Part does not apply to ‘a proceeding … concerning property subject to a trust’. After concerns were raised that that exclusion might apply to this proceeding, the parties agreed to seek a determination from the Court by way of a question pursuant to r 47.04 of the Supreme Court (General Civil Procedure) Rules 2015 (the ‘Rules’). The question asked was as follows:

Were the proceedings validly commenced as a group proceeding under Part 4A of the Supreme Court Act 1986 (Vic), having regard to section 33B(2)(b)(ii)?

On 18 December 2020, a judge in the Trial Division handed down a judgment concluding that the answer to the question was ‘No’.[76] He found that the proceeding had not been validly commenced as a group proceeding under Part 4A because it was a proceeding concerning property subject to a trust. Consequential orders were made on 3 February 2021.
[76]Reasons [153].

Shimshon now seeks leave to appeal. The application for leave was heard on 27 September 2021, and further submissions were filed (with leave) by the parties thereafter. The matter proceeded on the basis that, were leave to be granted, the Court would proceed to determine the substantive appeals without further argument. In addition, the applicant applied for leave to rely on fresh evidence. The Court indicated that it would deal with that application in the course of the judgment on the application for leave and on the appeal should leave be granted.

Before turning to the judge’s reasons, it is desirable to set out in more detail the pleaded claim.

The pleaded claim

The relevant pleading which was the subject of the judge’s decision was an amended statement of claim dated 13 November 2020.

At the outset, the amended statement of claim defines the group members as members of TUSS who had held an ADA which was transferred by NULIS, or persons who had received a payment on account of a deceased such member, or persons who had received a transfer from such a member pursuant to an order or settlement in a Family Law Act 1975 (Cth) proceeding, and who had suffered loss and damage as a result of the conduct alleged. [Para 3].

The role of MLC and NULIS as trustees is pleaded, as is their association with National Australia Bank Limited (‘NAB’). [Paras 5–7].

The constituent trust deeds of TUSS and the MLC Super Fund, and their status as regulated super funds, are pleaded. [Paras 8–10].

It is then alleged that pursuant to the SIS Act, and in particular s 52, the governing rules of TUSS and the MLC Super Fund included covenants imposing an obligation on the respective trustees to act with care and skill; in the best interests of beneficiaries; and giving priority to the duties to, and interests of, the beneficiaries in circumstances of conflict. [Paras 11–15]. Similar obligations are pleaded as being obligations implied in the respective trust deeds, and as duties owed at general law. [Paras 16–18].

The requirement to transfer ADAs to a MySuper fund, and the formal steps to be undertaken by the respective trustees in relation to that requirement, are pleaded. [Paras 19–21].

The amended statement of claim then pleads the position in relation to what is described as the default investment options. In substance, what is alleged is that, until the relevant ADAs were transferred, the respective trustees would continue paying what is described as ‘conflicted remuneration’ to ‘conflicted financial advisers’, some of whom were companies in the NAB Group or were otherwise associated with NAB. [Paras 22–27].

The process whereby relevant MySuper funds were created, commencing sometime prior to 29 November 2013, is pleaded in considerable detail. For present purposes, it is unnecessary to set out that detail. [Paras 28–43].

The transfer of the assets of TUSS to the MLC Super Fund, and the constitution of the MLC Super Fund, is then pleaded. [Paras 44–53].

The amended statement of claim pleads ADA transfers effected by NULIS on 3 December 2016 and 25 March 2017 to NULIS MySuper. [Paras 56–57].

The amended statement of claim alleges that a consequence of the ADA transfers was that fees charged were reduced, revenue derived by the NAB Group declined, and the payment of conflicted remuneration and associated fees ceased. [Paras 59–62].

The amended statement of claim then contains a series of allegations of breach of covenants imposed upon the respective trustees by the SIS Act by reason of what is alleged to have been their failure to make the ADA transfers as soon as reasonably practicable. [Paras 63–81]. Essentially the same allegations are then made alleging breach of implied terms of the trust deeds and of duties owed at general law. [Paras 82–83].

The amended statement of claim alleges that Shimshon and the group members consequently suffered loss and damage particularised as follows:

(vv) the fees and commissions charged have been higher;

(ww) the investment returns have been lower;

(xx) consequential loss or damage has been suffered; and/or

(yy) there has been ‘a reduction in the amount which Group Members have received or can expect to receive’ from the respective funds. [Paras 84–89].

The amended statement of claim sets out common questions of law and fact.

