Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd and Ors [2002] VSC 576

2. Ansett Australia Limited was for many years one of the major domestic airline services in Australia. Its origins may be traced back to a single-engine, open cockpit service operated in Victoria in 1936. It advanced in 60 years to a major airline with ancillary travel services and facilities.

5. In the latter part of 2001 the airline fell under financial difficulty. On 12 September 2001 administrators were appointed, Peter Hedge, Greg Hall and Allan Watson ("the initial administrators"). They resolved the cessation of airline operations and stood down the majority of Ansett employees. It became necessary for the initial administrators to resign and new administrators were appointed on 17 September 2001, Mark Mentha and Mark Korda ("the administrators"). They found it necessary to stand down and terminate some staff. They recommenced airline operations on 29 September 2001. Simultaneously, the administrators embarked on efforts to sell the airline.

8. There were steps taken by the administrators in an endeavour to continue the airline. In that context a number of external, including legal and political events, occurred. On 14 September 2001 the Commonwealth government announced the advance of moneys for Ansett employee entitlements to the extent that such entitlements could not be met by the assets of Ansett. This was to be effected by way of a levy to be charged on air passenger tickets. The Commonwealth government established a Special Employee Entitlement Scheme for eligible companies under the Air Passenger Ticket Levy (Collection) Act 2001 ("the Levy Act").[1] The scheme came to be known as "SEESA". On 14 December 2001 the administrators, following approval by the Federal Court, and the Commonwealth government executed the SEESA deed and on 18 December 2001 a document described as the "SEES Administration and Loan Agreement". Under the arrangement the Commonwealth government injected approximately $200,000,000 into the SEESA Scheme to enable former Ansett employees to be paid unpaid wages, unpaid leave, unpaid long service leave, entitlements for pay in lieu of notice and redundancy entitlements up to a period of eight weeks. There were terms of the SEESA arrangement that where Commonwealth moneys were paid to an employee the Commonwealth became subrogated to the rights of the employee and if a priority attached to that entitlement then that too became subrogated to the Commonwealth. The arrangements, including the provision for subrogation to the Commonwealth, were approved in orders made by Goldberg J in the Federal Court on 14 December 2001.[2] The subrogation requirement was described by Goldberg J in his judgment approving the SEESA Deed, as follows:

"The effect of the Commonwealth's proposal was to give it priority for the repayments of any advances made by it to the administrators for employee entitlements as if it stood in the shoes of the employees to whom, and for whom, the payments were made. In particular, this proposal would give the Commonwealth priority for repayment over non-employee unsecured creditors and would enable the Commonwealth to rank equally with those employees who had entitlements, such as retrenchment payments in excess of 8 weeks, which had not been paid to them under the scheme."[3]

12. At the same time as these events were occurring a dispute between Ansett and Air New Zealand was resolved by the New Zealand government agreeing to pay to Ansett on behalf of Air New Zealand the sum of $150,000,000. The resolution of the dispute was recorded in a memorandum of understanding between the subject parties made on 3 October 2001. The agreement resolving the dispute between Ansett and Air New Zealand was approved by Goldberg J in the Federal Court on 12 October 2001.[4] A requirement was imposed upon the administrators by the Commonwealth government that the settlement sum from Air New Zealand be applied to meet the payments to priority creditors of Ansett.

15. During the progress of the SEESA negotiations between the administrators and the Commonwealth government, the administrators embarked on a course of notifying Ansett employees of the opportunity for voluntary redundancy. Letters were dispatched on about 17 October 2001.[5] The letter informed employees of a number of matters including consultation with the Australian Council of Trade Unions and unions, the payments available under SEESA and a schedule for the calculation of entitlements. The letter advised, also, that benefits under a relevant superannuation scheme were separate from the voluntary redundancy offer. Subsequently, offers were accepted and a programme of retrenchments commenced.

18. The administrators embarked upon revival programmes in an effort to continue the airlines service but on a massively reduced basis. They initiated "Kick-Start". It involved the recommencement of flying a limited number of aircraft, approximately ten in number, on the major trunk routes, principally to preserve the name and good will of Ansett. The administrators devised, also, a new Ansett business called "Ansett Mark II".

