Strutt and Defence Force Retirement and Death Benefits Authority

[2007] AATA 1614

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1614

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q 200500846

GENERAL ADMINISTRATIVE DIVISION		)
Re		GREGORY PAUL STRUTT

Applicant

And DEFENCE FORCE RETIREMENT AND DEATH BENEFITS AUTHORITY

Respondent

DECISION

Tribunal Ms M J Carstairs, Senior Member

Date31 July 2007

PlaceBrisbane (heard in Townsville)

Decision The Tribunal affirms the decision under review.

...................[Sgd]...................

Senior Member

CATCHWORDS

DEFENCE FORCE RETIREMENT AND DEATH BENEFITS – applicant retired as member of DFRDB Scheme and subsequently reengaged in Defence service for five months – no written election to remain in scheme – oral election to remain in scheme not sufficient – decision under review affirmed.  

Defence Force Retirement and Death Benefits Act 1973 ss 3, 5A, 17, 61B

Military Superannuation and Benefits Act 1991 ss 6(1), 6(2), 58

Re Callaghan and Defence Force Retirement and Death Benefits Authority (1978) 1 ALD 227

Formosa v Secretary Department of Social Security (1988) 46 FCR 117

Defence Forces Retirement and Death Benefits Authority v Chapman (2000) 63 ALD 351

Chapman v Defence Forces Retirement and Death Benefits Authority [2001] 108 FCR 537

Coleman and Defence Force Retirement and Death Benefits Authority [2002] 69 ALD 222

Clissold v Perry (1904) 1 CLR 363

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355

REASONS FOR DECISION

31 July 2007    Ms M J Carstairs, Senior Member

1.      In 2001 Captain Gregory Strutt retired from the Australian Army after having served for twenty years, during which time he contributed to the Defence Force Retirement and Death Benefits Scheme (the DFRDB Scheme), a superannuation scheme administered by the DFRDB Authority (the Authority).  The DFRDB Scheme, a defined superannuation benefit scheme, was closed to new membership from 1 October 1991, at which time it was replaced by a new scheme, the Military Superannuation and Benefits Scheme (the MSB Scheme).

2.      At the time of his retirement Capt Strutt’s 20 years’ service entitled him to a lump sum and a pension under the DFRDB Scheme.  The pension component was calculated according to rank at retirement, which in Capt Strutt’s case was Warrant Officer.  After retirement, Capt Strutt maintained his connection with the Defence Force and served as an officer in the Army Reserve, his Unit being attached to Jezzine Barracks in Townsville.  However in July 2004 Capt Strutt took a full-time position, of 5 months duration, as Logistic Captain at the Headquarters at Jezzine Barracks.  

3.      The respondent ruled that when Capt Strutt took up this 5 month appointment he failed to make a valid election not to become a member of the MSB Scheme.  Capt Strutt disagrees.  He says he made an election to remain in the DFRDB Scheme and would suffer significant financial detriment if transferred, against his intention, to the MSB Scheme.

THE ISSUE

4.      The issue for me to decide is the correct application of relevant provisions in the Defence Force Retirement and Death Benefits Act 1973 (the DFRDB Act) and in the Military Superannuation and Benefits Act 1991 (the MSB Act) in circumstances where Capt Strutt resumed full-time service in the Army Reserve for 5 months, having previously been a recipient member of the DFRDB Scheme.

BACKGROUND

5. As one might expect, the introduction of the MSB scheme to replace the older scheme required specific provisions to deal with the sort of situation that Capt Strutt faced – that is, where a retired member of the old scheme resumed full-time service after the new Act came into force. The MSB Act contained provisions amending the DFRDB Act, including certain provisions requiring members of the DFRDB Scheme to make written elections concerning which Scheme they would opt to join when taking up further Defence service after 1 October 1991.

6.      Capt Strutt at all times wished to remain in the DFRDB Scheme.  But it is common ground that, before commencing the 5 month appointment in July 2004, he made no written election of any kind.  Having taken up the 5 month appointment Capt Strutt was aware that he was contributing to the MSB Scheme, but was not concerned because he understood that he could not contribute to the DFRDB Scheme if serving less than 12 months.  However he had occasion to contact the Authority in November 2004 because another offer of appointment had been made to him, this time for a 12 month appointment, and he wanted an update on the effect this would have on his DFRDB pension.  He learned then that there was a problem with his membership to the DFRDB Scheme because he had not made the necessary written election nominating a scheme prior to taking up the appointment in July 2004. 

7. Whilst the DFRDB Act does not prescribe the use of a particular form, the Authority provides such a form: the DM-100. The form was available on request and on the Authority's web site, and ordinarily was provided as part of a bundle of documents given to members at the time of their discharge.

