Smith & ORS
[2014] SADC 171
•2 October 2014
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Application)
SMITH & ORS
[2014] SADC 171
Reasons for the Orders of His Honour Judge Slattery
2 October 2014
LOCAL GOVERNMENT - REGULATION AND ADMINISTRATION - STAFF, OFFICERS AND SERVANTS - REINSTATEMENT
LOCAL GOVERNMENT - REGULATION AND ADMINISTRATION - STAFF, OFFICERS AND SERVANTS - FINANCIAL ARRANGEMENTS - SUPERANNUATION
Application to reinstate offices of 9 members of Council. The relevant offices became vacant under section 54(1) of the Local Government Act 1999 due to failure by the applicants to complete a register of interests in June 2013 as required under section 66 of the Act.
Observation about whether the specific wording of paragraph 9 of the Form 4 required to be submitted by members of Council requires superannuation interests to be declared.
Held:
1. That the 9 applicants be restored to the office of an elected member of Council.
Local Government Act 1999 ss 54, 66, 68; Superannuation Industry (Supervision) Act 1993 s 52, referred to.
City of Port Adelaide Enfield [2000] SADC 122; Caboche v Ramsay (1993) 27 ATR 479; Re Coram; ex parte Official Trustee in Bankruptcy v Inglis and Others (1992) 36 FCR 353, considered.
SMITH & ORS
[2014] SADC 171
This is an application brought by nine applicants. Each applicant was elected to the office of councillor of the District Council of Barunga West (‘the Council’) in November 2010. Under section 66 of the Local Government Act 1999 (‘the Act’), each applicant was required to complete a register of members’ interests each year for the balance of their term in office. The applicants did not do so in June 2013. Each of those offices of the Members of Council became vacant under section 54(1) of the Act.
The applicants now apply to the Court seeking orders pursuant to section 54(4)(a) of the Act to restore each of them to the office of councillor. I heard the application on 6 November 2013. Mr Mitchell appeared on behalf of the Crown and advised that the Attorney-General did not wish to intervene in this matter. On that day I made orders that each applicant be restored to the office of councillor under that section. I said that I would later publish reasons for making those orders. These are those reasons. After receiving an invitation from counsel for the applicants I also stated during the hearing of the application that I would provide observations about the contents of the Form 4 document that councillors are required to provide. An issue that concerned me and that I raised with counsel was whether the form of questions within the Form 4 document was unintentionally too broad and whether a redrafting of those questions was required. One matter in particular concerned me: whether the respondents were to have regard to their personal superannuation arrangements in giving their answers. My initial impression (that has not changed) is that the Form 4 enquiries were not directed to and would not be intended to be directed to councillors’ superannuation interests. I considered that the drafting of the Form 4 did not meet that intention.
I deal first with the issue of restoration.
Section 66 of the Act provides as follows:-
66—Lodging of ordinary returns
Each member of a council must, on or within 60 days after 30 June in each year, submit to the chief executive officer an ordinary return in accordance with Schedule 3.
The ordinary return contained in Schedule 1 is a Form 4. The content of the Form is reproduced at the end of these reasons.
Section 54 of the Act provides as follows:-
54—Casual vacancies
(1) Subject to this section, the office of a member of a council becomes vacant if the member—
...
(g) fails to submit a return under Division 2 of Part 4 of this Chapter before the expiration of one month from the end of the period allowed under that Division for the submission of the return;
...
Under those sections councillors are required to lodge their ordinary return within 60 days after 30 June each year. Where they do not do so, the Act allows a further month from the expiration of the 60 day period to submit the return. If the councillor fails to submit the return after the further month has elapsed, their office becomes vacant.
Each of the applicants failed to lodge a return within the 60 days. Each of the applicants failed to lodge a return within the further month as allowed under section 54(1)(g). Their offices, under the Act, have therefore become vacant.
Section 68 of the Act provides as follows:-
68—Register of Interests
...
(2) If a member of a council fails to submit a return to the chief executive officer within the time allowed under this Division, the chief executive officer must as soon as practicable notify the member of that fact and include specific information about the consequences under Division 1 of Part 2 of this Chapter if a return is not submitted in accordance with the requirements of this Division.
(3) A notification under subsection (2) must be given by letter sent to the member by registered mail.
The evidence of each of the applicants discloses that no such letter was sent by the Chief Executive Officer in this case. Those factual assertions were not put in issue before me. It is clear from the evidence why this has occurred and that reasons is not associated with any conduct of the part of the applicants.
This application is brought before me, under section 54(4) which provides as follows:-
54—Casual vacancies
...