21. Meanwhile, on 8 November 2001 the administrators entered into an agreement with TESNA Holdings Limited ("TESNA") to sell the airline. The agreement between Ansett and TESNA was considered by Goldberg J in the Federal Court in Re Ansett Australia and Ors v Korda and Anor.[6] However, on 28 February 2002 the agreement with TESNA was terminated. Subsequently, the administrators closed down almost all of the company's operations and, most significantly, all flights ceased on 4 March 2002. On 2 May 2002 the administrators executed a deed of company arrangement with the creditors of the company.

24. In the context of these circumstances Ansett, as an employer, was party to certain superannuation trust deeds with respect to its employees. Arising from the ongoing retrenchments, terminations and redundancies effected by the administrators, the employees' superannuation entitlements crystallised. Questions arose on the part of the trustee of the subject superannuation fund as to the entitlement of the employees of Ansett.

27. Essentially, three issues arose. First, whether the retrenched employees of Ansett were entitled to benefits under the subject trust deed and, if so, to which categories of benefits. Secondly, if the entitlements give rise to a deficiency in the fund, is Ansett obliged to make further contributions to enable payment of those benefits? Third, if so, what priority ranking the obligation upon Ansett attracts under s.556(1) of the Corporations Act 2001.

30. Arising from these circumstances the plaintiff, as trustee of the Ansett Australia Ground Staff Superannuation Plan ("the Plan") issued these proceedings seeking answers to questions they postulated in the nature of the three questions identified.

33. The first defendant was the company, Ansett. The second defendants were the administrators. The third defendant was one Russell Thomas Booth. He was a representative party representing those employees of Ansett who have been retrenched. The fourth defendant, one Steven Clarke, was a representative party representing those persons who remain in the employ of Ansett. Originally, the fourth defendant was one James Herbert Hennessy. However, during the trial Mr Hennessey ceased to be employed by Ansett and, as a consequence, Mr Clarke was substituted as the defendant representing persons remaining in the employ of Ansett. The Australian Council of Trade Unions ("the ACTU") intervened and made oral and written submissions. The position of the ACTU essentially supported that of the administrators.

PART I

39. There was no issue over the history of the statutory regime. The plaintiffs provided a thorough overview of the applicable legislation.

42. Up until the mid 1980s the only Federal legislation relating to superannuation was contained in the Income Tax Assessment Act 1936. In particular, s.23F exempted the income of certain superannuation funds from income tax..[7] The Commissioner of Taxation prescribed in an ad hoc fashion various standards that had to be met for a private sector superannuation fund to be eligible for that tax concession.

45. Access to superannuation benefits was a matter entirely within the discretion of the employer. Access to superannuation benefits was largely the privilege of government employees and the employees of major corporations. There was also the question of the limitations of the power of the Commonwealth Parliament. Moreover, it was generally considered that s.51(xxxv) of the Constitution did not confer power on the Parliament, in making laws in relation to the conciliation and arbitration of interstate industrial disputes, or to make laws with respect to matters thought to arise outside and beyond the termination of the contract of employment.

48. However, in Re The Manufacturing Grocers' Employees Federation of Australia and Anor [1986] HCA 23; (1986) 160 CLR 341, the High Court held that the Conciliation and Arbitration Commission had power to make awards that contained provisions not only for wages and conditions but also for superannuation. Furthermore, in the National Wage Case of June 1986, the Industrial Relations Commission[8] made express provision for superannuation and described the principles that would govern its preparedness to certify agreements that provided for superannuation and as to when it would include provisions for superannuation in awards. Thereafter, the superannuation plans of various employers were increasingly used as the vehicle whereby the employer satisfied award obligations in relation to superannuation.

51. In 1987, the Commonwealth enacted the Occupational Superannuation Supervision Act 1987 (Cth) ("OSSA"). It was the first piece of legislation to specifically regulate superannuation funds. OSSA was intended to codify and rationalise the superannuation laws which until then had been contained in income tax legislation. Under OSSA, general supervision was conferred on the Insurance and Superannuation Commission ("the ISC").[9]

55. The next change to superannuation legislation occurred in 1992.

58. In 1992 the Commonwealth Government introduced a "superannuation guarantee". The concept was that employers would be compelled to contribute a specified (escalating over a number of years) percentage of employees' salaries to superannuation. The means by which this was achieved was the introduction of a charge, the liability for which could be eliminated by the making of superannuation contributions for employees pursuant to the legislation.

