Westpac Securities Administration Ltd v Cooper
[2016] SASC 122
•8 August 2016
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
WESTPAC SECURITIES ADMINISTRATION LTD v COOPER
[2016] SASC 122
Judgment of The Honourable Justice Blue
8 August 2016
SUPERANNUATION - INDUSTRY SUPERVISION
SUPERANNUATION - PRIVATE SECTOR FUNDS - AMENDMENT OF TRUST DEED
SUPERANNUATION - PRIVATE SECTOR FUNDS - TRUSTEES - POWERS AND DUTIES
Application under section 59C of the Trustee Act 1936 to vary terms of a trust.
The plaintiff is the trustee of the Westpac Mastertrust – Superannuation Division, which was established in 1992. The defendant is a beneficiary of the trust appointed to represent the interests of actual and potential beneficiaries.
Clause 16 of the trust deed empowers the trustee to amend the trust deed, but the power of amendment is subject to limitations including that the proposed amendment is not in the opinion of the trustee adverse or likely to become adverse to the rights of members.
The plaintiff seeks variation of the trust deed to confer on the trustee a power to transfer members’ benefits in the trust to a successor fund without members’ consent. Clause 11.3 of the trust deed gives to the trustee power to transfer a member to a successor fund without the person’s consent if the member’s employer changes the superannuation fund to which it makes contributions. Clause 11.2 is ambiguous whether it confers any additional power to transfer members’ benefits without their consent.
Held (granting the application to vary the trust deed):
1. There is uncertainty as to whether clause 11.2 confers power to transfer members’ benefits to a successor fund without their consent and on balance it is likely that the trustee lacks power to transfer members’ benefits to a successor fund other than in the limited circumstances referred to in clause 11.3 (at [52]-[59]).
2. Subject to the inclusion of limitations and conditions, it is appropriate that the trust deed be varied to empower the trustee to transfer the benefits of members to a successor fund without members’ consent in four defined circumstances (at [68]-[71]).
3. It is appropriate to exercise the discretion in favour of varying the trust deed (at [72]).
Trustee Act 1936 (SA) s 59C; Superannuation Industry (Supervision) Act 1993 (Cth) s 31, s 34; Superannuation Industry (Supervision) Regulations 1994 (Cth) s 1.03, s 6.29, referred to.
Faye v Faye [1973] WAR 66; In re Ker’s Settlement Trust [1963] 1 Ch 553; In re Paget’s Settlement [1965] 1 WLR 1046; Salkeld v Salkeld (No 2) [2000] SASC 296; Thomas Hare Investments Limited v Hare (2012) 34 VR 656, considered.
WESTPAC SECURITIES ADMINISTRATION LTD v COOPER
[2016] SASC 122Civil: Application
BLUE J:
The plaintiff Westpac Securities Administration Limited seeks an order under section 59C of the Trustee Act 1936 (SA) varying the terms of the Westpac Mastertrust – Superannuation Division (the Trust) contained in its trust deed (the Trust Deed). The plaintiff seeks variation of the Trust Deed to confer on the trustee the power to transfer members’ benefits in the Trust to a successor fund without members’ consent.
The defendant Anthony Cooper has been a member of the Trust since 2001. He was appointed to represent the interests of beneficiaries and potential beneficiaries of the Trust in the action.
Background
The Trust was established by execution of the Trust Deed on 27 March 1992. The plaintiff became trustee (the Trustee) of the Trust on 27 July 1994.
The Trust Deed comprises a set of common provisions (the Rules) together with several Appendices. Clause 2.1 of the Trust Deed provides that the Trust is divided into three separate Plans:
·the Business Plan, which in turn comprises the Business Super Sub-Plan (the subject of Appendix A) (the BT Business Super Plan);[1]
·the Personal Plan (the subject of Appendix C) (the Westpac Plan); and
·the BT Personal Portfolio Service (the subject of Appendix F) (the PPS Plan).[2]
[1] Also known as the Executive Sub Plan and promoted as BT Business Super.
[2] Appendices B, D and E are obsolete because their Plans have no members and no assets.