The relief sought is as follows:

(zz) declarations that the trustees have contravened the SIS Act;

(aaa) declarations that the trustees have breached duties at general law;

(bbb) an order for ‘statutory compensation’ pursuant to s 55(3) of the SIS Act requiring the trustee to ‘pay to the plaintiff and the Group Members the amount of the loss or damage suffered by them as a result of contraventions’ of the SIS Act;

(ccc) alternatively, an order in the equitable jurisdiction of the Court that the respective trustees ‘pay the Plaintiff and Group Members equitable compensation’ for the general law breaches;

(ddd) alternatively, an order in the equitable jurisdiction of the Court that the respective trustees ‘pay equitable compensation for the General Law Breaches by restoring the MLC Super Fund’;

(eee) interest; and

(fff) costs.

Both before us and below the applicant reformulated the alternative relief sought referable to ‘restoration’ of the fund in the terms now appearing in proposed ground of appeal 2.[77]
[77]Transcript of Proceedings (27 September 2021) 30 (‘Appeal Transcript’). The reformulation also appears in a proposed amended statement of claim (confined to Shimshon’s personal claim consequent upon the judge’s ruling that the proceeding was excluded from Part 4A) at Appeal Book B 239.

The relief as reformulated is as follows:

(ggg) restitution by the defaulting trustee of the account balances of beneficiaries in the fund to the position they ought to have been in but for the breach of trust, and the consequential reinstatement of the corpus of the trust to meet those account balances as at the date of judgment; and

(hhh) compensation in an amount that would have put the account balances of former beneficiaries of the fund, as at the time those beneficiaries left the fund, in the position they would have been in but for the breach of trust.

Section 55(3) of the SIS Act relevantly provided that:

[A] person who suffers loss or damage as a result of conduct of another person that was engaged in in contravention of subsection (1) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

Subsection (1) provided that a person must not contravene a covenant contained, or taken to be contained, in the governing rules of a superannuation entity.[78]
[78]Subsection 55(1) was repealed by the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Act 2019 (Cth). Subsections 54B(1), (2) and 54C(1) were inserted in its place.

The judge’s reasons

The judge delivered judgment on 18 December 2020. The judge set out the question which had been asked and the provisions of s 33B in full. He said that there were two questions which needed to be resolved. The first was the meaning of ‘a proceeding concerning property subject to a trust’. The second was whether that exclusion, properly construed, applied to the proceeding.[79] The judge referred to the 2012 reforms providing for transition of ADAs to a MySuper product.[80] He summarised the pleaded claims.[81]
[79]Reasons [1]–[4].
[80]Ibid [5]–[6].
[81]Ibid [7]–[14].

The judge then made three preliminary observations. The first was that the relevant exclusion in relation to proceedings ‘concerning property subject to a trust’ is not replicated in the equivalent provisions of any other Australian jurisdiction. The exclusion is, he observed, unique to Victoria. Next, he observed that neither the explanatory memorandum nor the second reading speech sheds any light on the intended purpose or scope of the exclusion. Finally, he observed that the only prior judicial consideration of the provision was his own earlier decision in Shepherd v Uniting Church in Australia Property Trust.[82]
[82]Ibid [15]. In Shepherd v Uniting ChurchIn Australia Property Trust [2020] VSC 12, John Dixon J summarily dismissed a purported group proceeding. The claim was misconceived as the claimant was not and could not be a beneficiary because the relevant trust was a charitable trust. Section 33B(2)(b)(ii) was also relied upon without detailed consideration.

The judge summarised the submissions which had been made to him.[83] For present purposes, it is unnecessary to set out those submissions, save to note two matters. First, Shimshon contended for a narrow interpretation of the term ‘concerning’, equivalent to ‘about’; and the defendants contended for a more expansive interpretation, equivalent to ‘relating to’. Second, the judge recorded Shimshon as having submitted that the group members had an ‘individual right’ to claim compensation for the alleged breaches by the trustee and that such claims were not claims concerning trust property; and as having submitted that the Part 4A exclusion ensured that the circumstances in which a beneficiary might commence proceedings against third parties in respect of property the subject of a trust were not expanded.
[83]Ibid [16]–[40].

The judge then turned to the first question, being the construction of the relevant provision.[84]
[84]Ibid [41]–[73].

The judge adopted the narrow construction of the word ‘concerning’ which had been propounded by counsel for Shimshon.[85] The judge set out the history of the relevant provision observing that Part 4A was the statutory enactment of what had been Order 18A of the Rules. The judge observed that prior to the enactment of Part 4A, representative actions were regulated in the Rules by Orders 16, 18, and 18A.[86]
[85]Ibid [41].
[86]Ibid [41]–[54].

