Togethr Trustees Pty Ltd v Safai

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
TOGETHR TRUSTEES PTY LTD v SAFAI
[2023] SASC 90
Reasons for Decision of the Honourable Justice Stein
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES - MISCELLANEOUS OTHER POWERS, DUTIES AND LIABILITIES - POWER TO AMEND TRUST DEED
SUPERANNUATION - PRIVATE SECTOR FUNDS - AMENDMENT OF TRUST DEED
The applicant, the Trustee of the superannuation fund known as Equipsuper, sought an order pursuant to s 59C of the Trustee Act 1936 (SA) varying the Trust Deed governing the superannuation fund. The proposed variation was to insert a new rule to provide for a fee to establish a trustee risk reserve of funds to address the risk of the Trustee incurring liabilities in relation to which it will not be indemnified from the assets of the Fund.
Held:
1.The Court had jurisdiction to entertain the application to vary the Trust Deed.
2.Prerequisites for making the variation order satisfied, including that there is good reason to vary the trust deed, it is in the interests of the beneficiaries to do so and in the circumstances will not result in one class of beneficiaries being unfairly advantaged.
3.Orders made varying the Trust Deed.

Trustee Act 1936 (SA) s 59C; Superannuation Industry (Supervision) Act 1993 (Cth) ss 29VA, 52, 52A, 56, 57; Occupational Superannuation Standards Act 1987 (Cth); Superannuation Safety Amendment Act 2004 (Cth); Corporations Act 2001 (Cth); Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth); Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Act 2019 (Cth); Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth); Treasury Laws Amendment (Your Future, Your Super) Act 2021 (Cth); Financial Sector Reform (Hayne Royal Commission Response No 2) Act 2021 (Cth); Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), referred to.
Energy Industries Superannuation Scheme Pty Ltd as trustee of the Energy Industries Superannuation Scheme Pool A and Pool B (trading as EISS Super) [2022] NSWSC 1202; AustralianSuper Pty Ltd v McMillan [2021] SASC 147; Host-Plus Pty Ltd v Blackwell [2022] SASC 59; Re QSuper Board [2021] QSC 276; Re Care Super Pty Ltd [2021] VSC 805; Re HEST Australia Ltd [2021] VSC 809; Application by Maritime Super Pty Ltd atf Maritime Super [2021] NSWSC 1614; Application by LGSS Pty Ltd atf Local Government Super [2021] NSWSC 1613; Application by Motor Trades Association of Australia Superannuation Fund Pty Ltd atf Spirit Super [2021] NSWSC 1672; Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121, considered.

TOGETHR TRUSTEES PTY LTD v SAFAI
[2023] SASC 90

STEIN J: The applicant, Togethr Trustees Pty Ltd (the “Trustee”), sought an order pursuant to s 59C of the Trustee Act 1936 (SA) (“Trustee Act”) varying the Trust Deed governing the superannuation fund known as Equipsuper. The proposed variation was to replace Rule A3.4 of the Trust Deed in its entirety with a new Rule A3.4 providing for a fee to be payable to the Trustee (“Trustee Fee”) in an amount equal to 0.08 percent per annum of the net assets of the superannuation fund (the “Fund”) calculated as at the end of the previous year.
A current member of Equipsuper was joined as the respondent to the proceedings to represent the interests of all actual and potential beneficiaries of the trust pursuant to s 59C(2) of the Trustee Act. The Australian Prudential Regulation Authority (“APRA”) was given notice of the originating application and kept informed of progress of the action. APRA did not take an active role in the proceedings. Correspondence between the Trustee and APRA was provided to the Court as part of the application. The Trustee notified the Attorneys-General of the Commonwealth, the States of Victoria and South Australia, the Australian Securities and Investments Commission, the Commissioner of Taxation and the Department of Treasury (Commonwealth) of the application and the proceedings. The Attorney-General for the State of South Australia confirmed he did not intend to intervene or participate in the proceedings.
As orders were sought as a matter of urgency, after the conclusion of the hearing, I made orders pursuant to s 59C of the Trustee Act varying the Trust Deed by inserting a new Rule A3.1A and replacing Rule A3.4 in the form set out in Annexure A to these reasons. I now publish my reasons for making those orders.
Purpose of proposed amendment to Trust Deed
The purpose of the proposed amendment is to enable the Trustee to charge an annual fee and thereby to establish a reserve of funds to be held by the Trustee in its personal capacity (“Trustee Reserve”). The purpose underlying the establishment of the Trustee Reserve is to address the risk of the Trustee and its directors incurring certain kinds of liabilities in relation to which they are not entitled to indemnification from the assets of the Fund by reason of ss 56(2) and 57(2) of the Superannuation Industry (Supervision) Act 1993 (Cth) (“SIS Act”). I address those legislative provisions below and the potential consequences for the Trustee and the Fund if liabilities were to be incurred which could not be met by the Trustee.
The hearing
Affidavits of Mr Scott Cameron, the Chief Executive Officer of Equipsuper; Mr Daniel Casey, the Chair and Independent Director of the Trustee and Togethr Holdings Pty Ltd (“Holdings”), Mr Geoffrey Sanders, a partner of Allens, solicitors for the Trustee, and expert evidence provided by Associate Professor Vivienne Brand and Professor Pamela Hanrahan were tendered by consent. The expertise of the expert witnesses was not challenged. None of the witnesses were required for cross examination. Various documents were tendered by consent.
I accepted the evidence of all of the witnesses. I accepted the expertise of the expert witnesses and their opinions.
Some evidence was confidential on the basis it constituted privileged legal advice[1] and some evidence was commercially confidential. I received that evidence in closed court and, as I was satisfied of the basis for the claims of confidentiality, I made orders to protect the confidentiality of that evidence. I have referred to some evidence in my reasons in general terms in the light of the confidentiality orders.
[1] There was no waiver of legal professional privilege in relation to any of the legal advice the subject of confidentiality orders.
History of Fund
Equipsuper is a medium sized, award-winning profit-to-member superannuation fund that has operated since 1931. As at 31 March 2022, Equipsuper had approximately 144,175 members and approximately $31.3 billion of funds under management.
Equipsuper was established in 1931. It was originally known as the Provident Fund of the State Electricity Commission of Victoria. In 1993, it became known as the Victorian Electricity Industry Superannuation Fund, in 1997, as the Victorian Energy Industry Superannuation Fund after a merger with the Gas and Fuel Superannuation Fund and the Fund changed its name to Equipsuper in 1998.
Since 1999, numerous other funds have merged into Equipsuper including:
·in 2017, Rio Tinto Staff Super Fund;
·in 2019, Dow Australia Superannuation Fund;
·in 2020, Pitcher Retirement Plan;
·in 2021, Toyota Super;
·in 2021, MyLifeMyMoney Superannuation Fund;
·in 2021, BOC Super.
Equipsuper serves as a superannuation fund for corporate plans in multiple industry sectors and is not aligned with any trade union movement.
Profit-to-member fund model
Equipsuper operates on a profit-to-member model. A profit-to-member model differs from other kinds of superannuation funds commonly referred to as “retail funds”. The shareholders of the trustee entity of retail funds are typically banks or financial institutions. Fees are charged to members in excess of cost recovery and against fund assets with the objective of generating a profit for the trustee’s shareholders. The profit-to-member model, in which the trustee of the fund is not operating to make a profit for shareholders, is designed to deliver better outcomes to members in the form of reduced fees and ultimately better returns. In the case of Equipsuper, all investment earnings and profits after expenses flow to members and are not retained by the Trustee personally or for the benefit of the Trustee’s sole shareholder. The Trustee does not pay and does not intend to pay in the future any profits or dividends to its sole shareholder nor commissions to advisers.