61. The Commonwealth enacted two Acts globally referred to as the "Superannuation Guarantee Legislation" consisting of Superannuation Guarantee Charge Act 1992 and the Superannuation Guarantee (Administration) Act 1992.

64. The Second Reading Speech of the Treasurer contained the following statements:

"The superannuation guarantee levy represents another major step forward in the development of retirement incomes policy. It will lay the foundation for income security and higher standards of living in retirement for future generations of retirees. The superannuation guarantee levy provides:

* an efficient method of encouraging employers to comply with their award obligations; and

* an orderly mechanism by which employer superannuation support can be increased over time, consistent with the economy's capacity to pay.

... Where employers provide less than the minimum level of superannuation support, they will be liable for a superannuation charge. The superannuation guarantee charge - which will not be a deductible expense for employers - will be used to meet the superannuation contribution entitlements of the relevant employee and will be used ... to fund administration costs. ... ... this mechanism is not intended to be the principal vehicle for the funding of employee's superannuation contribution entitlements. It is intended, instead, to be an incentive for employers to meet their own obligations, and to be a support mechanism for employees where those obligations are not met. ... Superannuation support must be provided through a complying superannuation fund in order to be counted towards the minimum level of superannuation support. The fund can be either a defined contribution fund or a defined benefit fund. In the case of a defined benefit fund, the employer will be required to obtain an actuarial certificate specifying the level of employer superannuation support implicit in the benefits available to employees in the fund. For all other funds, the employer's level of support will be based on the actual contributions made to the fund."[10]

72. The effect of the legislation was that the Superannuation Guarantee Charge Act imposed a charge based on any shortfall in superannuation contributions for employees. The charge was calculated by reference to the Superannuation Guarantee (Administration) Act. The two Acts were regarded as "a package of measures" that required reading together.[11] The rationale underlying the legislation was to encourage employers to provide minimum superannuation for employees.[12] The inducement was that if employers provided less than the minimal level of superannuation they would be liable for a superannuation guarantee charge that would not constitute a deductable expense for taxation purposes for such employers.

75. The combined operation of the two enactments presents an employer with a choice. Either the employer must provide sufficient "superannuation support" or pay the "superannuation guarantee charge".[13]

78. Further, defined benefits funds employer contributions are not fixed, so that liability for the charge is related to a "notional employer contribution rate". This "notional employer contribution rate" is established by an actuary and is set out in a document called a "benefit certificate".

81. Section 10 of the Superannuation Guarantee (Administration) Act provides:

"(1) A benefit certificate is a certificate by an actuary relating to one or more specified defined benefit superannuation schemes and specifying the rate, expressed as a percentage, that is, in the opinion of the actuary, the notional employer contribution rate, in relation to a specified class of employees (being members of the scheme or schemes, as the case may be), of an employer who is a contributor under the scheme or schemes (as the case may be) for the benefit of an employee in that class.

(2) The notional employer contribution rate, in relation to a class of employees specified in a benefit certificate relating to one or more defined benefit superannuation schemes, is the contribution rate required to meet the expected long-term cost, to an employer who contributes to the scheme or schemes for the benefit of employees in the class, of the minimum benefits accruing in respect of all employees in the class from the date of effect of the benefit certificate onwards.

87. The section does not define "minimum benefits", but s.10(6) provides that regulations may make provision regarding the way in which minimum benefits are to be calculated. "Minimum requisite benefit" is defined in Regulation 2 of the SGA Regulations as having "the same meaning as in the Occupational Superannuation Standards Regulations". Regulation 3 of the Occupational Superannuation Standards Regulations ("OSS Regulations") defines "minimum requisite benefit" to mean:

"the minimum benefit required to be vested in the member by the superannuation fund conditions."

91. Regulation 6 of the SGA Regulations provides that "MB" is calculated using the formula: "MRB - PAV" where "MRB" means the minimum requisite benefit in respect of a person and "PAV" means the part of that benefit that accrued to the person before 1 July 1992 calculated in accordance with sub-regulation (6). Thus, the meaning of minimum benefits in s.10 is the "minimum requisite benefit" stripped of its pre 1 July 1992 component.