The judge then referred to the judgment of Brooking J in Young v Murphy.[87] The judge adopted what the defendants had submitted was a ‘distillation’ of principles drawn from Brooking J’s analysis of the authorities. The principles which the judge set out were as follows: [88]
[87][1996] 1 VR 279.
[88]Reasons [56].

(a)a trustee who has committed a breach of trust may be sued in respect of that breach, either by a beneficiary (including someone representing their estate) or by a co-trustee or successor trustee;
(b)proceedings to have a breach of trust redressed may be taken by a beneficiary against a trustee, a former trustee or the estate of a former trustee, or a stranger to the trust who has become liable to redress that breach. Such proceedings may also be taken by a trustee against a co-trustee, a former trustee or the estate of a former trustee, or against a stranger to the trust who has become liable as mentioned. The standing of a trustee to take proceedings to have a breach of trust redressed against such persons is well recognised;
(c)it is the duty of each trustee to recover the trust fund, for the benefit of its objects. Their obligation to take proceedings to do so (unless they would be futile) is part of their duty to get in the trust estate, which includes rights of action against co-trustees, former trustees and strangers to reimburse the trust estate for losses sustained through breach of trust;
(d)in general, if the trustee takes proceedings to have a breach of trust redressed, they need not make the beneficiaries parties, as the trustee sufficiently represents their interests for that purpose. This right is well established; [r 16.02 cited]
(e)that said, beneficiaries should be made parties if their interests may not be properly represented by the trustee. If it can be said, that for any reason, the trustee should not be regarded as a party who will properly represent the interests of all beneficiaries, then they should not be regarded as able to sue without joining any beneficiary; and
(f)a distinction is drawn between proceedings in which the trustee seeks merely to get back the trust fund and proceedings that seek the execution or administration of the trust (or, in addition, seek to have the breach of trust redressed). The beneficiaries will or may be necessary parties, since their interests inter se or their rights against the trustee may conflict and have to be determined. This is not so if in the proceedings the trustee seeks only to get in the trust fund, or seeks in addition only any account necessary for that purpose. The former can be maintained by the trustee without joining the beneficiaries; the latter are or may be incapable of being so maintained.

His Honour then stated:

Young defines circumstances where the provision operates to exclude proceedings from Part 4A. Where a cause of action arises or accrues in relation to property that is held on trust — such that it is the trustee and not the beneficiaries that have standing to bring that claim — the proceeding will be one concerning property subject to a trust in the sense required by the provision. That is because the remedy received for successful prosecution of the cause of action will be part of the trust corpus, legally owned by the trustee and held on trust for the beneficiaries.
Although in exceptional circumstances a court may permit a beneficiary to prosecute causes of action that are properly held on trust, those circumstances are usually based on the absence of appropriate action by the trustee. For present purposes, such exceptional circumstance may [be] regarded as falling into the category of actions by a trustee concerning trust property. The relevant distinction is between causes of action that are property subject to a trust and vindicated by a trustee, and personal causes of action held by a beneficiary in their own right, vindicated by personal proceedings. The nature of the proprietary right in the cause of action is defining, since in the former category the recovery by the prosecuting beneficiary will be property subject to a trust and can only be dealt with in accordance with the terms of the trust.[89]

[89]Ibid [57]–[58] (citations omitted).

Before proceeding, it should be noted that counsel for the respondents in the hearing before us submitted that what his Honour said about Young v Murphy was not to be taken ‘literally’. It was submitted that the judgment subsequently made it clear that the ‘ultimate distinction’ that his Honour relied upon to distinguish between claims falling within the exclusion in s 33B(2)(b)(ii), and those without, was whether the proceeding was to ‘recover loss to the general corpus of a fund’ (excluded) or to ‘recover individual losses of beneficiaries’ (not excluded).[90]
[90]Appeal Transcript 67–68.

Lord Browne–Wilkinson’s statements about compensation by direct payment to the beneficiaries are relevantly to the same effect as those of Brooking J in Occidental,[177] as previously referred to. Obviously, orders directed at restoration of the trust fund, either by recovery of misappropriated assets or the payment of compensation to restore the fund, will be the ordinary remedy. However, the proposition that relief by way of compensation to the beneficiaries themselves is something which the law necessarily precludes, is not correct.
[177](1993) 7 ANZ Insurance Cases 61–201.