The Trustee has appointed a number of service providers. The Trustee’s agreements with service providers must comply with relevant APRA Prudential Standards. Those agreements address liability and indemnity issues.
The Trustee is also an employer contributing to the Fund in respect of its own employees.
Membership profile
Equipsuper has members across every State and Territory in Australia. I received on a confidential basis the number and type of memberships of South Australian members and the total value of account balances of South Australian members. That value is significant.
Fund Rules
Since the commencement of the Fund in 1931, there have been a number of changes and amendments to the Fund Rules, including the replacement of rules and the introduction of new rules from time to time. The initial Rules could not be located, although relevant legal advice and subsequent Rules were tendered. It is likely that the Trustee has never been entitled to receive from the Fund any commission or any other remuneration in respect of the office of trustee. The relevant Rules in 1987 provided that the Trustee was not entitled to receive any remuneration or commission from the Fund for administering the Fund or to reimbursement from the Fund of the ordinary expenses incurred in administering the Fund except as expressly permitted. The permitted reimbursements primarily addressed costs and expenses incurred in administering and accounting for investments of the Fund and any costs of proceedings a court may order to be paid from the Fund. The relevant Rules in 1989 provided that the Trustee would not be entitled to receive from the Fund any commission or other remuneration in respect of the office of trustee but permitted costs and expenses of, and incidental to, the operation, management, and administration and investment of the Fund, including all costs and expenses incurred by the Trustee in providing its services as trustee to be paid out of the Fund subject to various restrictions.
Financial position of the Fund
As at 31 March 2022, Fund assets amounted to approximately $31.9 billion and liabilities (excluding member benefits) were approximately $660 million. Assets available to pay benefits to members were approximately $31.2 billion, liabilities for benefits to members were approximately $30.6 billion and the Fund maintained a net assets surplus of approximately $634 million.
Products offered
Equipsuper is a public offer superannuation fund and anyone can join the Fund if they are qualified to contribute in accordance with the SIS Act. Equipsuper was originally a defined benefit only fund and other superannuation funds with defined benefit arrangements have transferred into Equipsuper. In general terms, the Fund offers accumulation, defined benefit and pension superannuation products. Since merging with the MyLife MyMoney Superannuation Fund in 2019, the Fund offers Equipsuper branded products, MyLife MySuper branded and Catholic Super branded products. The Equipsuper, MyLife MySuper and Catholic Super branded products are offered through different divisions of the Rules. Some accumulation products offered by the Fund are standard public offer accumulation products open to any eligible person and some are tailored to, and managed for, specific employer groups. There are nine separate corporate plans including for members who work in schools, hospitals, aged care, childcare, community services, welfare and transport services. The Fund provides defined benefit products which allow employers to contribute for employees and former employees to receive a specified benefit on retirement. The Fund also offers retirement income products. Members with accumulation and pension products are offered investment choice and can choose to invest their accounts across a variety of investment options.
The Fund has a long history of market leading performance including receipt of a number of awards and accolades.
The Trustee
The Trustee is an Australian proprietary company limited by shares. The Trustee has always acted as trustee of the Fund and does not conduct any separate business operations. The Trustee holds an Australian Financial Services Licence issued by the Australian Securities and Investments Commission (“ASIC”), a registrable superannuation entity licence issued by APRA, a generic MySuper authorisation in respect of the Equip MySuper branded product issued by APRA and a large employer MySuper authorisation in respect of the MyLife MySuper and Catholic Super branded products issued by APRA. The Trustee also holds a generic MySuper authorisation in respect of the former MySuper product offered through the MLMM Super Fund, which is to be wound up.
The Fund is a complying superannuation fund.
The Trustee has very limited personal capital other than capital it holds as Trustee of the Fund. The audited financial statements of the Trustee show $3 of equity comprising three fully paid ordinary shares of $1 per share held by Holdings. The Trustee holds a small amount in net assets which has arisen as a result of income earnt by the Trustee in respect of amounts pre-paid by the Fund for the purpose of meeting expenditure incurred by the Trustee in the course of operating and administering the Fund. As the Trustee does not make any personal profit from acting as trustee of the Fund, the Trustee considers those amounts are assets of the Fund which cannot be accessed to pay any liabilities prohibited under ss 56 and 57 of the SIS Act.
The Trustee has an equal number of independent directors, employer representative directors and member representative directors pursuant to the equal representation rules provided for under the SIS Act. The equal representation rules are also reflected in the terms of the Trustee’s Constitution. The Trustee’s board comprises three employer representative directors, three member representative directors and three independent directors. Those same individuals comprise the board of directors of Holdings.
Togethr group
The Trustee is wholly owned by Holdings which beneficially owns the three ordinary shares in the Trustee. The sole shareholder of Holdings is Mr Daniel Casey, the Chair of the Trustee’s board of directors. There are six shares in Holdings which Mr Casey holds on trust for the benefit of participating employers of the Fund. The issued share capital in Holdings is not a large amount. The contributed equity of the Trustee and Holdings does not and never has constituted cash. Holdings also wholly owns two other entities. The first is Togethr Financial Planning Pty Ltd (“TFP”) which was established as a financial advice services company, primarily to provide financial product advice to members of the Fund. The second is Togethr Asset Management Pty Ltd (“TAM”) which was established as an investment management company to provide investment services exclusively for the Fund. Both TFP and TAM operate on a cost recovery basis and not to generate a profit.
Trustee’s costs, expenses and fees
In operating, managing and investing the Fund, the Trustee incurs costs, expenses and liabilities which are met from the Fund pursuant to the Trustee’s right to recover its general expenses and liabilities from the Fund by virtue of Rule A2.4 of the Rules.
The Trustee charges members fees which are based on cost recovery and which are necessary to cover its operational costs and to maintain adequate reserves. “Fees” are charged to members to recover costs by reference to actual costs incurred, or an estimate of the costs to be incurred, including costs funded from amounts held in reserves. Three main kinds of fees are paid by members of the Fund (other than defined benefit members). Those fees are administration fees, investment fees and advice fees. Administration fees relate to the costs of the administration and operation of the Fund. The Fund charges an annual administration fee per member with a flat rate fee and a fee calculated as a percentage of the member’s account balance which may be subject to a cap. Different administration fees are charged to accumulation and pension members. Investment fees vary depending on the investment option chosen by the member. Components of the investment fees are characterised as investment fees and performance based fees. Investment fees are deducted from the underlying asset value and reflected in the daily unit prices. Transaction fees, which relate to buying and selling assets, are deducted from the underlying asset value and reflected in the daily unit prices. The same level of investment fee is charged to accumulation and pension members and defined benefit members making additional voluntary contributions. Advice fees may be payable by members who receive personal financial advice arranged by the Fund. Insurance premiums are payable by members who have insured benefits through the Fund.
Defined benefit members are only exposed to administration, investment, advice fees and insurance premiums to the extent they hold an accumulation interest in the Fund. In the case of defined benefit members, direct administration fees and costs associated with their benefit are generally paid by the employer. Structures differ, but employers of defined benefits members may be required to pay a per member fee, an asset fee based on the balance of the amount held and/or an annual plan fee of a fixed dollar sum for operating the plan.
Reserves
The Trustee maintains four reserves in the Fund in accordance with the Rules.