Clause 2.1 of the Trust Deed provides that each Plan is to be administered in accordance with the Rules and the relevant Appendix. Clause 2.3 constitutes each Plan as a separate trust. It provides:
In respect of each Plan (but not the sub-plans, if any, of a Plan), the Trustee shall:
(a)administer the Plan as a separate trust fund; and
(b)hold the assets of the Plan exclusively for the benefit of the Participating Employers (if applicable), Members and Beneficiaries of that Plan;
and those assets shall only be available to meet the liabilities of that Plan and, for this purpose, the Trustee shall cause separate accounts, registers and other records of Participating Employers (if applicable), Members and Beneficiaries to be established in respect of each Plan.
All funds of the Trust are invested in life insurance policies issued by Westpac Life Insurance Services Ltd (Westpac Life) for each Plan of the Trust. In turn, Westpac Life invests in underlying assets and earns income and incurs expenses which are reflected in the value of units issued by Westpac Life in favour of the Trust. The Trust issues to members matching units. Effectively Westpac Life is interposed and the insurance policies issued by it are interposed between the members and the underlying assets and each member’s funds are invested indirectly in diversified investments.
Plans
BT Business Super
BT Business Super is the largest Plan, representing approximately 80 per cent of the assets of the Trust. It is known in the industry as a “corporate plan” and is designed to cater for employees whose employer selects the Plan for its employees (subject to the right of an employee to select another superannuation fund or another Plan within the Trust) and for self-employed persons. It also includes those who were so employed or self-employed but are no longer (who are transferred to the “Retained Benefits” section).
The Trustee is authorised by APRA to offer a MySuper product. The Trustee offers the BT MySuper Lifestage Investment Option. Westpac Life invests in underlying assets comprising this investment option. The Trustee charges MySuper members an investment fee per annum of 0.50 per cent of the member’s account balance and an administration fee per annum of $60 plus 0.45 per cent of the member’s account balance.
The Trustee offers to non-MySuper members a choice of one or more of 33 alternative Investment Options. These range from cash and fixed interest to diversified, property and shares. The Trustee charges non-MySuper members an investment fee per annum depending on the nature of the Investment Option ranging from 0.58 per cent for fixed interest to 1.26 per cent for Australian shares. The Trustee charges an administration fee per annum of $63 plus 1.12 per cent of the member’s account balance up to $50,000, 0.88 per cent for the next $100,000 and 0.29per cent thereafter.
There are also accrued default amounts (adas) held by the Trustee as part of BT Business Super for members who did not nominate an investment option before the introduction of MySuper on 1 January 2014. The Trustee is required to transfer these amounts to a MySuper product by 30 June 2017.
Westpac Plan
The Westpac Plan is the second largest Plan, representing approximately 15 per cent of the assets of the Trust. It is known in the industry as a “retail plan” designed to cater for individual applicants. It does not have any MySuper members.
General superannuation is provided under Westpac Lifetime Superannuation Service (lump sum) and Westpac Flexible Income Plan (pension) (collectively Westpac Superannuation subplans). They have been closed to new members for approximately 10 years. Various investment options are offered to members of the Westpac Superannuation subplans.
Insurance only superannuation is provided under Westpac Term Life as Super Plan and Westpac Income Protection as Super Plan (collectively Westpac Insurance subplans) which provide term life insurance and income protection insurance respectively. They do not have an asset value. They are open to new members and are actively promoted.
Personal Portfolio Service
The PPS Plan is the third largest Plan, representing approximately 5 per cent of the assets of the Trust. It is a retail plan offering a relatively large number of investment options designed for relatively active investors. It does not have any MySuper members. It is open to new members but is not actively promoted. A minority of members have their interest in the Plan in the form of a lump sum (the “Superannuation” division) but a majority of members are in receipt of a pension (the “Allocated pension” division).
Summary
The number of members and value of assets of each Plan and the division between MySuper and non-MySuper members is shown in the following table.
Members[3] Asset Value[4] Plan MySuper/ADA Choice Total MySuper/ADA Choice Total BT Business Super 189,000 23,000 211,000 $3,870M $790M $4,660M Westpac
Super
Westpac Insurance-
-
22,000
29,000
22,000
29,000
-
-
$880M
-
$880M
-
PPS Plan - 2,000 2,000 - $340M $340M Total 189,000 76,000 264,000 $5,880M [3] All member numbers are rounded to nearest 1,000.
[4] All asset figures are rounded to nearest $10 million.