Permanent Trustee[178] was a case particularly relied upon by the judge. It is a decision of a single judge, Cohen J, in the Equity Division of the Supreme Court of New South Wales. It did not concern a superannuation fund. It concerned breach of trust by a trustee of a commercial investment unit trust.
[178](1994) 15 ACSR 722.

The issue before Cohen J was whether an amount recovered as compensation for a breach of trust should be paid to the new trustee, thereby benefitting existing unit holders only, or be paid out to the unit holders as at the time when the breach of trust occurred. Cohen J determined that the compensation should be paid to the new trustee. He did so on the basis that the new trustee’s duty was to get in the trust assets and the remedy to which the new trustee was entitled was restoration of those assets which had been wrongfully taken. Cohen J considered that the position was somewhat similar to the position of shareholders in a claimant company. He adopted a characterisation which Gummow J had used in Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd[179] where he had described the interest holders in the relevant investment vehicle as a ‘fluctuating class’.[180]
[179](1987) 78 ALR 193, 232; [1987] FCA 332.
[180]Permanent Trustee (1994) 15 ACSR 722, 730.

Cohen J accepted that because many unit holders had redeemed or transferred their units since the breach of trust, there was an ‘essential sense of fairness’ in a distribution to unitholders. But he considered, on the other hand, that transferees from those unit holders had taken all the benefits and potential increments which those units had. In the circumstances he determined that the appropriate course was to give effect to the new trustee’s entitlement to have restitution of the trust fund. [181]
[181]Ibid 730–1.

Continuing chronologically, reference should next be made to Benson v Cook.[182] In Benson the Full Court of the Federal Court constituted by Beaumont, Kiefel and Hely JJ addressed an issue as to whether certain superannuation contributions made within two years of bankruptcy were a settlement within s 120 of the Bankruptcy Act 1966 (Cth). The decision concerned the position before the exemption in relation to superannuation contributions was introduced to the Act.
[182](2001) 114 FCR 542; [2001] FCA 1684 (‘Benson’).

Beaumont J addressed the issue of what was the nature of the bankrupt’s interest in the superannuation fund. He referred to Re Coram and to Caboche. He adopted Gummow J’s analysis of the member’s interest stating that it was ‘an equitable proprietary interest in the fund, although no immediate right to payment’.[183] Relevantly, Hely J characterised the interest in the same way.[184]
[183]Ibid 551 [21].
[184]Ibid 572 [141].

Kiefel J referred to how O’Loughin J had described a member’s interest in Re Coram and to how Gummow J had described it in Caboche, observing that O’Loughlin J’s description was consistent with that of Gummow J.[185]
[185]Ibid 563 [89].

O’Loughlin J had said in Re Coram that until a prescribed event occurred, crystallising an actual entitlement, a member is neither the legal nor beneficial owner of the amount that stands to the credit of the member’s superannuation account from time to time.[186] Gummow J had said in Caboche that a member had an equitable proprietary interest in the fund, but one which, prior to a prescribed event, did not give an immediate right to payment.[187] As Kiefel J said in Benson, these statements are not inconsistent. The member has an equitable proprietary interest in the fund but the member does not have a proprietary interest in any particular assets of the fund, including the amount standing to the credit of the member’s superannuation account. The member’s right to payment of a specified sum, by virtue of the equitable proprietary interest in the fund which the member has had throughout, arises only on the occurrence of a prescribed event.
[186](1992) 36 FCR 250, 235.
[187][1993] FCA 611, [51]–[52].

The next important authority is the High Court decision in the Commonwealth v Cornwell.[188]
[188](2007) 229 CLR 519; [2007] HCA 16 (‘Cornwell’).

In Cornwell, the High Court considered the case of a Commonwealth employee who had been negligently informed in 1965 that he was not eligible for membership of a Commonwealth superannuation fund (referred to as ‘the 1922 Fund’), when he was, or could have taken steps to become, eligible. The employee was only informed of his eligibility in 1987. In the meantime, the 1922 Fund had been replaced by a new fund (referred to as ‘the 1976 Fund’). Both funds were defined benefit funds established under statute. Upon retirement the member became entitled to a pension. Under the 1922 Fund the members made contributions for ‘units of pension’ and the pension on retirement was determined according to the number of units the member had. Under the 1976 Fund pensions were calculated as a percentage of final salary, the percentage being fixed by reference to the period of service.

The employee retired in 1994 and he later commenced proceedings against the Commonwealth, alleging that he lost the opportunity to join the 1922 Fund in 1965, and in consequence, upon his retirement in 1994, received a lesser benefit than he would have received had he joined that fund in 1965.