The Operational Risk Financial Reserve is held in accordance with APRA Prudential Standard SPS 114 Operational Risk Financial Requirement and is intended to provide financial resources to address losses to members that may arise from operational risks. An Administration Reserve (“Administration Reserve”) facilitates funding current and future operational requirements of the Fund. The Administration Fund is used to meet day to day operational costs as well as one-off approved expenditures considered to be in the long term interests of members. The Administration Reserve has been built up over a number of years in which fees charged have exceeded the costs paid out by the Fund. The Administration Reserve is a blended reserve derived from fees paid by, or on behalf of, members on all Fund products and across all member cohorts. An Investment Reserve reflects net investment earnings accumulated but not yet allocated to members. The daily value represents the difference between the cumulative amount of net investment income after fees and taxes earned by the Fund and the cumulative return to members through the unit price. A key component of the reserve from time to time represents the difference between the estimated tax rates applied in determining the daily unit pricing and the actual investment tax experience of the Fund. An Insurance Reserve has a self-insurance component, used to fund future service components of certain insurance benefits of particular defined benefit members, and a premium adjustment component which is used to cover additional premiums payable to the insurer as a consequence of premium adjustments agreed with the insurer. There are no separate or distinct reserves as between Equipsuper, MyLife MyMoney and Catholic Super branded products. However, the reserves are notionally tracked in respect of the separate branded products.
Expert Evidence supporting application
Report of Associate Professor Brand

Associate Professor Vivienne Brand is an Associate Professor in Law at Flinders University with significant experience in corporate law. Associate Professor Brand was asked to address a number of questions regarding the complexity and expansion of legislative, regulatory and other administrative obligations for financial services industry companies; the likelihood of further expansion; increases in maximum penalties or amounts payable under infringement notices; the likelihood of future increases; whether there have been increased enforcement activities; whether further increases are likely, and the current potential risks for a superannuation trustee for a large public offer fund and/or its directors and officers incurring civil, criminal or administrative penalties and infringement notices.
Associate Professor Brand described relevant changes in the regulation of superannuation companies since 1931 which I briefly, but not exhaustively, summarise below.
From the point of creation of the predecessor of the Equipsuper Fund in 1931 until 1987, there was no superannuation specific comprehensive Commonwealth regulatory system and, prior to 1987, there was no mandatory superannuation contribution system in Australia. Since 1987, superannuation specific obligations have been imposed, predominantly at Commonwealth level. In 1987, the Occupational Superannuation Standards Act 1987 (Cth) (“OSS Act”) was introduced to regulate the superannuation industry. It provided operating standards for certain funds but did not create offences for breach of standards. In 1993, the OSS Act was replaced by the SIS Act. The SIS Act was intended to give effect to measures to increase prudential protection provided to the superannuation industry. Criminal penalties were prescribed, as were civil penalty provisions.
In 2004, the SIS Act was amended by the Superannuation Safety Amendment Act 2004 (Cth) to introduce a licensing system for APRA regulated trustees known as registrable superannuation entities (“RSE”). New obligations were created in relation to licensing and requirements for risk management. The amending Act introduced a range of new offences.
Amendments were made to the SIS Act in 2012 and 2013. Those amendments altered the obligation of superannuation trustees and directors and imposed additional obligations on trustees and directors of trustees of funds offering a MySuper product. Among other things, the standard of care was raised from that of an ordinary prudent person to a prudent superannuation trustee. Additional express obligations were introduced and new duties imposed upon directors, owed directly to beneficiaries. The amendments also gave APRA power to make prudential standards which have, over time, increased.
In 2019, the number of Corporations Act 2001 (Cth) (“Corporations Act”) provisions subject to civil penalties were expanded by the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth). In 2019, sections were inserted into the SIS Act by the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Act 2019 (Cth). That Act created civil and criminal consequences in relation to mandatory covenants for the governing rules of superannuation trustees and added additional obligations for trustees.
In 2020, the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth) was enacted to implement recommendations made by Commissioner Hayne following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. That Act imposed a requirement on all RSEs to hold an Australian financial services licence, thereby resulting in the application of many obligations contained in the Corporations Act. The Act prohibited RSEs from having a duty to act in the interests of another person, gave ASIC enforcement powers in relation to certain provisions of the SIS Act and amended ss 56 and 57 of the SIS Act in the manner which I discuss separately below.
In 2021, the Treasury Laws Amendment (Your Future, Your Super) Act 2021 (Cth) inserted into the SIS Act an offence for breaching standards relating to record keeping obligations, replaced a “best interests” covenant with a “best financial interests” covenant and introduced an annual performance test to be conducted by APRA for MySuper products.
The Financial Sector Reform (Hayne Royal Commission Response No 2) Act 2021 (Cth) implemented further recommendations of Commissioner Hayne by making a number of amendments to the Corporations Act and the SIS Act in relation to fees, provision of fee disclosure statements, disclosure of lack of independence and to provide increased protections against charging fees for no service.
In addition to the immediate superannuation industry context, additional obligations have been introduced by other legislative reforms since 1987. These include amendments to the Corporations Act concerning regulation of financial services, including imposing a broad set of general obligations on holders of financial service licenses with civil penalty outcomes for breaches. Obligations are imposed on trustees to report various information to APRA with civil penalties for breach. Breach of various identification and reporting obligations on financial institutions also attract civil penalty orders.
Associate Professor Brand considers that there has been acceleration of the ongoing expansion in regulation of financial services and superannuation industries which cumulatively has increased relevant obligations within the superannuation industry and in relation to financial services. Associate Professor Brand considers it likely increased regulation and a corresponding expansion of relevant obligations will continue.
Associate Professor Brand notes that the maximum penalties attaching to relevant obligations for both civil and criminal penalties have significantly increased and there has been considerable expansion of regulatory powers to issue infringement notices. Associate Professor Brand considers it is reasonable to expect the maximum penalties attaching to relevant obligations will increase in the future. Associate Professor Brand indicated recent evidence demonstrates a dramatic increase in civil penalties enforcement activity and the likelihood of an ongoing trend of increased enforcement activity by ASIC, APRA and Australian Transaction Reports and Analysis Centre (“AUSTRAC”) in relation to companies engaged in the financial industry, particularly superannuation trustees of large public offer funds and their directors and officers.
Associate Professor Brand noted that superannuation and financial services laws are complex and multi-layered. She considered the current risk of a superannuation trustee of a large public offer fund and its directors and officers incurring civil, criminal or administrative penalties and infringement notices for compliance breaches is real and that risk is far greater than under previous regulatory systems. Associate Professor Brand considered there is a clear, long term trend towards increased director obligations and the complex structural factors that contribute to risk make it very difficult, if not impossible, to entirely eliminate those risks.
Report of Professor Hanrahan
Professor Pamela Hanrahan also has extensive experience in corporate law. She is a Professor of Commercial Law and Regulation at the UNSW Business School Sydney and holds a range of other positions.
Professor Hanrahan’s report addressed the exposure of trustees of large public superannuation funds and their directors to Commonwealth penalties. Professor Hanrahan observed that Australian superannuation law is notoriously complex. Legislation has frequently been revised and expanded and responsibility for administering and enforcing superannuation laws overlaps between different agencies including ASIC, APRA, AUSTRAC and the Australian Taxation Office (“ATO”). Professor Hanrahan noted that superannuation trustees and their directors have significant exposure to Commonwealth penalties, particularly under the SIS Act, the Corporations Act and the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). The largest change is in potential exposure to significant penalties for conduct that is not dishonest, intentional or reckless contravention of the law. This reflects a general increase towards more extensive and prescriptive statutory duties and obligations and a greater public enforcement role.