94. The minimum benefit "required to be vested in the member by the superannuation fund conditions" is provided for in regulation 8 of the OSS Regulations.[14] Regulation 8(1A) provides:

"Any benefits, other than death or disability benefits, vest in the member on the day on which the benefits accrue, if the benefits arise directly or indirectly from contributions made in respect of a member of a superannuation fund:

(a) by an employer in amounts that do not exceed the minimum amounts required by the Guarantee Act so that superannuation guarantee charge is not payable by the employer; or

(b) as payment of the shortfall component in relation to the member; or

(c) in accordance with a prescribed agreement or award."

101. The charge has increased over the years. It began at about three per cent. In the financial year 2000/2001 it was at eight per cent. It is at eight per cent for the present year. The charge will rise to nine per cent in 2002/2003. In effect, an employer is now compelled by law either to pay the charge or to avoid the charge by making superannuation contributions to a regulated superannuation fund. In the case of its employees who are members of the Ground Staff Plan, Ansett has used that plan as the vehicle to satisfy its obligations under the Superannuation Guarantee Legislation.

104. Hence, the mutual rights and obligations of employer, trustee and members are no longer governed solely by the provisions of a trust deed. There came to pass from 1992 onwards arising from the Superannuation Guarantee Legislation that there was also a "legislative overlay" governing the superannuation obligations of Ansett.

The Superannuation Industry Supervision (SIS) Legislation

108. The legislative overlay was not static. It was subject to ongoing change. In 1993, the Commonwealth enacted the Superannuation Industry (Supervision) Act 1993 ("the SIS Act"). The SIS Act provided for the comprehensive regulation and supervision of superannuation funds. The SIS Act enabled the Superannuation Industry (Supervision) Regulations ("the SIS Regulations"). The explanatory statement[15] to the SIS Regulations provided a useful explanation of the interaction between the superannuation guarantee system.[16] In particular, the explanatory statement noted:[17]

"The regulations to be prescribed in relation to the financial management and solvency of superannuation funds are essentially new regulatory/supervisory functions. The necessity for regulation in these areas has emerged with the introduction of compulsory employer-financed superannuation via the Superannuation Guarantee (Administration) Act 1992. It is the government's objective to ensure the security of the member's entitlement to those benefits attributable to compulsory Superannuation Guarantee (SG) contributions. The regulations framed under the Occupational Superannuation Standards Regulations were considered inappropriate in a number of respects:

* the imposts on defined benefit funds (DBF) were more onerous than those on non-defined benefit funds;

* the solvency measures for DBFs were prescribed such as to have retrospective effect - limited transitional provision was made for funds unable to satisfy the standards at outset;

* the nature of the solvency test for DBFs - requiring non-conditional guarantee as to the continuous solvency of the fund over a five year future period - was, given the probabilistic nature of superannuation, impossible to provide.

The necessity for financial management and solvency standards has emerged under the new superannuation regulatory regime, the measures should not be excessively prescriptive nor onerous. The objective is:

* to protect the interests of fund members, in the long term, against intentional mismanagement of their retirement savings; and

* to provide a mechanism for early identification of mismanagement (preventative measures) and to initiate corrective actions where mismanagement occurs."

118. As a matter of practice, it is the regulations made under each of the Acts constituting the superannuation legislation that operate to permit an employer to reduce each of its superannuation guarantee shortfalls to nil.

121. Part 9 of the SIS Regulations (of which Division 9.3 is a part) is made pursuant to s. 31 of the SIS Act. Section 31 provides:

"(1) The regulations may prescribe standards applicable to the operation of regulated superannuation funds (funds).

(2) The standards that may be prescribed include, but are not limited to, standards relating to the following matters:

129. Regulated superannuation funds are funds with certain characteristics where the trustee elects that the SIS Act is to apply: s.19 SIS Act. The obligation to comply with the standards prescribed by regulation is solely and exclusively placed upon the Trustee. The matter is dealt with in s.34 of the SIS Act under the heading "Prescribed operating standards must be complied with" in these terms:

"(1) The trustee of a superannuation entity must ensure that the prescribed standards applicable to the operation of the entity are complied with at all times."

133. Division 9.3 of the SIS Regulations regulates the "funding and solvency of defined benefit funds". Regulation 9.07 provides that for the purposes of s.31 (1) of the SIS Act the standards in Regulations 9.08, 9.09 and 9.17 are prescribed for the operation of defined benefit funds. Regulation 9.08 of the SIS Regulations provides:

"(1) In respect of each year of income of a defined benefit fund to which this Division applies, an employer-sponsor of the fund must pay contributions to the fund in accordance with this regulation.