The Commonwealth contended that the employee ‘necessarily and irretrievably’ sustained a loss in 1976, when the 1976 Fund replaced the 1922 Fund,[189] or in 1987 when the employee joined the 1976 Fund. It contended that his cause of action in negligence then accrued, and was statute barred when proceedings were issued after his retirement in 1994.
[189]Ibid 528 [25]. The terms of the 1922 Fund were such that until its replacement by the 1976 Fund members could ‘top up’ their units. This was not possible after the 1976 Fund was established.

At first instance, and on appeal to the Court of Appeal of the Australian Capital Territory, it was held that actual loss had been suffered only when the employee retired and that prior to then the advice had been causative only of potential loss. The Commonwealth appealed to the High Court.

The High Court (Gleeson CJ, Gummow, Kirby, Hayne, Heydon and Crennan JJ; Callinan J dissenting) dismissed the Commonwealth appeal, holding that the employee had sustained actual loss only on his retirement.

The majority judgment relevantly began by addressing the nature of the employee’s damage. They said:

In Hawkins v Clayton, Gaudron J emphasised the importance for actions for negligence causing economic loss in identifying the interest said to be infringed, whether it be the value of property, the physical integrity of property, or the recoupment of moneys advanced. Thereafter, in Wardley Australia Ltd v Western Australia, Mason CJ, Dawson, Gaudron and McHugh JJ observed:
To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events. In such a situation, there would be an ever-present risk of under compensation or overcompensation, the risk of the former being the greater.

Their Honours also said:
The kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected. With economic loss, as with other forms of damage, there has to be some actual damage. Prospective loss is not enough.

In Law Society v Sephton & Co, Lord Mance said, with reference to Wardley, that he saw the attraction of an approach: ‘the effect of which is that unless and until a remote contingency eventuates the claimant is not expected to issue proceedings which he would not normally issue or wish to issue unless and until that point arrives.’
Here, the economic loss which the respondent sustained was alleged to be the lesser benefit which he obtained on his retirement, this being worth less than it would have been had he not relied upon the negligent advice given to him in 1965. But to speak simply of a ‘retirement benefit’ and its value is to obscure the nature of the economic loss involved. This does not turn upon proprietary or other rights or obligations created and governed by the general law, such as the indemnity granted by the respondent in Wardley, or the continuing financial obligations undertaken by the lessees in Murphy v Overton Investments Pty Ltd. What the respondent stood to enjoy upon ‘retirement’ was an ‘entitlement’ conferred by federal statute law. This ‘entitlement’ was his ‘interest’ in the sense used in the above passage from Wardley.
The significance attached to retirement on grounds of health, by retrenchment, for cause, upon death and for other reasons depended upon the terms of the particular legislation. What was only in prospect until the falling in of one or more of various contingencies, matured into actual loss only at the end of the respondent’s service and upon the falling in of one or more of the statutory contingencies which had to be met for the respondent to be entitled to a statutory benefit. Hence the submission by the respondent that it was only upon his retirement that the relevant statutory contingency fell in upon which the respondent became entitled to a benefit which was limited or diminished and his cause of action first accrued.[190]

[190]Ibid 525–6 [16]–[19] (Gleeson CJ, Gummow, Kirby, Hayne, Heydon and Crennan JJ) (citations omitted).

The provisions of the applicable legislation concerning entitlement to benefits were addressed in detail in the majority judgment.[191]
[191]Ibid 527–30 [21]–[33].

The majority held that the employee’s loss was not necessarily and irretrievably sustained when the 1976 Fund commenced, or when the employee joined the 1976 Fund.[192] This was because at each of those points in time, and until his retirement, the employee’s statutory benefit entitlement was ‘prospective and contingent’.[193] The majority said:

Even if the respondent had joined the 1922 Fund in 1965, his pension entitlements thereunder would prior to the commencement of the 1976 Act still have been contingent upon meeting the statutory criteria set out earlier in these reasons. The respondent could have been assured that the amount of his actual contributions paid under the 1922 Act were secured to him by s 51(1) were he to resign or to be dismissed or discharged for any cause. But, beyond that, his entitlements were prospective and contingent upon the falling in at a future time of the statutory criteria. The same was true of the respondent’s position under the 1976 Act after 24 March 1987 and before his retirement seven years later, subject to the qualification that the amount of his actual contributions would no longer have been paid to him unless the conditions of s 80 were met.[194]

[192]Ibid 531 [36].

[193]Ibid 531 [37].

[194]Ibid (citations omitted).