Professor Hanrahan identified significant trends in the number and complexity of legislative provisions applying to trustees which carry Commonwealth penalties for non-compliance. Civil penalty and infringement notice regimes have expanded, increasing the likelihood a Commonwealth penalty will be applied even in the absence of fault. Maximum Commonwealth penalties have significantly increased and Professor Hanrahan considered ASIC, APRA and AUSTRAC have adopted a more enforcement oriented approach to regulation, thus increasing the likelihood that technical breaches of legislation will result in a Commonwealth penalty. Professor Hanrahan noted that directors have potential personal exposure to penalties both directly and through accessorial liability. Professor Hanrahan concluded the exposure of superannuation trustees and their directors to Commonwealth penalties has greatly increased and changed in character and it is much more likely now that a trustee will be subject to a large monetary penalty even where not intentionally or recklessly breaking the law or acting in breach of trust.
Section 56/57 SIS Act amendments
Section 56 of the SIS Act is headed “Indemnification of trustee from assets of entity”. Section 56(2) of the SIS Act renders void a provision in the governing rules that exempts a trustee from, or indemnifies a trustee against, certain liabilities. In 2020, s 56(2)(b) and (c) were substantially amended. A trustee is prohibited from being indemnified from criminal, civil and administrative penalties payable under any Commonwealth law. The amendments extend prohibitions to amounts payable under infringement notices issued under Commonwealth legislation.
Section 57 of the SIS Act addresses indemnification of directors. In 2020, s 57(2)(b) and (c) were amended to extend the prohibition on indemnifying directors in relation to liabilities for criminal, civil or administrative penalties incurred by the director concerning a contravention of any law of the Commonwealth and payment of any amount payable under an infringement notice under any Commonwealth Act.
As a consequence of the amendments to ss 56 and 57 (the “ss 56/57 amendments”) the circumstances in which a trustee or its directors can be indemnified against penalties and amounts payable under infringement notices has reduced. Previously it was possible for the governing rules of a superannuation fund to provide for the trustee and its directors to be indemnified against penalties (other than civil penalties under the SIS Act) and amounts payable under infringement notices (other than infringement notices under the SIS Act) if they had acted honestly and did not intentionally or recklessly breach a duty of care. The amendments render void a provision of the rules of a superannuation entity insofar as it would have the effect of indemnifying a trustee, or director of a trustee, against certain liabilities or payments, that is, for criminal, civil or administrative penalties incurred in relation to a contravention of any law of the Commonwealth or payment of any amount in an infringement notice given under any law of the Commonwealth. The amendments expanded the extent to which governing rules concerning indemnification of a trustee or director were invalid.
Trustee’s views of changes to legal, regulatory and enforcement environment
The Trustee considers it, and its directors, are exposed to financial risk in performing their roles. This includes inherent compliance risk and the risk of criminal, civil and administrative penalties and infringement notices whether imposed by courts or regulators. At the same time that regulation has increased, the ss 56/57 amendments have reduced the trustee’s rights of indemnity. Risk has increased and the Trustee’s operations have expanded. The Trustee’s board has developed various strategies and framework documents. The Trustee has in place a risk management framework intended to enable risk informed decision making; communicate the Board’s expectation that risk management is embedded within decision making and business operations; and establish methodologies to be applied in identifying, assessing, measuring, evaluating, monitoring, reporting and controlling or mitigating risks. The Trustee considers its potential financial risk cannot entirely be alleviated by risk management practices. Despite a robust risk management framework and a strong culture of compliance, the Trustee considers there remains an appreciable risk the Trustee may incur a penalty or fine for a regulatory breach which it is not permitted to pay from Fund assets or which is not covered by insurance. The consequence would be potential insolvency.
The Trustee has considered the potential consequences of insolvency. A confidential memorandum prepared for the Trustee’s directors considered there were three possible scenarios in the event of Trustee insolvency. The first would involve the Fund remaining in place with a new trustee. This scenario was considered unlikely given the size and complexity of the Fund and the unlikelihood that a professional trustee would take on trusteeship on an ongoing basis without remuneration. Estimates were that legal and administrator costs alone of this scenario would be considerable. The second scenario involved a successor fund transfer such that all member and assets of the Fund would be transferred to a successor fund after the Trustee remained in place for an interim period. The estimated cost of that scenario was also considerable and well in excess of the costs of the first scenario. The third scenario was replacement of the Trustee followed by a successor fund transfer.
Insolvency of the Trustee could result in additional costs stemming from loss of confidence from members and employers, resulting in potential loss of members, exacerbating risks of personal financial detriment of the Trustee, including personal financial liability and impact on Trustee decision making. Insolvency could create difficulties in ensuring appropriately skilled individuals are willing to serve as directors and the possibility there may not be another financially resilient trustee willing to take on the role of trustee without remuneration. Any transfer of members to a new fund would result in fees being paid to the new trustee. Further, the trustee may become more conservative than a properly protected trustee ought reasonably to be.
Trustee Fee proposal
The Trustee proposed establishing a limited Trustee Reserve to be available for the Trustee to pay fines, penalties and other liabilities of the Trustee and its directors that cannot be the subject of indemnification from Fund assets due to the operation of the ss 56/57 amendments. The Trustee considers it is in the best financial interests of the beneficiaries and constitutes the most appropriate option reasonably available to it to manage the risk of insolvency taking into account transparency, efficiency and risk.
In order to charge the Trustee Fee, the Rules would have to be varied to include an express fee charging provision. Rule A12 of the Rules confers on the Trustee reasonably broad powers to alter, modify, add to or rescind any or all provisions of the Rules. However, in view of the potential conflict of interest and duty for the Trustee posed by amending the Rules to entitle the Trustee to charge a trustee fee from Fund assets, the Trustee considered it prudent to apply to the Court for orders to vary the Rules and I considered it appropriate that it do so.
I discuss below the proposed approach to charging the Trustee Fee.
Proposed approach to the Trustee Fee and Trustee Reserve
In determining the approach to the proposed Trustee Fee, the Trustee obtained assistance from PwC. PwC provided to the Trustee a confidential report, the purpose of which was to assist in determining the level of capital the Trustee might need to maintain to reasonably address the risk to the Trustee and directors of incurring criminal, civil or administrative fines, penalties and infringement notices imposed in connection with breaches of Commonwealth law.
PwC acknowledged there were limitations in the data set used and that it was almost impossible to undertake a quantitative assessment that factors in all potential circumstances or laws that may lead to a particular penalty being imposed. At a high level, the PwC report process involved establishing likelihood parameters, considering potential financial loss, assessing certain penalties, modelling capital requirements and assessing results and identifying capital targets and ranges.
A confidential memorandum dated 24 May 2022 provided to the board of the Trustee considered, among other things, recommended controls on the Trustee Fee, a proposal for how the Trustee Reserve would initially be funded and an assessment of the potential impact of the proposed Trustee Fee on members. The memorandum addressed how the Trustee could structure the Trustee Fee so the exercise of the new fee charging power would not result in one class of beneficiaries being unfairly disadvantaged to the prejudice of another class. In proposing the maximum quantum of the Trustee Reserve, consideration was given to the analysis undertaken by PwC and recent examples of penalties imposed on other superannuation trustees. The memorandum noted there are risks, including changes in laws and increases in penalties, that cannot appropriately be quantified. Nevertheless, the authors of the memorandum considered the PwC modelling offered appropriate guidance.