(2) The contributions paid must be not less than the certified minimum contributions relating to the fund"

139. "Employer-sponsor" is defined in s. 16 of the SIS Act to mean:

"(1) An employer-sponsor of a regulated superannuation fund is an employer who:

(b) would, apart from a temporary cessation of contributions, contribute to the fund;

(d) the dependants of such a member in the event of the death of the member."

150. "Certified minimum contributions" is defined in Regulation 9.06 for the purposes of the Division, to mean:

"... the minimum contributions certified, in accordance with sub-regulation 9.10(1) or 9.18(9), in a funding and solvency certificate."

154. The Trustee must obtain a Funding and Solvency Certificate from an actuary under Regulation 9.09. Regulation 9.10, which deals with the contents of the Funding and Solvency Certificate, provides:

"(1) Subject to regulation 9.18 (relating to periods of technical insolvency), in the funding and solvency certificate required under regulation 9.09 in relation to a defined benefit fund, an actuary must:

(f) certify the minimum contributions reasonably expected by the actuary to be required in respect of any member or class of member to secure the solvency of the fund on the expiry date of the certificate."

160. Regulation 9.06(2) of the SIS Regulations provides that, in Division 9.3, "a reference to the solvency of a fund is to be read as a reference to the minimum benefit index of the fund being certified in accordance with this Division as not less than 1." The "minimum benefit index" is an index calculated in accordance with Regulation 9.15.

"(1) The minimum benefit index in respect of a defined benefit fund is the index calculated in accordance with the following formula:

169. The various elements of the formula are defined in Regulation 9.15(2). "NRV" is defined to mean "the net realisable value of the assets of the fund" and "BEF" is defined to mean "the value of the benefit entitlements of former members of the fund". These definitions are further defined in the subsection. "FMRB" is defined to mean "the funded minimum requisite benefit," that is, "the amount that is the sum of:

(a) the value of the pre-initial date component of the MRB multiplied by the adjusted minimum benefit index; and

(b) the value of the post-initial date component of the MRB".

175. "MRB" is defined to mean "the total amount of the minimum requisite benefits of all current members of the fund." "Minimum requisite benefit" is "the benefit certified by an actuary in a relevant benefit certificate as the minimum benefit in respect of the member": see Regulation 1.03. "Benefit certificate" is defined in Regulation 1.03 as, having "the meaning given by s. 10" of the Superannuation Guarantee (Administration) Act 1992.

178. SIS Regulation 9.08(1) and (2) are cast in mandatory terms. The employer "must" make contributions to the fund. Regulation 9.08(1) recites the obligation imposed on the employer and regulation 9.08(2) states the measure of the obligation, namely, that the contributions "must not be less than the certified minimum contributions". The latter, "certified minimum contributions", are defined in regulation 9.06(1) as meaning "the minimum contributions certified ... in a funding and solvency certificate". SIS regulation 9.09 requires the trustee to obtain a funding and solvency certificate from an actuary.

182. In summary, the legislation provides that an employer may make contributions to certain superannuation funds as a means of reducing each of its superannuation guarantee shortfalls to nil. In the case of an accumulation fund, this is relatively simple. The employer simply shows that it has contributed an amount precisely equal to the amount of the charge. In the case of a defined benefit fund, the process is complex. In particular, the process must take into account that the fund provides for the payment of fund or defined benefits as well as providing for minimum requisite benefits which are asset levels in the fund notionally appropriated for individuals for various purposes in order that the fund can pay benefits equating to the level of support required by the superannuation charge legislation. Accordingly, provisions exist that have a twofold effect. First, the provisions qualify the fund as one which will be permitted to reduce the superannuation guarantee shortfall to nil. This is achieved by an actuary identifying the implicit or notional rate of the employer's contribution expressed as a percentage of a member's salary represented by the minimum benefit available in the fund for that member so as to determine whether the charge obligation is met in whole or in part in respect of that particular member. Secondly, the provisions ensure that the fund has sufficient assets such that it will always be in a position to pay to employees the benefits equivalent to benefits to which they are entitled as a result of the superannuation guarantee legislation.