They also rejected the contention that the employee had lost a valuable commercial opportunity when the 1976 Fund replaced the 1922 Fund.[195]
[195]Ibid 531–2 [38].

One matter which emerges from Cornwell is the importance of an analysis of the terms of the relevant constituent instrument (in that case, Commonwealth legislation, but more commonly a trust deed) and the potential relevance of the member’s particular factual situation. Cornwell concerned defined benefit funds established by statute, which may give rise to different considerations to contributory funds governed by trust deeds and the SIS Act. Cornwell can, however, be said to support a general proposition that, in the case of a member who has not yet satisfied the conditions requisite for the payment of a benefit, a loss is not suffered until the entitlement to payment arises by virtue of satisfaction of the relevant condition.

The next relevant authority is Finch.[196] In Finch the High Court addressed in some detail the character of a member’s interest in a modern superannuation fund.
[196](2010) 242 CLR 254; [2010] HCA 36.

The issue in Finch concerned the exercise of discretionary powers by superannuation trustees. The fact that the relevant deed was dealing with superannuation was an important part of the factual context for the High Court. The Court said:

For some people, superannuation is their greatest asset apart from their houses; for others it is even more valuable. Different criteria might be thought to apply to the operation of a superannuation fund from those which apply to discretionary decisions made by a trustee holding a power of appointment under a non–superannuation trust. Employer superannuation is part of the remuneration of employees. Membership of the employee superannuation fund may be compulsory… Superannuation is not a matter of mere bounty, or potential enjoyment of another’s benefaction. It is something for which, in large measure, employees have exchanged value — their work and their contributions. It is ‘deferred pay’. [197]

[197]Ibid 271 [33] (French CJ, Gummow, Heydon, Crennan and Bell JJ) (citations omitted).

The High Court said that further factors of significance were the taxation concessions granted to superannuation, and the detailed statutory regulation which applied to superannuation under the SIS Act and the regulations.[198]
[198]Ibid 271–2 [34]–[35].

These factors led the High Court to conclude that principles developed in other trust contexts could not be automatically applied in the context of superannuation, and, in the particular case, the principles which could not be automatically applied concerned the exercise of trustee discretions. The Court observed that superannuation funds are not discretionary trusts. The Court said that ‘a beneficiary is entitled as of right to a benefit provided the beneficiary satisfies any necessary condition of the benefit’.[199]
[199]Ibid 281 [66].

I previously referred to the fact that statements by the judge which, in my opinion require clarification or qualification, were being cited and relied upon in other proceedings.

In Thomas v Commonwealth Financial Planning Ltd,[200] Beach J was considering an application to amend an originating application and statement of claim, and a related application to strike out the pleadings. In that context, reliance was placed by the respondents upon the judge’s analysis in support of a submission that the beneficiary of a superannuation trust whose superannuation account had been diminished by reason of a trustee’s breaches had not suffered an actionable loss. Beach J indicated that he did not need to decide this issue, but he nevertheless considered the authorities upon which the judge had relied, and he reached the conclusion that those cases did not support the submission put to him.[201]
[200][2021] FCA 665.
[201]Ibid [26]–[30].

In Kayler–Thomson v Colonial First State Investments Ltd [No 2],[202] Colvin J considered whether a beneficiary had joint legal professional privilege with the superannuation trustee. The judge’s analysis was relied upon to resist the claim of joint privilege. Colvin J said:

[I]t would not be correct to characterise the interest as a mere expectancy or the person involved as a discretionary object. Rather, it should be recognised as an equitable proprietary interest. [203]
[202][2021] FCA 854.
[203]Ibid [66].

Colvin J cited the decision in Benson.
Contingent or prospective interest — provisions of the trust deeds

The judge characterised a member’s interest in a superannuation fund prior to the occurrence of an event giving an entitlement to payment of a benefit as ‘contingent’.[204] Gummow J used the word ‘conditional’.[205] The High Court has used the term ‘prospective and contingent’.[206]
[204]Reasons [125], [133].
[205]Caboche [1993] FCA 611, [51]–[52].
[206]Cornwell (2007) 229 CLR 519, 531 [37] (Gleeson CJ, Gummow, Kirby, Hayne, Heydon and Crennan JJ); [2007] HCA 16.

In the context of corporate insolvency reference is made to liabilities which are contingent and liabilities which are prospective. A contingent liability refers to a circumstance where the requirement to perform is to occur upon an event which may or may not happen. A prospective liability refers to a circumstance where the requirement to perform will arise upon a date or event which is certain to happen.[207]
[207]See: Brisconnections Management Co Ltd v Australian Style Investments Pty Ltd (2009) 23 VR 253, 294 [212]; [2009] VSC 128, quoting Ford’s Principles of Corporations Law [27.080].