In summary, the memorandum recommended that it was appropriate for the board of the Trustee to endorse a Trustee Fee of up to 0.08 percent of net funds under management (“FUM”) to be payable out of the Fund assets to the Trustee for each calendar year commencing 1 January 2022. The memorandum recommended the creation of an aggregate cap on the Trustee Reserve such that no Trustee Fee would be taken for so long as the Trustee Reserve exceeded the greater of 0.08 percent of FUM or such amount (if any) as the SIS Act or regulations made under each or licensing provisions of the Corporations Act or regulations made thereunder require or as a regulator directs the Trustee to hold as capital on its own account.
The memorandum, which took into account confidential and privileged advice received, made recommendations in relation to the setting of the Trustee Reserve. The memorandum recommended an aggregate cap on the Trustee Reserve. This amount was considered appropriate having regard to the position of the Trustee and the Fund, the proposed strategic growth of the Fund, expansion of business operations of the Trustee and the likelihood of the Fund operating in an increasingly complex environment. The memorandum proposed a figure that was considered as setting an appropriate balance between the best financial interests of members, costs relating to prudent risk management practices and solvency risk for the Trustee.
The memorandum suggested that although the Fund’s reserving position might allow the Trustee Reserve to be funded up to the aggregate cap from the Trustee’s Administration Reserve in the first calendar year, it would be preferable for the Trustee Reserve initially to be built up over a specified period to achieve an initial target amount. The reasons for that preference included that it was less likely that member fees would need to be increased if the Trustee Reserve were funded over a specified period as the Trustee could take into account expected investment earnings and other fluctuations and smooth the impact across different cohorts of members. It was also considered that building the Trustee Reserve over a period of time would be appropriately commensurate with the potential risk to which the Trustee might be exposed as a result of changes to business operations and the regulatory environment. Spreading the build up over a number of years would allow greater flexibility to use the excess reserve balance to fund other strategic options such as investing or reducing fees for the benefit of members.

The memorandum addressed the potential impact of the proposal on Fund members. It is intended that the additional expense and Trustee Fee associated with the Trustee Reserve will be attributed across products using specific, confidential cost allocation methodologies which were explained.
It is intended that the Fund will continue to monitor cost attribution at an expense level as part of an annual budget process.
The Administration Reserve of the Trustee has built up over years during which fees charged to members have exceeded the costs paid out by the Fund. The 2022 estimate for the Administration Reserve was approximately $100 million. The Administration Reserve is a blended reserve derived from fees paid by members in all Fund products across all underlying member cohorts. The build up of the Administration Reserve over time has not been tracked by product or member cohort. The Administration Reserve is set within an operation range to ensure that a maximum level of capital is maintained and a large amount of surplus capital is not unnecessarily held. The operating range is regularly reviewed. The Administration Reserve will be used to support the Fund acting in the best financial interests of all of its members by delivery of capital for strategic projects to assist strategic growth objectives and improve member services and experience.
The memorandum anticipated that the Trustee Reserve would only be available for certain permitted uses such as payment of fines and penalties received by the directors and the Trustee, payment of insurance premiums and liabilities incurred in connection with the investment and management of the Trustee Reserve. It was also considered that effective operating risk and compliance will protect the Trustee against the occurrence of significant breaches. Equipsuper has a strong history of compliance.
Until the Trustee Reserve is funded to a specified level, the Trustee Fee would be an additional annual expense allowed for in preparing the yearly budget and in setting the level of administration and investment fees charged to members. If expenses are higher than fees collected, an assessment will be made as to whether to increase member fees or use any excess in the Administration Reserve to fund the deficit. If member fees need to be increased, the Fund will comply with relevant obligations. Modelling referred to in the memorandum indicates an expectation that the current Administration Reserve is sufficient to fund the Trustee Fee without the need to charge Fund members any direct fee to fund the Trustee Fee for at least five calendar years.
The Trustee considers it is in the members’ best financial interests to use the existing Administrative Reserve for that purpose rather than charging an administration fee or any other separate fee.
In order to build up the Trustee Reserve, a Trustee Fee payment will be made to the Trustee Reserve from the Administration Reserve each calendar year. The Trustee considers it open to the Trustee to regard the proposed Trustee Fee as being in the best financial interests of members because without a significant Trustee Reserve the risk of trustee insolvency is significant with significant costs to be paid out of the Fund and ultimately borne by members. The proposed amount of the Trustee Fee and the Trustee Reserve is less than the estimated cost of insolvency in the scenario of the Trustee being replaced following by merger with another super fund. This conclusion was reached taking into account the limited number of professional trustees with the skills and experience to administer a fund of Equipsuper’s size and complexity.
The proposed Trustee Fee were benchmarked and PwC confirmed the proposed amounts were reasonable and consistent with its industry knowledge and expectations for funds of the size and complexity of Equipsuper.
Proposed amendments to Trustee’s Constitution
Amendments were proposed to the Trustee’s constitution to safeguard the Trustee Reserve for the benefit of members of the Fund by restricting the power to declare or determine a dividend or pay any portion of income or capital of the Trustee directly or indirectly in any way to the Trustee’s sole shareholder.
Position of APRA
The trustee notified APRA of the application and corresponded with APRA in relation to APRA’s attitude to the application and issues associated with the proposed fee. APRA did not appear at the hearing as an interested party on the basis that the Trustee ensured all correspondence between APRA and the Trustee was put into evidence and any confidentiality order sought would not apply to APRA in the manner approved by the New South Wales Supreme Court in the matter of Energy Industries Superannuation Scheme Pty Ltd as trustee of the Energy Industries Superannuation Scheme Pool A and Pool B (trading as EISS Super).[2]
[2] [2022] NSWSC 1202.
Legality of proposed amendment
A number of authorities have addressed whether an amendment of the kind proposed by the Trustee has the effect of indemnifying a superannuation entity’s trustee or directors against non-indemnifiable liabilities and is therefore rendered void by ss 56(2) and 57(2) of the SIS Act.[3] In each of AustralianSuper Pty Ltd v McMillan[4] (“McMillan”) and Host-Plus Pty Ltd v Blackwell (“Host-Plus”),[5] Blue J concluded the proposed amendments would not be rendered void by ss 56(2) and 57(2) of the SIS Act and exercised the power conferred by s 59C of the Trustee Act to amend the relevant rules. In this case, the parties accepted Blue J’s construction of ss 56(2) and 57(2) of the SIS Act and agreed that the proposed rule change was not rendered void by the SIS Act. The rule changes are in almost identical terms to those in McMillan and Host-Plus and I am satisfied that they are not rendered void by the SIS Act provisions.
[3]    AustralianSuper Pty Ltd v McMillan [2021] SASC 147; Host-Plus Pty Ltd v Blackwell [2022] SASC 59; Re QSuper Board [2021] QSC 276; Re Care Super Pty Ltd [2021] VSC 805; Re HEST Australia Ltd [2021] VSC 809; Application by Maritime Super Pty Ltd atf Maritime Super [2021] NSWSC 1614; Application by LGSS Pty Ltd atf Local Government Super [2021] NSWSC 1613 and Application by Motor Trades Association of Australia Superannuation Fund Pty Ltd atf Spirit Super [2021] NSWSC 1672.