Other superannuation trusts in the BT Financial Group
The BT Financial Group (the Group) is the funds management arm of Westpac Banking Corporation. There are three superannuation trustees in the Group, being BT Funds Management Limited (BTFM), BT Funds Management No 2 Limited (BTFM No 2) and the plaintiff.
BTFM is the trustee of Retirement Wrap, the largest superannuation fund in the Group. Total funds of the Retirement Wrap superannuation fund are $54.94 billion. The structure of Retirement Wrap is similar to that of the Trust, comprising a series of Plans.
One Plan in Retirement Wrap is the BT Lifetime Super – Employer Plan, which is a corporate plan. It is similar to the BT Business Super Plan. A MySuper product called the “Generic MySuper Product” is offered through this Plan. This Plan has total assets of $6.20 billion.
Another Retirement Wrap Plan is SuperWrap, which is a retail plan offering a large number of investment options designed for relatively active investors. It is similar to the PPS Plan. This Plan has total assets of $36.68 billion.
Another plan is BT Super for Life, which is a modern-style largely retail plan. It is similar to the Westpac Plan. This Plan has total assets of $8.36 billion.
BTFM is the trustee of the ASGARD Independence Plan Division Two and ASGARD Independence Plan Division Four. These two plans have combined assets of $39.05 billion.
The plaintiff is the trustee of two other superannuation funds; BTFM is the trustee of four other superannuation funds and BTFM No 2 is the trustee of one superannuation fund, each of which is smaller than the Trust.
The three superannuation trustee companies in the Group have the same directors. Two Group general managers are responsible for all superannuation funds and plans within the Group. To a substantial extent, administration of the different superannuation funds and plans within the Group is undertaken by the same personnel.
Historical consolidation of superannuation trusts
In 2004, there were approximately 1,900 APRA-regulated superannuation funds. In 2014, there were approximately 350 APRA-regulated superannuation funds. This reflects a trend of mergers of smaller superannuation funds into larger superannuation funds. The Australian Prudential Regulation Authority expects that there will be a continuation of this industry consolidation trend.
It is evident that, at least up to a certain point, there are economy of scale advantages associated with larger superannuation funds. Greater member numbers and asset values enable amortisation of costs over a larger base, leading to lower costs per member or dollar invested. They also give to trustees’ better bargaining power in dealing with service providers and others.
The superannuation trustees in the Group have generally sought to reduce the number of funds under their trusteeship. In 2011, members’ benefits of five superannuation funds, including the then standalone BT Lifetime Super – Employer Plan and BT Super for Life, were transferred into the Retirement Wrap superannuation fund.
This application
By late 2015, the plaintiff was considering the possibility of transferring members’ benefits in the Trust plans to another superannuation fund or funds within the Group. The plaintiff was concerned that it might lack power under the Trust Deed to transfer members’ benefits to a successor fund without the consent of all transferring members. The plaintiff decided to seek a variation of the Trust Deed to ensure that it had such power.
The plaintiff has not made a decision whether, if it has power, it will exercise that power to transfer members’ benefits to another superannuation fund or funds within the Group or, if it so decides, whether it would transfer members’ benefits in all of the plans or only in one or some of them, or the superannuation fund and plan to which it would transfer them.
Mr Hanrahan gave evidence that, if the plaintiff were to make such a decision, it would be logical first to consider a transfer of members’ benefits to Retirement Wrap, being the largest superannuation fund in the Group. It would be logical first to consider a transfer of members’ benefits in BT Business Super to the BT Lifetime Super – Employer Plan because both are corporate plans containing a MySuper product. It would be logical first to consider a transfer of members’ benefits in the other plans to one or more plans in Retirement Wrap. However, it is possible that members’ benefits might be transferred to another plan or to a new product within the Group.
Mr Hanrahan gave evidence that, apart from a possible transfer of members’ benefits in an entire plan or in the entire Trust, the plaintiff considers that, if an employer sponsor decided to change the default superannuation fund for its employees from the Trust to another superannuation fund, it may be in the interest of members for the Trustee to transfer the benefits of that employer’s employees to avoid fragmentation of their superannuation and higher costs and lower net returns to those employees. The ability of the Trustee to transfer the benefits of employees in these circumstances might be an important consideration for employers in considering whether to select a plan or subplan within the Trust as the default fund.