(4) If a member's office becomes vacant because of the member's failure to submit a return under Division 2 of Part 4 of this Chapter or Part 14 of the Local Government (Elections) Act 1999—
(a) the District Court may, on application made within one month after the vacation of office, restore the member to office if satisfied that the failure arose from circumstances beyond the member's control; and
(b) proceedings for a supplementary election to fill the vacancy must not be commenced until the period for making an application under paragraph (a) has expired or, if there is an application, until the application is determined; and
(c) the member cannot be nominated as a candidate for the election to fill the vacancy unless he or she has submitted to the chief executive officer the return that was required to be submitted.
The legislation is silent as to the effect of a failure to comply with section 68 on the ability of a councillor to make an application for restoration under section 54(4).
The affidavit material before me provides substantially similar information in relation to each councillor. Each of the plaintiffs asserts that prior to about September 2012, the Council had the benefit of an extremely diligent Chief Executive Officer who ensured that councillors complied with the legal obligations upon them including the completion of the form of ordinary return. The Chief Executive Officer distributed the form of ordinary return to councillors and was vigilant in ensuring councillors completed and returned the form. The forms were completed yearly without incident. The affidavits depose that the Chief Executive Officer developed a culture in which councillors developed a ‘trusting dependency’ on the Chief Executive. In effect, the councillors had become reliant on the Chief Executive Officer in discharging their legal obligations and that reliance was encouraged by the Chief Executive Officer.
The Chief Executive Officer went on leave in about September 2012. The Finance Director temporarily became acting Chief Executive Officer. The acting Chief Executive Officer was not familiar with the legal requirements of the role. In particular, he was not aware that councillors were required to lodge a form of ordinary return, or that he was to alert councillors of their non-compliance under section 68. In the absence of the former Chief Executive Officer, councillors did not comply with the requirements of section 66 and forms of ordinary return were not lodged by any councillor within the 60 day time period from 30 June 2013 as prescribed by section 66. The acting Chief Executive Officer did not comply with section 68. No notice was sent to councillors informing them of their non-compliance.
I am satisfied on the affidavit material before me that the councillors relied upon the diligence of the former Chief Executive Officer in complying with their legal obligations relevant to their offices. I am also satisfied that each of the councillors would have lodged returns if the practice of the previous Chief Executive Officer had continued or if they had received notices from the acting Chief Executive Officer in compliance with section 68. Each councillor lodged forms within 24 hours of becoming aware of the requirement to do so.
Section 54 makes it plain that I have the power to restore the members to their offices if I am ‘satisfied that the failure arose from circumstances beyond the member’s control’.
Counsel argued that the circumstances were beyond the members’ control as control was exerted by the Chief Executive Officer.[1] Counsel argued that the Chief Executive Officer, and then the acting Chief Executive Officer, controlled the circumstances upon which the councillors relied to ensure returns were lodged.
[1] T13.28-31.
Section 54 was considered in this Court by Judge Bowering in City of Port Adelaide Enfield.[2] The facts of that case are similar to the facts before me. In that case, 13 members of the Council of the City of Port Adelaide Enfield failed to lodge their primary returns by the required date. The Chief Executive Officer failed to notify the members of their failure to lodge or to advise them of the consequences of that failure, as required under section 68(2) of the Act. In that case, his Honour Judge Bowering stated:
...although I do not regard the failure of the members to submit a primary return as being a matter beyond the control of each member, I am satisfied that such failure arose from – indeed, as a direct consequence of – circumstances beyond the control of each member, namely, the failure of the Chief Executive Officer to give the notice required. In these circumstances, I am satisfied that it is proper to order that all thirteen members be restored to office.
[2] [2000] SADC 122.
As submitted by Mr Walsh QC, the statutory scheme serves two important public policy considerations; first, that councillors should disclose interests to the public to ensure transparency and allow public scrutiny; and secondly, that all reasonable steps should be taken to avoid new elections because of a failure to comply.[3]
[3] Outline of Argument, para 9.
Having considered the affidavit material before me, having heard submissions and taking into account the context of the legislation and the authorities on the point, I am satisfied that the failure of each of the plaintiffs to comply with the requirement under s 66 of the Act to lodge an ordinary return within 60 days after June 2013 arose from circumstances beyond each of those members’ control. The Chief Executive Officer of the Council failed, pursuant to section 68(2) of the Act, to notify each and every member of the failure to lodge the ordinary return and to provide specific information about the consequences under Division 1 of Part 2 of Chapter 5 of the Act if a return was not submitted in accordance with the requirements of the division. I am also satisfied that no notification under subsection 2 of section 68 was given by a letter sent to each and every member by registered mail.