[4]    AustralianSuper Pty Ltd v McMillan [2021] SASC 147
[5]    Host-Plus Pty Ltd v Blackwell [2022] SASC 59.
Power to vary the trust deed
Section 59C of the Trustee Act provides:
59C—Power of Court to authorise variations of trust
(1)The Supreme Court may, on the application of a trustee, or of any person who has a vested, future, or contingent interest in property held on trust—
(a)     vary or revoke all or any of the trusts; or
(b)     where trusts are revoked—
(i)distribute the trust property in such manner as the Court considers just; or
(ii)resettle the trust property upon such trusts as the Court thinks fit; or
(c)     enlarge or otherwise vary the powers of the trustees to manage or administer the trust property.
(2)In any proceedings under this section the interests of all actual and potential beneficiaries of the trust must be represented, and the Court may appoint counsel to represent the interests of any class of beneficiaries who are at the date of the proceedings unborn or unascertained.
(3)Before the Court exercises its powers under this section, the Court must be satisfied—
(a)     that the application to the court is not substantially motivated by a desire to avoid, or reduce the incidence of tax; and
(b)     that the proposed exercise of powers would be in the interests of beneficiaries of the trust and would not result in one class of beneficiaries being unfairly advantaged to the prejudice of some other class; and
(c)     that the proposed exercise of powers would not disturb the trusts beyond what is necessary to give effect to the reasons justifying the exercise of the powers; and
(d)     that the proposed exercise of powers accords as far as reasonably practicable with the spirit of the trust.
(4)An order made by the Supreme Court in the exercise of powers conferred by this section is binding upon all present and future trustees and beneficiaries of the trust.
(5)This section does not apply to—
(a)     a trust affecting property settled by an Act; or
(b)     a charitable trust.
(6)This section does not derogate from any other power of the Supreme Court to vary or revoke a trust, or to enlarge or otherwise vary the powers of trustees.
In McMillan, Blue J set out the prerequisites to the Court’s jurisdiction to entertain an application to vary a trust and the Court’s power to vary a trust as follows: [6]
[6] [2021] SASC 147 at [51]-[52].
This Court’s jurisdiction to entertain an application to vary a trust is conditioned on satisfaction of three prerequisites:
·the existence of a trust;
·an application by a trustee of the trust or person with an interest in property held on trust; and
·the interests of all actual and potential beneficiaries being represented in the proceeding.
This Court’s power to vary a trust is conditioned on satisfaction of six prerequisites:
·there is good reason to make the variation;
·the variation is in the interests of beneficiaries;
·the variation will not result in one class of beneficiaries being unfairly advantaged to the prejudice of another class;
·the variation accords as far as reasonably practicable with the spirit of the trust;
·the variation will not disturb the trust beyond what is necessary to give effect to the reasons for the variation; and
·the application is not substantially motivated by a desire to avoid or reduce the incidence of tax.
(citations omitted)
In Retail Employees Superannuation Pty Ltd v Pain[7] (“Pain”) Blue J addressed the meaning of each of those prerequisites. Justice Blue said that whether there is good reason to make the proposed variation is to be determined by considering the purpose and effect of the proposed amendment in the context of the purpose and effect of the trust deed and relevant surrounding circumstances.[8] In relation to the interests of beneficiaries, Blue J noted that the first limb of s 59C(3)(b) focuses on the interests of beneficiaries as a whole and involves a holistic assessment, weighing together financial and non-financial interests.[9] Justice Blue considered that the second limb of s 59C(3)(b), which requires the Court to be satisfied the proposed variation would not result in one class of beneficiaries being unfairly advantaged to the prejudice of another, focuses on the interests of separate classes of beneficiaries as between themselves. In addressing beneficiaries’ interests, consideration should be given to both financial and non-financial interests of different classes of beneficiaries. The mere fact one class is advantaged to the prejudice of another does not preclude the power to vary the trust deed. The assessment of advantage and unfairness is a holistic one.[10] Justice Blue considered that determining whether or not an amendment accords with the spirit of the trust involves considering the fundamental nature, structure, object, purpose and effect of the trust, to be identified at a relatively high level without descending into minutia. Justice Blue noted the mere fact a proposed variation does not accord with the trust’s spirit does not preclude the power to vary the trust deed. It is, however, necessary that the departure not extend beyond what is reasonably practicable to make the variation and a holistic assessment is required.[11] In relation to minimising disturbance of the trust, Blue J considered this involves a holistic assessment requiring identification of the extent to which the proposed variation would disturb the trust, the reasons for that disturbance and the necessary extent of the disturbance.[12]
[7] [2016] SASC 121 at [160]-[180].
[8] Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121 at [168]-[169] per Blue J.
[9] Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121 at [171] per Blue J.
[10] Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121 at [173]-[175] per Blue J.
[11] Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121 at [176]-[178] per Blue J.
[12] Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121 at [180] per Blue J.
Jurisdiction
In Pain, Blue J observed that this Court has jurisdiction in relation to an application if there is a real connection between the trust and South Australia and probably has such jurisdiction even in the absence of that connection.[13] However, if the connection is too tenuous, the Court could decline to address the application.[14] In this case, there were over 4,000 members of the Fund in South Australia and the total account balances of those members were significant in value. Despite constituting a relatively small proportion of the overall members and funds under management, I considered the number of Fund members and total account balances to constitute a sufficiently real and substantial connection with South Australia to justify entertaining the application.
[13] Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121 at [182] per Blue J.
[14] Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121 at [182] per Blue J.
Prerequisites for s 59C
The three conditions for the Court’s jurisdiction to entertain an application to vary a trust were satisfied. The Trustee is the trustee of Equipsuper, which is a trust, and the respondent represented the interest of all actual and potential beneficiaries of the Fund.
Good reason and best interests of beneficiaries
I considered the first two prerequisites, being good reason to make the variation and the variation being in the best interests of beneficiaries, together. These prerequisites overlap with statutory covenants under ss 52(2) and 52A(2) of the SIS Act insofar as they relate to beneficiary paramountcy covenants and the requirement for the Trustee to act in the best financial interests of members.[15] As discussed above, the Trustee lacks the capacity to pay any penalty that may be imposed on it and there is a risk of insolvency if the Trustee is unable to establish an adequate Trustee Reserve. Despite the extensive risk management framework referred to in the evidence, I accept there nevertheless remains a real risk of contravention of Commonwealth provisions by reason of the matters referred to in the expert evidence which I have summarised above. In the event of insolvency, I accept there will be significant potential adverse consequences for beneficiaries and the options available to the Trustee to satisfactorily address the risk of insolvency are limited. Rule A3.4 of the Rules expressly prohibits the Trustee from receiving from the Fund any commission or other remuneration in respect of the office of trustee except as provided in A2.4. As set out above, the Trustee has limited personal capacity. As Equipsuper operates on a profit-to-member model, there is no realistic prospect of raising capital from the Trustee’s shareholder or from participating employers as the Trustee has no proper means to offer any prospect of a financial return on investment. In the absence of an income stream to make repayments or meet facility costs, the Trustee has no capacity to borrow or arrange a guarantee. The Trustee has considered whether additional capital resources might be raised by the Togethr Group to provide financial support for the Trustee and directors in respect of liabilities that no longer can be indemnified from the Fund’s assets. I accept the evidence that options for obtaining such financial support are limited because the Trustee’s sole business activity is to act as trustee of the Fund; it operates on a profit to member basis, TAM and TFP operate on a cost recovery basis and the Trustee is subject to a condition on its RSE licence that operates to limit the Trustee’s ability to undertake activities to generate revenue.