Adopting that approach in this context, it seems to me that the entitlement of the member of a superannuation fund prior to the occurrence of a prescribed event is more accurately described as prospective rather than contingent. For all practical purposes, the member is certain to receive a benefit, although the amount and the timing of the benefit are conditional upon future events.

In the course of the hearing before this Court, counsel for the respondents submitted that there were two circumstances where the member might not receive a benefit.[208] The first was if the member were to die, in which case the trustee would have a discretion as to how the member’s benefit was to be disbursed. The second was if an order were to be made concerning the member’s entitlement in the context of family law proceedings. In my opinion, neither of those circumstances detracts from the practical certainty that members will become entitled to a benefit. The provisions dealing with death reflect, it seems to me, a quasi–testamentary disposition. Trustees exercising their discretion in good faith and in accordance with their duties will disburse the deceased member’s entitlement in accordance with the member’s previously expressed wishes, unless some circumstance referable to the deceased member or their family requires a different course. In the family law context, an order in relation to a member’s superannuation entitlement amounts to an order whereby an obligation that the member owes to another person is to be met out of that member’s superannuation entitlement.
[208]Appeal Transcript 78, 120.

It is neither necessary nor desirable to comprehensively review the provisions of the trust deeds, but the provisions relied upon by the applicant ought to be noted.

The trust deeds[209] provide in cl 5.5 that the trustee may maintain any accounts it determines including accounts to record the benefits of beneficiaries. ‘Account’ is a defined term. It is an account maintained by the trustee for a Beneficiary. ‘Beneficiary’ is also a defined term. A Beneficiary is a member. Clause 5.5(b) provides that the trustee ‘must credit or debit an account … with any portion of any fund assets (or any fund expense) it determines is attributable to that account’.
[209]Appeal Book F 424 (TUSS) and F 496 (MLC Super Fund). Quotations of particular provisions are of the provisions of the TUSS deed. There are some small differences in wording between the provisions of the TUSS deed and the MLC Super Fund deed but the substance is the same.

Clause 6.2(a) provides that the trustee may permit a member to give directions as to the manner in which the trustee is ‘to invest all (or part of) the Member’s Account’. Clause 6.2(b) provides:

If under clause 6.2(a) a Member directs the Trustee to invest all (or part of) the Member’s Account in an Investment Option that investment is made for the sole benefit (and at the sole risk) of the Member and any income or gains or losses or expenses incurred in respect of that Investment Option must be attributed to the Member.

Clause 6.3 provides that a Beneficiary has no right to claim any interest or exercise any right ‘in any particular asset of the Fund’. This reflects what O’Loughlin J said,[210] without detracting from the proposition that the member has an equitable proprietary interest in the fund, as Gummow J said.[211]
[210]Re Coram (1992) 36 FCR 250, 253.
[211]Caboche [1993] FCA 611, [51]–[52].

Clause 6.4 provides that ‘Net Earnings must be determined and must be … allocated to any Accounts … in the manner (and at such times) determined by the Trustee’.

Clause 7 provides that the trustee may, with or without the consent of a Beneficiary, transfer all or part of the ‘benefit entitlement’ of a Beneficiary from the fund to another superannuation entity, and ‘must’ transfer the ‘benefit entitlement’ of a Beneficiary to another superannuation entity or to a Regulator in the circumstances required by a relevant law.

The provisions concerning member accounts potentially fortify the applicant’s claim (as reformulated) that ‘restoration’ of the trust fund can and should be directed at the individual member accounts. No doubt factual enquiries as to whether and how such accounts operate, and the effect of the matters complained of (if established), will be necessary.

Further, when characterising a member’s interest in these funds, in my opinion it is relevant that a trustee may, and, in the specified circumstances, must, transfer a member’s ‘benefit entitlement’ to another superannuation fund. This means that at any given point in time, before the member has a right to payment, the trustee must be in a position to remove from the fund a sum constituting the member’s then benefit entitlement and transfer it to another trustee of a different fund. I do not agree with the judge’s suggestion that the significance of this factor is reduced because the member’s entitlement to payment of a benefit will, in the new fund, still be conditional on the satisfaction of conditions. Under these provisions, the legal title to specific assets representing the ‘member’s entitlement’ are to be removed from one fund and placed into another. This must be relevant to an understanding of the nature of the member’s interest. When, and if, relief needs to be addressed, in my view it is potentially relevant that the structure of these trusts is such that the trustee must be able to identify (and transfer) assets representing a member’s individual benefit entitlement at any given point in time.