Statutory regulation of transfers to other funds
The Trust is regulated by the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) (the SIS Regulations).
Section 31 of the SIS Act empowers the making of regulations prescribing standards applicable to the operation of regulated superannuation funds (operating standards). Subsection 34(1) requires a trustee of a superannuation entity to ensure that operating standards are complied with at all times. Under subsection 34(3), non-compliance does not render a transaction void. However, subsection 34(2) renders it an offence for a trustee intentionally or recklessly to contravene an operating standard.
Regulation 6.29 of the SIS Regulations creates an operating standard that generally prohibits a member's benefits in a fund being transferred from the fund unless the member has consented (or is reasonably believed by the trustee to have consented) or the transfer is to a “successor fund” (a successor fund).
A successor fund is defined by regulation 1.03 as follows:
successor fund, in relation to a transfer of benefits of a member from a fund (called the original fund), means a fund which satisfies the following conditions:
(a)the fund confers on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits;
(b)before the transfer, the trustee of the fund has agreed with the trustee of the original fund that the fund will confer on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits.
The evidence
Mark Hanrahan is a solicitor employed by the BT Financial Group as Head of Legal, BT Super and Investments. Three affidavits by Mr Hanrahan were tendered and he also gave oral evidence.
Noel Davis is a barrister who is independent of the plaintiff. He specialises in superannuation law. One affidavit by Mr Davis addressing superannuation industry history, operation and practice was tendered.
Power
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.
This Court’s jurisdiction and power to vary a trust is conditioned on satisfaction of eight[5] prerequisites:
1An application is made by a trustee of a trust (or a person with a vested, future, or contingent interest in property held on trust).[6]
2The interests of all actual and potential beneficiaries are represented in the proceeding.[7]
3The application is not substantially motivated by a desire to avoid or reduce the incidence of tax.[8]
4There is good reason to make the proposed variation.[9]
5The proposed variation would be in the interests of beneficiaries.[10]
6The proposed variation would not result in one class of beneficiaries being unfairly advantaged to the prejudice of another class.[11]
7The proposed variation accords as far as reasonably practicable with the spirit of the trust.[12]
8The proposed variation would not disturb the trust beyond what is necessary to give effect to the reasons justifying the exercise of the powers.[13]
[5] There is also a negative requirement imposed by section 59C(5) that the Trust not be a charitable trust or a trust affecting property settled by an Act but this requirement has no application in the present case and can be ignored.
[6] Trustee Act 1936 (SA) s 59C(1).
[7] Trustee Act 1936 (SA) s 59C(2).
[8] Trustee Act 1936 (SA) s 59C(3)(a).
[9] This requirement is implicit in the requirement 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 would be in the interests of the beneficiaries.
[10] Trustee Act 1936 (SA) s 59C(3)(b). It may be that the fourth and fifth prerequisites are a single composite prerequisite but it is convenient to treat them separately.
[11] Trustee Act 1936 (SA) s 59C(3)(b).
[12] Trustee Act 1936 (SA) s 59C(3)(d).
[13] Trustee Act 1936 (SA) s 59C(3)(c).
If these prerequisites are satisfied, the Court has a discretion whether to exercise the power conferred by the section.
The first three prerequisites are satisfied. The application is made by the trustee of the Trust. The interests of all actual and potential beneficiaries are represented by Mr Cooper. The application is not motivated by a desire to avoid or reduce the incidence of tax.
Discretion to entertain application
None of the prerequisites to power relates to any connection between the Trust and South Australia.
The Court probably has jurisdiction to entertain an application even if there is no connection between a trust and South Australia.[14] The Court clearly has jurisdiction to entertain an application if there is a real connection between a trust and South Australia. No particular type of connection, such as the proper law of the trust or residence of the trustee, is required.[15] The Court has a discretion to decline to entertain an application if it considers that the connection with South Australia is too tenuous.[16]
[14] See In re Ker’s Settlement Trust[1963] 1 Ch 553 at 556 per Ungoed-Thomas J; In re Paget’s Settlement[1965] 1 WLR 1046 at 1050 per Cross J.
[15] Faye v Faye[1973] WAR 66 at 70 per Lavan J; Salkeld v Salkeld (No 2)[2000] SASC 296 at [26] per Perry J; Thomas Hare Investments Limited v Hare [2012] VSC 200, (2012) 34 VR 656 at [26]-[33] per Habersberger J.