[15] AustralianSuper Pty Ltd v McMillan [2021] SASC 147 at [146] per Blue J.
Marsh Pty Ltd (“Marsh”) is the trustee’s insurance broker. The Trustee holds various insurance policies, the terms of which are confidential. I was satisfied that the Trustee’s insurance is subject to certain sub-limits, deductibles and excesses. I accept the evidence that improving the level of insurance cover through captive insurance arrangements is not presently a viable option nor is sourcing share capital via Fund assets.
APRA issued a discussion paper on 19 November 2021 in relation addressing Trustee insolvency risk but at the time I made the orders had not provided a regulatory solution.
The Trustee determined that applying to amend the Rules was the most appropriate course and in the best financial interests of members. I accepted there were no sufficient alternative options available to the Trustee to address the risk of insolvency of the Trustee. I therefore considered there was good reason to vary the Trust Deed and that it would be in the best interests of the beneficiaries to vary the Trust Deed to empower the Trustee to charge a risk fee.
Fairness between beneficiaries
Sections 52(2)(e) and (f) of the SIS Act import into the Trust Deed a covenant by the Trustee to act fairly in dealing with classes of beneficiaries and in dealing with beneficiaries within a class. It is not necessary separately to consider those covenants given the necessity for the Court to be satisfied the proposed variation will not result in one class of beneficiaries being unfairly advantaged to the prejudice of another class.[16] The cost allocation principles to be utilised are designed to ensure fair cost allocation between classes of beneficiaries within different divisions and holding different products and beneficiaries within a class within the same division or those holding the same kinds of products in accordance with ss 52 and 52A of the SIS Act. The Trustee monitors cost attribution to ensure suitable allocations as part of its annual budget process. The Trustee submitted that to the extent the Trustee Fee will be borne proportionally to a member’s account balance, it is justifiable on the basis the detriment from potential insolvency is likely to be proportionate to a member’s investment in the Fund. Section 29VA of the SIS Act has requirements for fees charged for MySuper products including by reference to account balances or by a flat fee or a combination of both and accordingly the proposed methodology would be consistent with that provision.[17] Legislative requirements cap the fees charged for members with account balances of less than $6,000. The Trustee submits that to the extent the fee cap applies, there will be minimal effect on other members, in particular as it is anticipated the Trustee Fee will be borne by all members from the Administration Reserve. All members will notionally bear costs in a manner resulting in an equitable apportionment of the Trustee Fee. Further, no increase in member fees was envisaged as a consequence of the introduction of the Trustee Fee as the fees would entirely be borne from the Administration Reserve. Further, the proposal to build up the Trustee Fee gradually would ensure fairness between new and previous members. The covenants in s 52 of the SIS Act will require the Trustee on an ongoing basis to act fairly in dealing with beneficiaries when determining the source for payment of the Trustee Fee or the method by which the Trustee Fee will be borne by members.
[16] AustralianSuper Pty Ltd v McMillan [2021] SASC 147 at [187] per Blue J.
[17] Host-Plus Pty Ltd v Blackwell [2022] SASC 59 at [205] per Blue J.
The Trustee Fee was estimated only to have a notional net indirect financial impact to members. APRA did not raise any objection or concerns in relation to the proposed cost allocation method. The respondent did not oppose the proposed method of apportionment or the proposal for spreading out over a period of years the cost of building the Trustee Reserve to further ensure fairness. The respondent submitted that payment of the Trustee Fee out of the Administration Reserve was preferable to the imposition of a new or increased fee on members.

I was satisfied that the proposed change to the Rules would not result in one class of beneficiaries being unfairly disadvantaged to the prejudice of another class having regard to the considerations set out above.
Preserving spirit and minimising disturbance
I considered together the requirements for the variation to accord as far as reasonably practicable with the spirit of the trust and to not disturb the trust beyond what is necessary to give effect to the reasons for the variation.[18] The Trust Deed expressly prohibits the Trustee from being paid any remuneration. The Trust Deed is consistent with the model upon which the Trustee has operated the Fund, that is, the profit-to-member model. I accepted that the spirit of the trust reflects the Trustee acting gratuitously and not charging fees to the Fund. The Trustee Fee will not introduce any profit component and will be constrained both in terms of its amount and its terms. I accepted it is necessary to depart from the original spirit of the trust and such departure can only be made so far as is necessary in the interests of the beneficiaries. In determining the quantum of the proposed fee, as set out above, the Trustee has considered the PwC risk analysis, recent examples of penalties imposed on other superannuation trustees and the quantum and terms approved by the Court in McMillan and Host-Plus. A lack of empirical data makes it difficult for the Trustee to assess what would be an adequate Trustee Fee to provide appropriate assurance against trustee insolvency balanced against the detrimental consequences for the Fund.[19] The Trustee has proposed that the Trustee Fee and the Trustee Reserve be subject to controls as set out above and to disclosure requirements. A Trustee Reserve policy is proposed which will concern management of the Trustee Fee and Trustee Reserve, the permitted uses of the Trustee Reserve, the prohibited uses of the Trustee Reserve, reporting and review requirements and the role of the board and its delegates. Proposed amendments to the Trustee’s Constitution would prohibit dividends or allocation of income or capital to the Trustee’s shareholder. Further, the covenants imputed by ss 52(2)(d)(i) to (iii) and 52A(2)(d)(i) to (iii) of the SIS Act will require the Trustee and the Trustee’s board to give paramountcy to the interests of beneficiaries in determining the amount of the Trustee Fee below the proposed annual limit.[20]
[18] AustralianSuper Pty Ltd v McMillan [2021] SASC 147 at [198] per Blue J.
[19] See discussion of the same issue in AustralianSuper Pty Ltd v McMillan [2021] SASC 147 at [208] per Blue J and Host-Plus Pty Ltd v Blackwell [2022] SASC 59 at [246] per Blue J. The inherent difficulties are addressed in the PwC report and in the finance memorandum referred to in the evidence of Mr Cameron.
[20] AustralianSuper Pty Ltd v McMillan [2021] SASC 147 at [217] per Blue J and Host-Plus Pty Ltd v Blackwell [2022] SASC 59 at [250] per Blue J.
I considered the evidence concerning the proposed quantum of the Trustee Fee. I accepted the opinions of Associate Professor Brand and Professor Hanrahan in relation to the inherent risk associated with the complexity of current regulations and to the likelihood of increased enforcement activity and penalties. I accepted that it is difficult accurately to predict the likelihood and potential quantum of any penalties which may be imposed on the Trustee in the future. I respectfully adopt the observations of Blue J in McMillan that, in the absence of empirical data, it is difficult to make an alternative assessment of what would be an adequate trustee fee to provide sufficient assurance against insolvency with the associated detrimental consequences for the Fund and the theoretical possibility that even the trustee fee proposed would be insufficient to avoid insolvency in the event of a series of catastrophic contraventions by the Trustee.[21] I have taken into account that one year of the proposed Trustee Fee is substantially less than the potential financial consequences to members if the Trustee were to become insolvent resulting in the replacement of the trustee, if one could be found, or the merger of the Fund into an alternative fund.[22]
[21] AustralianSuper Pty Ltd v McMillan [2021] SASC 147 at [208].
[22] I note that the proposed Trustee Fee is less than that of the proposed risk fee in AustralianSuper Pty Ltd v McMillan [2021] SASC 147.
I accepted that the proposed variation maintains the original spirit of the trust as far as reasonably practicable.