8.      Someone at the Authority must have considered that Capt Strutt could make a retrospective election to remain in the DFRDB Scheme because he was invited to fill out the DM-100 form for the 5 month period of employment.  However the relevant decision-maker thought otherwise and made the decision that a late election could not be accepted.  By failing to make a written election in July 2004 Capt Strutt had become, by default, a member of the MSB Scheme. 

DID CAPTAIN STRUTT ORALLY ELECT TO REMAIN IN THE DFRDB SCHEME?

9. One submission made on behalf of Capt Strutt was that although he did not make a written election he had made it sufficiently plain to the Authority early in 2004 that he wished to remain in the DFRDB scheme. It was said that in the context of the DFRDB Act, given its beneficial nature, an oral election should suffice to allow him to remain in the DFRDB Scheme.

10.     The circumstances relied upon were that Capt Strutt made a telephone call to the Authority some time in January 2004, when he spoke with Mr Jose Exposito, a contact officer with the Authority.  That month Capt Strutt had been offered the possibility of a 12 month full-time position as Logistic Captain at Headquarters and he wanted to know how this would affect his DFRDB entitlements. 

11.     I should point out that there is no written record of the telephone call, but there is also no question that it took place, as can be reasonably inferred from a letter that Mr Exposito subsequently emailed to Capt Strutt.[1]  With the passage of time, Mr Exposito had no detailed recollection of what he discussed with Capt Strutt.  Mr Exposito agreed that it was part of his role as a contact officer to provide information to callers and to let people know about the existence of the form             DM-100.

[1]        T12.

12.     Capt Strutt’s recollection[2] of the telephone call was that he canvassed with Mr Exposito how a 12 month appointment would affect his DFRDB pension.  In that regard Capt Strutt requested a revised estimate of his entitlements under the DFRDB Scheme after an additional 12 months’ service.  Capt Strutt claims that he told Mr Exposito about his intention to remain in the DRFDB scheme.

[2]        Exhibit A1.

13.     Capt Strutt also relied upon the misleading content in the covering letter Mr Exposito sent him with the revised calculation of his DFRDB benefit.  The letter stated:

This is an estimate of the superannuation benefits available to you on 1 March 2005 following a second or subsequent period of service in the Australian Defence force.

I note that, as a recipient member (that is, a person who is in receipt of retirement pay) from the …DFRDB Scheme, you have elected to remain in DFRDB….[emphasis added][3]

[3]        T12, p 42.

Mr Exposito explained in his oral evidence that the above sentence in bold was computer-generated and could not be deleted from the letter.  He said that his only input was in the fields referring to providing the new estimate.

14.     Capt Strutt maintains, however, that after he received Mr Exposito’s letter he believed that he had successfully made an election to remain in the DFRDB Scheme.  On the basis of this belief he did not notify the Authority when in July he commenced the 5 month appointment.  The submission made on his behalf by Mr S McLeod of counsel was that the Authority, by its specific reference to Capt Strutt having elected to remain in the DFRDB Scheme, was estopped from denying that he had in fact done so.

15.     The submission about estoppel must fail however for the simple reason that oral elections are not authorised by the Act, and the Authority cannot alter that position by incorrectly recognising the election as valid.  Statutory powers cannot be extended by creating an estoppel.[4]

[4]        Re Callaghan and Defence Force Retirement and Death Benefits Authority (1978) 1 ALD 227

at 231.

16.     As events later transpired, the person that Capt Strutt was replacing as Logistic Captain remained in the position until July 2004.  Subsequently Capt Strutt was offered the foreshortened 5 month appointment.

17.     On these facts, I was satisfied that the only term of appointment that could possibly have been discussed in the January telephone call was the then anticipated 12 month appointment.  The revised calculations of benefit which Mr Exposito forwarded with the letter confirm this.  Indeed Capt Strutt made no suggestion that they discussed any shorter term of appointment. 

18.     On my view of these facts, the submission that Capt Strutt made an oral election during the telephone call with Mr Exposito cannot succeed.  Any minor differences in the recollections of Capt Strutt and Mr Exposito about the telephone call make no difference to the outcome.  I readily accept that Capt Strutt had a clear intention at all times to remain within the DFRDB Scheme, but I do not accept that he plainly stated this to Mr Exposito.  If he had done so it would have been a simple matter for Mr Exposito, when sending the new calculations of revised benefits, to supply the DM-100 form to Capt Strutt. 