[16] In re Paget’s Settlement[1965] 1 WLR 1046 at 1050 per Cross J; Faye v Faye[1973] WAR 66 at 70 per Lavan J; Salkeld v Salkeld (No 2)[2000] SASC 296 at [26] per Perry J; Thomas Hare Investments Limited v Hare (2012) 34 VR 656 at [33] per Habersberger J.
As at February 2016, there were 11,000[17] members of the Trust in South Australia with benefit entitlements of $270 million. There is a real and substantial connection with South Australia. There is no improper purpose in the plaintiff bringing the application in South Australia. The application should be entertained.
Transfer to a successor fund
[17] Member numbers and dollar values are rounded to two significant figures unless shown otherwise.
Existing power
The plaintiff submits that there is uncertainty whether the Trustee has power under clause 11 of the Trust Deed to transfer members’ benefits without their consent.
Participating employer changing fund
Clause 11.3 of the Trust Deed provides:
11.3 Transfers Out Of Participating Employer
Where a Participating Employer establishes or joins another Approved Benefit Arrangement and all or some of the Participant’s Members have agreed to become members of that Approved Benefit Arrangement, then the Trustee may agree (subject to a condition that a Participating Employer gives at least 14 days notice to each transferring Member and subject to Clauses 3.17[18] and 11.2(b)) to pay all amounts held in respect of those Members or the Participating Employer to the Approved Benefit Arrangement, other than amounts that the Trustee determines are required to be retained to meet tax, insurance premiums or fees and charges that are payable and which remain unpaid, until such amounts have been paid.
[18] This address the creation and characteristics of MySuper products.
Clause 1.1 defines the following terms referred to in clause 11.2(a):
In the Rules, unless the context or subject matter otherwise requires:
“Approved Benefit Arrangement” means a fund or benefit arrangement, including another Plan, to which payment may be made from a Plan, or from which payment may be accepted into that Plan, in accordance with the Relevant Law.
“Member” means any person who has been admitted as a Member of one or more Plans pursuant to Section 3, whether as a Participant’s Member or as an Individual Member, and who remains a Member of one or more Plans under the Rules.
“Participating Employer” means a Principal Employer or an Associated Employer and, in relation to a particular Member or former Member, means the employer in whose Service that person is or was at the relevant time.
“Principal Employer” means an employer admitted as a Principal Employer pursuant to the Rules and which has not ceased to be a Principal Employer under the Rules and, in respect of an Associated Employer, is the Principal Employer in respect of which the Associated Employer was admitted as an Associated Employer pursuant to the Rules.
Clause 11.3 gives to the Trustee power to transfer a member to a successor fund without the person’s consent if the person is a member of the Trust in that person’s capacity as an employee of a Participating Employer who has changed the fund to which it makes superannuation contributions to a competitor fund that qualifies as a successor fund if some of its employees who are members of the Trust have agreed to become members of that competitor fund.
The Trust Deed has always contained a clause empowering the Trustee[19] to amend the Trust Deed subject to restrictions including that the proposed amendment is not in the opinion of the Trustee adverse or likely to become adverse to the rights of members (the adverse effect restriction).[20]
[19] Before the plaintiff became the Trustee in 1994, there was both a trustee and a manager and the concurrence of both was required for an amendment.
[20] The amendment power was originally contained in clause 18 of the Rules. It is now contained in clause 16.
The original Trust Deed contained a clause (clause 10.5[21]) in very similar terms to current clause 11.3. The amendments are only stylistic. The amendments are valid.
[21] In the original Trust Deed it was the fourth un-numbered paragraph within clause 10 (the first paragraph being numbered 10.1). The Trust Deed was subsequently amended to number each paragraph of clause 10 and this paragraph was numbered as clause 10.5.