In accordance with the approach taken by Judge Bowering in City of Port Adelaide Enfield, I made an order on 7 November 2013 to restore each and every of those members to office, that is to the same office, rather than to the same situation or circumstances previously held by that member. I was not able to retrospectively restore the members to their position and therefore the date of restoration was 6 November 2013.
Declarable interests in Form 4
I turn now to the content of the ordinary return and particularly the requirement to disclose any beneficial interest in a trust as described in paragraph 9 of Form 4.
Form 4 provides a list of registrable interests that council members are required to declare. Paragraph 9 states as follows:-
9Provide a concise description of any trust (other than a testamentary trust) of which you or a person related to you is a beneficiary or trustee, and the name and address of each trustee.
The issue that I have been asked to address relates to the nature of an interest that a member holds in a superannuation of a fund and whether that interest is declarable at Item 9 in Form 4.
The general framework of superannuation funds
Most superannuation funds in Australia are established as trusts. Historically there were two types of funds primarily established, though they are not the only funds available. The first, and the most widespread, was accumulated benefit funds. Accumulated benefit funds involve regular contributions by the member’s employer or by the member themselves. The contributions of each member are recorded separately. The trust deed will authorise the trustees to invest contributions of members in investments, and any profit or loss in those investments is shared by the members. This type of fund is that discussed in Caboche v Ramsay (‘Caboche’)[4] (though in that case, Mr Bond was the only member of the fund). The other type of fund is a defined benefit scheme. In that scheme, the monetary payout to be received upon retirement or another prescribed event is calculated using a formula. Members are not given an account of their entitlement progressively and do not have a quantifiable interest in the fund. However, each member has an interest in the fund which is contingent upon reaching retirement age before dying.
[4] (1993) 27ATR 479.
Contrary to popular understanding, forms of self managed superannuation funds existed prior to the major legislative changes that occurred in 1993. I will deal with those changes later. It is presently sufficient to say that at all times this form of superannuation was based in trust arrangements. The difference, as has always been the case and remains, is what is now described as the identifiable members benefit in those funds. The growth of self managed superannuation has now reached the stage where it accounts for over one third of Australia’s superannuation assets. On that basis, it is logical to infer that some of the applicants operate their own self managed superannuation funds. I will proceed accordingly.
Traditionally, one view has been that the nature of a beneficiary’s right in a superannuation trust was inchoate – that is, the beneficiary had no legal or beneficial interest in the amount in the fund until the occurrence of a prescribed event which would crystallise the beneficiary’s right into an entitlement. That was the view expressed by his Honour O’Loughlin J in Re Coram.[5] In that case, O’Loughlin J stated that the right of a member of a superannuation fund was ‘no more than an expectancy’:- [6]
His entitlements are all in the future and are all dependant on the happening of a prescribed event, of which the most common is the attainment of an agreed retirement age.
[5] Re Coram; ex parte Official Trustee in Bankruptcy v Inglis and Others (1992) 36 FCR 353.
[6] Ibid at 254.
The judgment of O’Loughlin J in Re Coram has been criticised for making broad statements about the nature of interests in superannuation funds without the qualification that each member’s interest will turn on the individual trust deed. It has been argued that his characterisation of the interest as inchoate is unduly narrow and ‘would not describe the typical case according to either historical or contemporary benefit design’.[7] That criticism may well overlook the particular circumstances before the learned Judge at the time he made his decision. It is unnecessary for me to resolve that matter.
[7] John Edstein, ‘Superannuation funds: A beneficiary’s interest and accrued benefits’ (2010) 13(3) The Tax Specialist 122, 126 (‘Edstein’).
In Caboche, Gummow J characterised Mr Bond’s interest in a superannuation fund for the purposes of bankruptcy. In that case, the relevant provision in the trust deed stated:
If a member retires from the employment of an employer but not from the workforce then, subject to the deed and these rules, the member shall become entitled to...
Gummow J discussed the distinction between a grant of an absolute interest with a condition subsequent which attempts to terminate an interest and the grant of a determinable interest. His Honour said as follows:-[8]
The distinction, in the words of Professor Williams in his paper ‘The Doctrine of Repugnancy’ (1943) 59 LQR 343 at 352 is “between a grant ‘to A, but if he alienates then to B’, where the gift over is void, and a grant ‘to A until he alienates, and then to B’ where the gift to A comes to an end if he purports to alienate it.