19. Whatever Capt Strutt might have intended to convey, and indeed even had he clearly stated to Mr Exposito that he elected to remain in the DFRDB Scheme, an oral communication cannot satisfy the clear requirement in the DFRDB Act that an election must be in writing.[5]  It is necessary for proper administration of both Schemes, bearing in mind the financial implications involved for members, that the Authority has clear written authorisation to deal with member contributions, future and past. 

[5]        Formosa v Secretary Department of Social Security (1988) 46 FCR 117.

20.     In addition, on the view that I have taken of the evidence, I do not accept that anything in the Authority’s letter influenced Capt Strutt at the relevant time – that is July 2004.  As I see it, the real reason Capt Strutt took no action in July was not because he believed that he had already made the election referred to in the covering letter, but because he believed that an appointment of less than 12 months did not require any action on his part.[6]  This was his earliest stated reason when he was told that there was a problem, and I see no reason not to accept it as true. 

[6]         Letter to Comsuper from Capt Strutt of 23 November 2004, T17 p 50.

21.     I was satisfied on the facts before me:

§   that in January 2004 Capt Strutt did not make any election to remain in the DFRDB Scheme; and 

§  that he made no written election when he took up the 5 month appointment in July 2004. 

22. The consequences that flow from his failure to make any written election in July 2004 must be determined by examining the relevant provisions in the DFRDB Act and the MSB Act at that time. I now turn to the legislative provisions.

THE LEGISLATION

23.     Before he took up the position in July 2004 Capt Strutt was a person entitled to retirement pay under the DFRDB Scheme[7] and as such was a recipient member of the DFRDB Scheme, and a person who was required to make a written election to the Authority before taking up a further engagement in the Defence Force.[8] 

[7] Section 3 of the DFRDB Act.

[8]        The Federal Court concluded in Chapman v Defence Forces Retirement and Death Benefits

Authority [2001] 108 FCR 537 that terms such as Defence force in the DFRDB Act mirrored the usage of similar terms in the Defence Act 1903. It was not in issue that Capt Strutt was resuming full-time service in the Defence Force when he took up the 5 month position in the Army Reserve.

24. Section 61B of the DFRDB Act, which was added to the DFRDB Act by s 58 of the MSB Act, made provision for these written elections.

25.     The background to the history of these provisions was conveniently set out by Weinberg J in Defence Forces Retirement and Death Benefits Authority v Chapman (2000) 63 ALD 351 (whose reasoning was adopted by the majority of the Full Federal Court in Chapman v Defence Forces Retirement and Death Benefits Authority [2001] 108 FCR 537).

26.     In DFRDB v Chapman, Weinberg J observed that the effect of enacting the MSB Act was to close off the DFRDB Scheme to new membership by amending the definition of eligible member of the Defence Force provided for in s 3(1) of the DFRDB Act. He cited from the Minister’s Second Reading Speech[9] which stated:

The Military Superannuation and Benefits Bill has the effect of rendering the DFRDB scheme a closed scheme.  That is, the only persons who will be in the DFRDB scheme are those who opt not to transfer to the MSBS.  The only persons permitted to join the scheme will be pensioner re-entrants who also opt not to join the MSBS.

[9]         Hansard 15 April 1991 p 2584.

27. Determining exactly who is covered under each of the DFRDB and MSB Schemes proceeds by way of what can only be described as a tortuous series of definitions. A number of sections in the DFRDB Act set out who is included and who is excluded from the possible class of members of the DFRDB Scheme. The starting point, however, is the provision in s 3 of the Act defining the term eligible member of the Defence Force.  Importantly, that section then must be read with s 5A of the DFRDB Act.

28. Section 3 (insofar as is relevant to Capt Strutt’s case) states that an eligible member of the Defence Force is: 

(a)       a member of the Defence Force who:          

(i) is serving on continuous full-time service under an appointment or engagement, or under a re-appointment or re-engagement, for a period of not less than one year; or

(ii)…

(b)       …

but does not include:

(c)       a person who, under section 5A, is excluded from this definition;

29. Section 5A of the DFRDB Act provides as follows:

(1)       Subject to subsection (2), a person who:

(a)becomes, on or after 1 October 1991, a member of the Defence Force; or

(b)being a member of a Reserve, commences on or after that day to render continuous full-time service for a period of not less than 12 months;

is excluded from the definition of eligible member of the Defence Force in subsection 3(1).

30.     In DFRDB and Chapman Weinberg J, having observed that the effect of s 5A(1) of the DFRDB Act was to close off the DFRDB Scheme, noted that this effect was ameliorated by s 5A(2), which provides for certain narrowly defined exemptions to the otherwise blanket closure of the DFRDB Scheme to new entrants after 1 October 1991.