It seems to me that to describe a member’s interest as contingent, in the sense of an entitlement to a benefit on the basis of events which may or may not happen, would not be accurate. In my view, the interest is better described as prospective. It is certain that there will be an entitlement. The member cannot be deprived of it. Its quantum can be, and in certain circumstances must be, calculated from time to time. The timing and amount of payment is conditional on future events.

Clarifications and qualifications

From my review of the authorities, including my earlier discussion of Young v Murphy and Occidental, and my review of the trust deeds, it seems to me that the following principles emerge by way of clarification or qualification of the statements made by the judge to which previous reference has been made:

(iii) Members of a superannuation fund have an equitable proprietary interest in the fund notwithstanding that they do not have an immediate right to payment. They do not have a proprietary interest in any specific assets of the fund. The member’s interest is better described as prospective or conditional rather than contingent.

(jjj) Superannuation trusts are different to other trusts, and principles applying to other forms of trust may not apply to them, or may not apply in the same way. Superannuation is ‘deferred pay’. The interest of a member of a superannuation fund is not analogous to that of an interest upon remainder or that of a member of a class of beneficiaries in a discretionary trust.

(kkk) Whilst restoration of the trust fund is the object of a proceeding against a trustee for breach of trust, equity’s capacity to give relief is not to be rigidly constrained. In particular circumstances, direct payment to beneficiaries can be, and has been, ordered.

(lll) The relief sought by the applicant in this proceeding; namely, compensation to those members who have exited the fund, and restoration of the trust fund with the consequent adjustment of each member’s individual account for those who have not exited the fund, is open.

The High Court’s decision in Cornwell lends support to the judge’s conclusions concerning s 55(3) of the SIS Act. It seems to me, however, that it was, and is, premature to reach final conclusions on the application of this provision. Neither the judge nor the parties referred to Cornwell and we have heard no submissions on it. There are potential points of distinction.

The substantive issues concerning s 55(3) of the SIS Act are matters which ought to be considered and determined after a trial in which detailed analysis of the relevant trust provisions and the position of the individual claimants can be undertaken. For present purposes, the relevant issue is whether the claims made under s 55(3) of the SIS Act are claims concerning property subject to a trust. As indicated, in my opinion, they are not.

Conclusion

In my view, leave to appeal should be granted on proposed grounds 1 and 2 and the appeal should be allowed. The question under r 47.04 should be answered ‘Yes’, in lieu of the answer given by the judge. The respondents’ notice of contention should be rejected.

Given these conclusions, I would not grant leave to appeal on proposed ground 3 and would dismiss the application to rely on fresh evidence. For the avoidance of doubt, I observe that, in the light of the material filed on the fresh evidence application, and given that in my opinion the judge’s decision should be set aside, there can be no issue estoppel arising by reason of what the judge said about the applicant’s personal position.

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SIFRIS and WALKER JJA
*Introduction*	1
*Explaining the relationship between this judgment and that of Whelan JA*	7
*The statutory landscape for superannuation*	8
*Understanding proposed grounds 1(a) and 2 of the appeal as argued*	10
*Proposed ground 1(a): do the beneficiaries have individual claims against the trustees?*	11
Submissions on proposed ground 1(a)	11
Analysis of proposed ground 1(a)	14
*Proposed ground 2: the significance of the appropriate remedy*	19
Submissions on proposed ground 2	19
Analysis of proposed ground 2	20
Proposed ground 1(b): the claim under s 55(3) of the SIS Act	21
The judge’s reasons concerning s 55(3)	22
Submissions on s 55(3)	23
Analysis of the s 55(3) claim	23
*The correct application of s 33B(2)(b)(ii)*	27
*Conclusion*	28
WHELAN JA
*The pleaded claim*	30
*The judge’s reasons*	34
**Understanding the reference to Young v Murphy and the basis of the judge’s decision**	43
*Proposed grounds of appeal and the notice of contention*	48
*‘Concerning … property subject to a trust’ — broad or narrow interpretation — the notice of contention*	50
Submissions	50
Analysis	52
*Proposed grounds 1 and 2*	56
The issues as argued	56
Submissions	57
Analysis	58
*Beneficiaries’ superannuation entitlements and the remedies available*	63
*Contingent or prospective interest — provisions of the trust deeds*	73
*Clarifications and qualifications*	77
*Conclusions*	78

[2021] VSCA 363

20 December 2021