The respondent did not generally oppose the proposed quantum of the Trustee Fee or the terms of the proposed amendment but proffered a suggestion in relation to the information to be made publicly available to beneficiaries. The applicant accepted the proposal which was incorporated into the proposed rule.
Not motivated by a desire to avoid or reduce tax
The Chief Executive Officer of the Fund gave evidence that the proposed amendments were not motivated by the desire to avoid or reduce the incidence of taxation and he understood the proposal overall would result in net tax payable to the ATO. I was provided with confidential privileged legal advice by the Trustee’s solicitors relating to the tax treatment of the proposed Trustee Fee which I considered.
I accepted the applicant’s position that the proposed amendment was not motivated by tax reasons.
The respondent noted that in both McMillan and Host-Plus the Court held that payments out of the risk reserve should be a matter for the trustee.[23] The respondent submitted that there were no material differences between the Trustee’s application and that of very similar applications made to the Court in McMillan and Host-Plus and there were no material differences that would prevent the Court from approving the Trustee’s application consistent with the Court’s prior decisions.
[23] AustralianSuper Pty Ltd v McMillan [2021] SASC 147 at [232] per Blue J and Host-Plus Pty Ltd v Blackwell [2022] SASC 59 at [269] per Blue J.
I accepted that submission. I scrutinised the terms of the proposed amendment and those made by the Court in McMillan and Host-Plus. I concluded there were no material differences.
I accepted that each of the prerequisites for making a variation order was satisfied. Given the proposed amendment involved charging a fee by the Trustee to the Fund, I considered it appropriate that the Court consider whether the trust should be amended and the terms of any such amendment.
Other matters
The respondent questioned whether a clause should be inserted into the Rules to provide that eligibility for trusteeship of the Fund is subject to a trustee’s constitution containing restrictions on the payment of dividends or distribution of surplus on winding up.[24] In Host-Plus, Blue J required an undertaking be given to the Court to the effect that no amount of the trustee’s capital reserve would be paid to shareholders by way of dividend, return of capital or otherwise.[25] The Trustee submitted that the effect of such an undertaking offered the same protection to beneficiaries and proposed giving an undertaking to the Court as a condition of making variation orders in a form similar to that given in Host-Plus. I raised with the parties some concerns in relation to the contentious issue of whether the proposed undertaking was sufficient or whether amendments ought to be made to the Trust Deed. Such amendments would provide that eligibility for trusteeship of the Fund would be subject to the Trustee’s Constitution containing a clause to the effect that shares in the Trustee have no right to a dividend and, on winding up, any surplus must not be paid to shareholders and must be paid to the Trust or a successor fund. The parties thereafter agreed a position in relation to the issues I raised. Instead of proposed undertakings, the matter was addressed by way of a proposed amendment to the Trust Deed. The parties also agreed to make certain amendments to the Trustee’s Reserve Policy to the effect that the Trustee Reserve Policy would continue to apply to the Trustee even if the Trustee ceased to act as trustee of the Fund, to ensure that protections in the Trustee Reserve Policy would continue to apply to the Trustee even if it ceased to act as trustee of the Fund.
[24] Such a clause was addressed by Blue J in AustralianSuper Pty Ltd v McMillan [2021] SASC 147 at [236].
[25] Host-Plus Pty Ltd v Blackwell [2022] SASC 59 at [278].
I considered the agreed position satisfactory to protect the beneficiaries and determined to make an order that a new rule be inserted into the Trust Deed to provide in effect that the trustee of the Fund shall at all times have a constitution that requires that all shares (other than any beneficially owned by the Fund) have no right to a dividend, and to preclude the payment out to any shareholders of property on a winding up of the Trustee.
I concluded it was appropriate to exercise the discretion pursuant s 59C of the Trustee Act to vary the Trust Deed.
Orders
I made the following orders:
1.Pursuant to section 59C of the Trustee Act 1936 (SA), the trust deed dated 1 July 2021 (Trust Deed) governing the superannuation fund known as Equipsuper is varied by:
(a)inserting a new Rule A3.1A which is set out in Annexure A to these orders; and
(b)deleting the existing Rule A3.4 and replacing a new Rule A3.4 which is set out in Annexure B to these orders.
2.Liberty to apply to any party to further vary the Trust Deed.
3.The applicant’s and respondent’s costs of this application are to be paid or reimbursed out of the funds of the superannuation fund known as Equipsuper.

Annexure A
Rule A3.1A is inserted as follows:
A3.1A Constitution of Trustee
Subject to any direction or approval given by APRA or a court of competent jurisdiction, the Trustee of the Fund shall at all times have a constitution that requires that:
(a) all shares in the Trustee (other than any shares beneficially owned by the Fund) have no right to a dividend; and
(b) on a winding up of the Trustee, any property remaining after the satisfaction of all of the company's debt and liabilities must not be paid to any shareholders (other than in respect of any shares beneficially owned by the Fund) and must (unless paid in respect of any shares beneficially owned by the Fund) be paid to the Fund or a successor fund or the trustee of the successor fund (as defined in the Relevant Law) to the Fund.

Annexure B
Rule A3.4 is deleted and replaced with the following:
A3.4 Trustee Fee
(a) For each calendar year of the Fund commencing 1 January 2022, a fee is payable to the Trustee in an amount equal to 0.08% per annum of the net assets of the Fund calculated as at the end of the previous calendar year.
(b) The Trustee Fee is to be paid in such periodic instalments as are determined by the Trustee from time to time.
(c) The Trustee:
(i)     must suspend payment of further amounts of the Trustee Fee if and to the extent and for so long as (but only for so long as), immediately following such payment, the balance of the Trustee Reserve would exceed the greater of:
(A) an amount equal to the maximum Trustee Fee payable in respect of that calendar year under ~~clause~~ Rule A3.4(a); and
(B) such amount (if any) as the Superannuation Industry (Supervision) Act 1993 (Cth) or regulations made thereunder or licensing provisions of the Corporations Act 2001 (Cth) or regulations made thereunder require or as a regulator directs the Trustee to hold as capital on its own account; and
(ii)    may otherwise determine in its absolute discretion to reduce, waive, suspend or postpone the Trustee Fee (or any part of it) and, subject to Rule A3.4(c)(i) to cease such reduction, waiver, suspension or postponement.
(d) The Trustee must disclose the following information to members within three months after the end of each ~~financial~~ calendar year:
(i)     details of the net assets of the Fund calculated as at the end of the previous calendar year;
(ii)    details of the amount(s) of the Trustee Fee paid in the previous calendar year;
(iii) the balance of the Trustee Reserve as at the end of that calendar year;
(iv) details of any earnings from the investment of the Trustee Reserve; and
(v)    details of any amounts paid out of the Trustee Reserve including, in respect of each payment:
(A) the date and amount of the payment;
(B) the date and amount of the liability the subject of the payment; and
(C) details of the contravention giving rise to the penalty comprising the liability where applicable,
by publishing this information on the website of the Fund or by other equivalent technological means of communication.
(e) For the purposes of this Rule A3.4:
(i)     “Trustee Fee” means a fee charged in accordance with Rule A3.4(a).
(ii)    “Trustee Reserve” means the balance of funds held by the Trustee as capital on its own account which is referable to the Trustee Fee which has been paid from time to time. For the avoidance of doubt, the Trustee Reserve does not form part of the assets of the Fund and (other than as set out in Rule A3.4) is not subject to the terms of this Deed.

[2023] SASC 90

31 May 2023