31.     Essentially then, if Mr Strutt is to be taken as an eligible member of the Defence Force so as to retain coverage under the DFRDB Scheme he must come within one of the limited class of exemptions defined in s 5A(2) of the DFRDB Act. I will confine myself to considering the only applicable exemption, namely s 5A(2)(b) which identifies:

a person to whom s 61B applies and who has elected under that section to become a contributory member. 

32. As stated above, s 61B deals with written elections. Because of the pivotal role when applied to Capt Strutt’s facts, it is necessary to set the section out in full:

61B (1)  Where a person:

(a)  who is a recipient member: or

(b)…….

intends to resume full‑time service:

(c)  as a member of the Permanent Forces; or

(d)  as a member of a Reserve for a continuous period of not less than 12 months;

the person must, before resuming service, in writing addressed to the Authority, elect:

(e)  to become a contributing member; or

(f)  to become a member of the MSB scheme.

(2)  Subsection (1) does not apply if the person has previously:

(a)  made an election under that subsection; or

(b) made, under subsection (3), an election to become a member of the MSB scheme.

(3)  A recipient member who:

(a)  intends to resume full‑time service as a member of a Reserve for a continuous period of less than 12 months; and

(b)  has not previously made, under this section, an election to become a  member of the MSB scheme;

must, before resuming service, in writing addressed to the Authority, elect whether or not to become a member of that scheme.

33. It is readily apparent that each of ss 61B(1) and 61B(3) separately provides for a written election, depending upon the length of the person’s re-engagement in the Defence Force. The written election called for in each instance, however, is differently described:

§the member resuming full time service for a period of more than 12 months – s 61B(1):

(i) must elect to become a contributing member[10] of the DFRDB Scheme or (ii) must elect  to become a member of the MSB Scheme.

However:

§the member resuming full time service for less than 12 months - s 61B(3):

(i) must elect whether or not to become a member of that scheme – being the MSB Scheme.

[10]       The Tribunal in Coleman and Defence Force Retirement and Death Benefits Authority [2002]

34. Significance must attach to this drafting difference. I should point out that elsewhere in the DFRDB Act the distinction between re-engagements of longer than 12 months duration and of less than 12 months duration are identified and differentiated for other purposes. For example s 17(1A) of the DFRDB Act provides that a member who re-engages for less than 12 months is not required to make fortnightly contributions to the DFRDB Scheme. This may explain the distinction drawn in s 61B between the two differently described written elections, depending as they do on the length of the term of appointment. If it were otherwise, it would have been a simple matter for the drafters of s 61B to provide for one kind of written election, regardless of length of the term of appointment.

35. The distinction is reinforced by subsection 61B(2) which provides that an election to remain in the DFRDB Scheme, referable to a 12 month appointment, is made once for all. However the only final election under s 61(B)(3) would be where a person previously had elected to transfer to the MSB Scheme. I was told, and accept, that once an election is made to the MSB Scheme it is final, because there is no provision in the MSB Act for transfers to the DFRDB Scheme.

36. Turning then to the requirements of the written election mandated by s 61B(3) that Capt Strutt was required to make, but did not make, before taking up the 5 month appointment in July 2004. Capt Strutt was required to elect whether or not to join the MSB Scheme. In other words he had to state a specific intention about joining the new scheme.

37. So what happens when, as here, he made no election at all? It seems to me, taking s 61B in isolation, that by failing to make the required written election, Capt Strutt, would remain by default in the DFRDB Scheme. The mandatory nature of the requirement in s 61B(3) for:

§  writing, and

§  for a stated election either to join or not to join the MSB Scheme

would be defeated if an election to the MSB Scheme could be made other than in writing. It seems to me that s 61B makes both matters mandatory in order to ascertain the clear intention of the person affected. I was mindful in this regard that what was under consideration was Capt Strutt’s vested rights in his superannuation scheme, and these should not be lost merely by inadvertence on his part. It is a longstanding rule of construction that statutes are not to be construed as interfering with vested interests unless that intention is manifest: Clissold v Perry (1904) 1 CLR 363.

38. If s 61B could be read on its own, without account being taken of other parts of the Act, I would answer the question “Did Capt Strutt’s failure to make an election lead to the result that he became a member of the MSB Scheme?” – No.

39. However, s 61B cannot be read on its own, but must be read in combination with s 3 and s 5A of the DFRDB Act.[11]  

[11]        Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355.