General circumstances
Clause 11.2(a) of the Trust Deed provides:
(a)Subject to Clause 3.17[22] and paragraph (c)[23] of this Clause 11.2, the Trustee may, on the request, in writing or in such other manner as the Trustee may determine, of a Member (with the consent of the Participating Employer, if any, in the case of subparagraph (ii)):
(i) who is entitled to receive or is receiving a Benefit, transfer all or part of that Benefit to another Approved Deposit Arrangement; or
(ii) who is entitled to join another superannuation fund which is a regulated superannuation fund under the Relevant Law (including another Plan), transfer to that fund all or part of the Benefit the Member would have been entitled to receive had he or she voluntarily left Service with the consent of the Participating Employer (in the case of a Participant’s Member) at the time of the transfer (or such greater amount as the Trustee, with the consent of the Participating Employer, determines) or the Benefit the Member would have been entitled to receive upon retirement at the time of the transfer (in the case of an Individual Member);
provided that, subject to the Relevant Law and Clause 3.17 but notwithstanding any other provision in this Deed:
(iii) if a Member of a Plan is or is eligible to be a Member of another Approved Benefit Arrangement or fund (including where the Trustee had, pursuant to Clause 11.1, [24] determined that the Member shall be a member of a Plan for the purposes of a transfer to that Plan);
(iv) if the Trustee is satisfied that the other Approved Benefit Arrangement or fund will confer on the Member equivalent rights to those which are incurred under the Plan;
(v) if the Trustee considers that the transfer of the Member’s Benefit to the other Approved Benefit Arrangement or fund is likely to result in the more convenient and economic administration of the Member’s rights and benefits; and
(vi) if the Trustee is satisfied that the interests of the Participating Employer, if any, will not be prejudiced;
the Trustee may transfer the Member’s Benefit to the other Approved Benefit Arrangement or fund together with such other amount as the Trustee may determine, on such terms as the Trustee may determine;
[22] This addresses the creation and characteristics of MySuper products.
[23] This ensures that Preserved Benefits are not dealt with in contravention of the Relevant Law.
[24] This provides for transfers into the Trust from other funds.
Clause 1.1 defines the following terms referred to in clause 11.2(a):
In the Rules, unless the context or subject matter otherwise requires:
“Benefit” means the amount paid or payable (as the case may be) from a Plan to or in respect of a Beneficiary less any deduction permitted by the Rules and including, in the case of a Relevant Member, any amounts deducted or deductible for Surcharge.
“Plan” means a separate trust which comprises a Division or one of several separate trusts which together comprise a Division (and which may consist of 2 or more sub-plans).
“Relevant Law” in respect of the Trust or a Plan, as applicable, means SIS and the Statutory Requirements…
“SIS” means the Superannuation Industry (Supervision) Act, 1993 and any regulations and prudential standards made or issued thereunder.
The proviso in clause 11.2(a) (the proviso) is ambiguous. On the one hand, it might be an exception to the requirement contained in the chapeau to clause 11.2 that the relevant member request the relevant transfer. On the other hand, it might be subject to the requirement in the chapeau that the relevant member request the relevant transfer. If clause 11.2 were construed solely by reference to its text and evident purpose, it is likely that the former construction would be appropriate.
However, it is necessary to have regard to the history of clause 11.2 because the proviso was introduced pursuant to the Trustee’s power of amendment in the context of the adverse effect restriction on that power of amendment.
The predecessor of clause 11.2 in the original Trust Deed was clause 10.4.[25] Clause 10.4 did not confer power on the Trustee to transfer a member’s benefits to another fund other than at the request of the member (unless required by law). It relevantly provided:
Transfer Out
Where a Member is or becomes eligible for membership of another Eligible Fund or Division of the Trust (the “other fund”) then at the request of the Member or if required by law, the Trustee on the recommendation of the Manager, (subject to a condition that any Eligible Fund into which the Benefit is to be paid complies with Preservation Requirements where all or part of the Benefit being transferred is subject to Preservation Requirements) may pay all or part of a Member’s Benefit to such other fund together with such other amount as the Manager with the consent of the Member and Principal Employer of the Member may agree.
[25] In the original Trust Deed it was the third un-numbered paragraph within clause 10 (the first paragraph being numbered 10.1). The Trust Deed was subsequently amended to number each paragraph of clause 10 and this paragraph was numbered as clause 10.4.
On 15 March 1995, clause 10.4 was purportedly amended to introduce the proviso in similar terms to those that now appear in clause 11.2.