Criticism has been levelled at this doctrine on the grounds that distinctions such as this are severely semantic. ... However, the two cases described above are logically distinct and the difference between them is well-settled and fundamental. In the first case, the donor is attempting to take back something he has given absolutely, something which is beyond his power. In the second case, the donor is merely defining the nature of that being given. It is necessary in each case to construe the instrument creating the proprietary interest in question to determine into which category the interest falls.
Gummow J went on to characterise the nature of Mr Bond’s interest as follows:-[9]
The property forming the fund was settled on the trustees for the benefit of Mr Bond. Upon the constitution of the fund Mr Bond obtained an equitable proprietary interest in the fund, albeit one that did not carry an immediate right to payment.
...
The interest of Mr Bond was conditional in the sense that no benefit might be paid until certain conditions were satisfied... Upon the occurrence of any of these conditions, Mr Bond’s interest is altered.
[8] (1993) 27ATR 479, 490.
[9] Ibid, 493.
In 1993, the Superannuation Industry (Supervision) Act 1993 (‘SIS Act’) came into effect. The Act regulates the conduct of superannuation funds including trustees and imposes additional protections for beneficiaries of the funds. The SIS Act reflects the general structure of a superannuation fund as a private trust. For example, as outlined by Edstein:
a) a fund must have a trustee, the definition for which is consistent with concepts of a private trust relationship;
b) the concept of “fund” itself equates with the trust estate of the private trust;
c) provisions of the SIS Act protect the interests of “beneficiaries” which includes persons who have a “beneficial interest in the fund”; and
d) the governing rules of each fund are deemed to contain the covenants by trustees as set down by s 52(2) of the SIS Act.[10]
[10] Above n 7, 124.
Though the SIS Act does create new causes of action, it does not substantially alter the nature of the member’s benefit which generally will be an interest in a trust fund.[11] However the discussion about questions of ‘interests’ in superannuation funds would be incomplete without identifying that the structure of the SIS Act and its regulations and schedules govern the condition of release of benefits from a superannuation fund. It is not appropriate that I canvas those issues here. It is sufficient to say that apart from what may be understood as the usual circumstances such as ‘retirement’, attaining the age of 60 years (or transition to retirement from the age of 55 years) the members interest in the fund is in large part inchoate because of a member’s need to satisfy the conditions of release of benefits.
[11] Justice Graham Hill, ‘The true nature of a member’s interest in a superannation fund’ (2002) 5(1) Journal of Australian Taxation 1, 27.
Though the exact nature of a member’s interest is somewhat unsettled, and, as pointed out by Edstein, may traverse the range of different types of interest from mere expectancy through to an absolute interest over the life of the membership, the law of trusts applies generally to superannuation interests.[12] And as stated by Hill J, the true nature of a member’s interest is a beneficial interest in a trust estate governed by the law of trusts and the SIS Act.[13]
[12] Above n 7, 127.
[13] Above n 11, 33.
On a broad reading of paragraph 9 of Form 4, a beneficial interest in the superannuation trust estate would be a declarable interest. Self-managed superannuation funds clearly fall within the terms of paragraph 9 as members of those funds are usually both trustees or one of the controllers of trustee and beneficiaries. A self managed superannuation fund must have less than 5 members. By definition it is directed towards private trust interests. The policy considerations requiring disclosure of such an interest are not clear. It is also to be inferred that councillors may be members of one or more superannuation funds. With the exception of self-managed superannuation funds, members of superannuation funds generally have very little participation in the management of the fund.
The public policy considerations I described earlier in this judgment are not served by a declaration of a simple membership of a superannuation fund. However, until clarified further in the regulations or the Act, councillors should declare their membership of a superannuation fund at paragraph 9.
In my opinion this is an unintended consequence of its method of drafting. The declaration of an ‘interest’ in a superannuation fund does not appear to be the ‘target’ at which the legislation and regulations are directed. This problem has arisen in a number of other contexts to my knowledge and appropriate adjustments have been made to exclude any necessity to make declarations about superannuation interests. In my opinion the question postulated in the form of the Form 4 should be adjusted accordingly. Alternatively the Form can be adjusted so as to be framed by exclusions. This is a matter that requires the attention of Parliament.
For completeness, I will repeat the orders I made on 7 November 2013 in relation to restoration of the councillors:
The Court orders that:
pursuant to the power under section 54(4)(a) of the Act, the following persons be restored to the office of an elected member of the Council from 6 November 2013:
i.Russel John Smith;
ii.Mark Andrew Weedon;
iii.Cynthia Lorraine Axford;
iv.Grant William Rowlands;
v.Dean Charles Dolling;
vi.Leonie Helen Kerley;
vii.Brian Dennis Rooney;
viii.Evelyn Georgina Simmons;
ix.Margaret Anne McDonald.
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