40.     To remain a member of the DFRDB Scheme Capt Strutt had to be an eligible member of the Defence Force as at July 2004, one of what Weinberg J referred to as the very limited classes of re-entrant specifically identified in s 5A(2) of the DFRDB Act. It might seem at first blush that Capt Strutt would not be excluded by s 5A(1)(a) or s 5A(1)(b) from coming within the s 3 definition eligible member of the Defence Force because he was on a 5 month appointment and s 5A(1)(b) refers specifically to members of the Reserve on appointments longer than 12 months. However s 5A(1)(a) has a broader ambit, according to the majority in Chapman v DFRDBA.  Section 5A(1)(a) refers to a person who:

(a) becomes, on or after 1 October 1991, a member of the Defence Force.

41.     The majority in Chapman v DFRDBA[12] described the ambit of s 5A(1) as follows:

…. Subsection 5A(1) of the DFRDB Act makes the date 1 October 1991 a watershed. Eligibility, by operation of s 3 of the DFRDB Act, depends upon current continuous full-time service of certain kinds by members of the Defence Force, of whatever status. Section 5A(1) makes clear that, in general, any person actually joining the Defence Force in any capacity from 1 October 1991 will in no circumstances ever become eligible. Any person who was then a member of the Permanent Force will clearly continue to be eligible because of the full-time service obligation of that person. So far as the Army was concerned, that left members of the Reserve Forces and Emergency Forces as at 1 October 1991 to be dealt with. Any person joining these Forces after that date is caught by virtue of s 5A(1)(a). Against this background, s 5A(1)(b) identifies membership of the Reserve Forces or the Emergency Forces on 1 October 1991 as the class of person to whom the exclusion in the subsection applies. Therefore, it does not matter in what capacity the later continuous full-time service is rendered. It will be observed that the reference to "that day" in the subsection obviously refers to and, in that sense, incorporates the date of 1 October 1991. In this fashion, subs 5A(1) as a whole excludes eligibility for any person commencing continuous full-time service after 1 October 1991. This accords a sensible meaning to the words construed in context, and, if it be relevant, accords with the Second Reading Speech by the Minister for Defence, Science and Personnel on the 1991 Defence Force Superannuation Legislation Amendment Bill (Hansard, House of Representatives, 13 March 1991) where it was said that the Bill had the effect of making the scheme a closed scheme.

[12] [2001] 108 FCR 537 at para 21.

42.     Capt Strutt became a member of the Defence Force when he took up the appointment in July 2004.  He then only could remain an eligible member of the Defence Force for the purposes of the DFRDB Act if he could show, in accordance with s 5A(2)(b), that he was:

a person to whom s 61B applies and who has elected under that section to become a contributory member.

43. Capt Strutt cannot satisfy this provision. Quite apart from the fact that he would not be making contributions to the DFRDB Scheme for a re-engagement less than 12 months in duration, it is apparent that the exclusion provided for in s 5A(2)(b) is confined to those who, pursuant to s 61B(1)(e) make the positive election to become a contributing member of the DFRDB scheme. The ‘election’ referred to in s 5A(2)(b) can only be read, consistently with the requirements of s 61B, as referring to a written election. Capt Strutt made no written election to remain in the DFRDB Scheme.

44. I should observe that account must also be taken of s 6(1) of the MSB Act. It provides that:

1)Subject to subsection (2), each of the following persons is, by force of this section, a member of the Scheme:

(a)…

(b)…

(c) a member of the Reserves who is rendering continuous full-time service under an undertaking to serve for a period of less than 12 months unless that member has elected not to become a member of the Scheme under section 61B of the DFRDB Act.

2)        In spite of subsection (1), a person is not a member of the Scheme if the

person is an eligible member of the Defence Force for the purposes of the DFRDB Act.

45. Section 6(2) of the MSB Act has the effect that that a person cannot be a member of both the MSB Scheme and the DFRDB Scheme. As Capt Strutt was not an eligible member of the Defence Force for the purposes of the DFRDB Act, for the reasons given above, he became a member of the MSB Scheme pursuant to s 6(1)(c). This result is unfortunate for Capt Strutt, who has suffered significant financial detriment by failing to make a written election at the relevant time.

DECISION

46.     The Tribunal affirms the decision under review.

I certify that the preceding 46 paragraphs are a true copy of the reasons for the decision herein of Senior Member Ms M J Carstairs.

Signed:         Ms M J Brazier
  Associate

Dates of Hearing  21 March 2007
Date of Decision  31 July 2007
Counsel for the Applicant         Mr S McLeod
Solicitor for the Applicant          Mr M Smith, Boulton Cleary and Kern Lawyers
Solicitor for the Respondent     Mr A Dillon, Australian Government Solicitor

69 ALD 222 noted the different terms used in s 5A and s 61B – contributing and contributory –

but observed it to be a distinction without difference.