Clause 18.1(d) of the original Trust Deed empowered the Trustee to amend the Trust Deed if the amendment:
(d) is considered by the Trustee not to be or be likely to become prejudicial to the rights of any of the Participants or Members of any Division to which such alteration, modification, additional cancellation applies. [26]
[26] There were three other circumstances in which the Trustee was empowered to amend the Trust Deed, but none of them was capable of applying to the introduction of the proviso.
This power of amendment was subject to the adverse effect restriction which was then expressed in the following terms:
unless in the opinion of the Trustee any such alteration, modification, addition or cancellation is or is likely to become adverse to the rights of Participants or Members of any Division to which such alteration, modification, addition or cancellation applies, in which case the Trustee shall not proceed to give effect to the same unless and until it is consented to:
(f) … by the Participants and Members which consent is expressed in an Ordinary Resolution passed at a meeting of those Participants and those Members convened in accordance with the provisions of this Deed at which no less than fifty per centum (50 per cent) by value of the holders of interests under this Deed entitled to vote do so.[27]
[27] If the adverse effect of the amendment were confined to Participants or Members of a particular Division, the required consent was confined to a Special Resolution passed at a meeting of those Participants and Members. This does not apply to the introduction of the proviso, which affects all members alike.
The introduction of the proviso was prejudicial and adverse to the rights of members because it empowered the Trustee to transfer their benefits to a successor fund without their knowledge or consent. There is a general principle of construction that, if an ambiguous clause is valid on one construction and invalid on another, it will ordinarily be construed so that it is valid. This is a powerful factor pointing in favour of the latter construction of clause 11.2 referred to at [52] above. If the former construction applied, it is likely that the proviso would be invalid because it is difficult to conceive how, when it was inserted into the Trust Deed, the Trustee could not have formed an opinion that it was prejudicial or adverse to the rights of members and the Trustee did not obtain the consent of the members by ordinary resolution in general meeting.
Accordingly, it is likely that, on the (valid) terms of the current Trust Deed, the Trustee lacks power to transfer members’ benefits to a successor fund other than in the limited circumstances referred to in clause 11.3 considered above.
Power for the future
It is foreseeable that the Trustee might wish to exercise a power to transfer a member’s benefits to a successor fund without the member’s consent in the future:
1upon deciding to terminate the Trust – in respect of all members;
2upon deciding to terminate a Plan or product (including the MySuper product) if members’ benefits are not to be transferred to an alternative product – in respect of all members in that Plan or holding that product;
3upon deciding that it cannot provide benefits on competitive terms for a specific group of members (e.g. obtain insurance for members in a specific occupation on competitive terms) and a competitor fund that qualifies as a successor fund can do so – in respect of all members of the specific group;
4upon an employer ceasing to be a participating employer and making its default superannuation contributions instead to a competitor fund that qualifies as a successor fund – in respect of all employees of that employer.[28]
[28] This situation is already addressed but in different terms by clause 11.3.
The Trustee contends that it is not possible to foresee all circumstances in which it might wish to exercise a transfer power and it is in the interest of members that it have plenary power to do so not confined to foreseeable circumstances. The Trustee points to the definition in the SIS Regulations of a successor fund that ensures that any successor fund must confer equivalent rights to those in the Trust and to the fact that it would owe a fiduciary duty to exercise a transfer power in the interest of the members. The Trustee points to the fact that the trust deeds of several large competitor superannuation funds give to their trustees a plenary power to transfer members to a successor fund.
I am not satisfied that it is in the interest of members that the Trustee have plenary power to transfer their benefits to a successor fund without their consent. In general terms, it is in the interest of members that their interest in the Trust not be transferred to a different fund other than pursuant to their request or with their consent.
In the first situation identified at [60] above in which the Trustee decides to terminate the Trust, in order to make a merger with or transfer to another superannuation fund being a successor fund, the Trustee would need power to make the transfer without the members’ consent because it could not practically obtain the consent of all members. This includes the situation presently being contemplated in which the Trustee decides to merge the Trust with Retirement Wrap or another superannuation fund in the Group. In particular it would be in the interest of members that the Trustee exercise this power if the Trustee considers members would be better off on a merger with or transfer to a larger fund.
In relation to the second situation identified at [60] above, if the Trustee decides to terminate a Plan or product and transfer members’ benefits therein to a successor fund, the Trustee would need power to make the transfer without the members’ consent because it could not practically obtain the consent of all such members. In particular it would be in the interest of members that the Trustee exercise this power if the Trustee considers members of the relevant Plan or holding the relevant product would be better off on transfer to a larger fund.
In relation to the third situation identified at [60] above, it would be in the interest of the members of the specific group in question for the Trustee to have power to transfer their benefits to a successor fund. This situation is quite unlikely to occur but, if it did, it would involve a small proportion of members and assets of the Trust and would not have a significant effect on the remaining members of the Trust.
In relation to the fourth situation identified at [60] above, I accept the plaintiff’s submission that employers might be reluctant to become participating employers in the first place if the Trustee lacks power to transfer their employees’ benefits to a successor fund without their consent upon the employer changing the default fund for contributions to a competitor fund. This situation would involve a small proportion of the members and assets of the Trust and would not have a significant effect on the remaining members of the Trust.
It is very unlikely that the Trustee would seek to exercise a transfer power in any situation other than these four situations and the plaintiff does not identify another situation as foreseeable. Any variation to the Trust is required not to disturb the Trust beyond what is necessary and to accord as far as reasonably practicable with the spirit of the Trust. If an additional situation arises or becomes foreseeable, the Trustee can seek an order from the Court under section 59C of the Trustee Act further amending the Trust Deed.
It is in the interest of members that the Trustee have power to transfer the benefits of the following classes of members to a successor fund without their consent in the following limited circumstances:
1a decision by the Trustee to terminate the Trust (including on a merger) and transfer to a successor fund the benefits of all members of the Trust;
2a decision by the Trustee to terminate a Plan or product within the Trust and transfer to a successor fund the benefits of all members in that Plan or holding that product;
3a decision by the Trustee to transfer to a successor fund the benefits of all members falling within a group for which the Trustee determines it is unable to provide competitive benefits at a competitive cost compared to a competitor fund that qualifies as a successor fund; or
4a decision by the Trustee to transfer to a successor fund the benefits of employer-sponsored members who are employees of a participating employer which has changed or decided to change the fund to which it makes superannuation contributions from the Trust to a competitor fund that qualifies as a successor fund.
The power to transfer members’ benefits to a successor fund should be conditional on:
1the Trustee exercising the power so that the timing of the transfer does not cause one subset of the members to be transferred to suffer a significant detriment compared to another subset;
2the transfer not causing a significant detriment to members not to be transferred;
3the Trustee giving to each member of the defined class at least 60 days’ notice[29] of the intended transfer of the member’s benefits to the successor fund including an explanation of:
(a)the nature and effect of the Trustee’s decision including details of the successor fund and plan or product to which it is proposed that the member’s benefits will be transferred, how to obtain a product disclosure statement for the relevant product in the successor fund, the proposed date of the transfer and any conditions to which the proposed transfer is subject;
(b)the reasons for the Trustee’s decision;
(c)actual and potential advantages and disadvantages of transfer for the member;
(d)the member’s alternative rights (including to remain in the Trust if applicable, to direct the Trustee to transfer the member’s benefits to an alternative regulated superannuation fund of the member’s own choice or, if so entitled, to cash the member’s benefits).
[29] I will hear the parties if they submit that another period of notice is appropriate.
The new transfer power should cover the field of circumstances in which the Trustee has power to transfer members’ benefits to another superannuation fund without their consent. The new clause should replace existing clauses 11.2 and 11.3.
Subject to inclusion of provisions referred to above, there is good reason to vary the Trust to give to the Trustee power to transfer the benefits of members to a successor fund without their consent in the limited circumstances and subject to the conditions above. Such a variation is in the interest of members. It does not result in one class of beneficiaries being unfairly advantaged to the prejudice of another class. It does not disturb the Trust beyond what is necessary to give effect to the reasons justifying the exercise of the power and accords as far as reasonably practicable with the spirit of the Trust. While it will confer power on the Trustee to transfer members’ benefits on a decision to terminate the Trust, this is consequential on a termination of the Trust under existing winding up powers already contained in the Trust Deed. It is in accordance with the subsection 59C(3) criteria.
Conclusion
All prerequisites are satisfied to exercise the power to vary the Trust. I am satisfied that I should exercise my discretion to vary the Trust in the manner summarised above.
I will hear the parties as to the form of the order to give effect to the above reasons.
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