185. The qualification of the fund is produced by the making of a "benefit certificate" pursuant to s.10 of the Superannuation Guarantee (Administration) Act 1992. The production of that certificate is governed by the regulations made under that Act, namely the Superannuation Guarantee (Administration) Regulations 1993. The funding of sufficient assets is produced by the making of relevant funding standards pursuant to the SIS Act. The relevant funding standards are contained in the SIS Regulations. In particular, the relevant funding standards provide that an actuary must embark on two steps. First, to certify that a defined benefit fund is able to meet minimum requisite benefits as at the date of the certificate. Secondly, to certify minimum contributions reasonably expected by the actuary to be required in respect of any member to ensure that the fund is able to meet minimum requisite benefits at the expiry date of the certificate. In the relevant funding standard, the ability of a defined benefit fund to meet minimum requisite benefits at either of these dates is described as its "solvency". However, the relevant funding standard is not designed to ensure constant solvency at every point of time between those two dates. Furthermore, there is a distinction between satisfying the obligation in a defined benefit fund and satisfying it in a defined contribution fund. In the former, a certificate of "superannuation support implicit in the benefits available" is required. In a defined contribution fund, satisfaction is a function of "actual contributions". Under the legislative regime, therefore, it is the SIS Act that imposes a solvency requirement.

188. After the enactment of the SIS Regulations the trust deed in the present Plan was amended on 27 October 1994 to specifically include the application of those regulations to the deed.[18]

194. The subject trust deed is the "Ansett Australia Ground Staff Superannuation Plan 1999 Consolidated Trust Deed" ("the trust deed"). The parties to the trust deed were Ansett as the employer and the first plaintiff, as trustee. It was dated 17 August 1999. The trust deed contemplated two different forms of benefit: first of all, the form of benefit known as the defined benefit plan; secondly, the form of benefit known as the accumulation plan. Broadly speaking, a defined benefits plan is a superannuation plan where payment is made upon a designated event such as termination. An accumulation plan is a superannuation plan where the employer and the employee contribute defined amounts and the employee is paid a specified share of corpus and income.

197. There were in fact five superannuation funds that were applicable to Ansett employees: the Ground Staff Plan; the Pilot Management Plan; the Ansett Australia Flight Attendants Benefit Plan; the Ansett Australia Pilots Accumulation Plan; and the Ansett Australia Flight Engineers Superannuation Plan. The Ground Staff Plan and the Pilot Management Plan both included a defined benefit and an accumulation section and provided for a retrenchment benefit under the defined benefit section. The other plans differed in that they included defined and accumulation sections but did not provide full retrenchment,[19] or were confined to an accumulation fund with no provision for retrenchment benefits.[20] The funds, other than the Ground Staff Plan, were not represented in the proceeding.

200. The trust deed was first made on 18 March 1988 and amended on subsequent occasions[21] culminating in a consolidating amendment effected on 17 August 1999. There was a more recent amendment made on 30 April 2002. The amendments were generally prompted by changes to the legislative regime governing superannuation funds.

203. The trust deed consists of three parts. The deed itself was constituted by clauses 1 to 32. Next, the first schedule being the rules of the management of the defined benefit section was constituted by rules 1.1 to 1.17. Lastly, the second schedule, being the rules for the management of the accumulation section. Only the trust deed itself and the first schedule ("the rules") are relevant for present purposes. The Rules identified the following matters:

(a) the measure of the obligation to contribute;

(b) the various forms of benefit;

(c) the conditions that must be satisfied for the payment of a particular benefit;

(d) formulas which are applied in order to calculate the amount of a particular benefit.

209. Clause 2 of the trust deed requires the employer, Ansett, to pay contributions with respect to employees:

"2. CONTRIBUTIONS Each Employer separately covenants to pay in each Review Period to the Trustee or as directed by it, and within such period, (if any) as is required by the Act:

(a) the contributions which each Member has or is deemed to have requested the Employer to deduct from his or her Salary in accordance with the Rules and which the Employer has so deducted; and

(b) out of the Employer's own money the Employer's contributions in accordance with the Rules,

PROVIDED THAT the Employer may pay to the Trustee such additional sums (if any) as the Employer may from time to time determine and PROVIDED FURTHER THAT such sums do not contravene the Act. Those sums shall be applied by the Trustee as the Employer shall in writing direct PROVIDED THAT any Employer may on giving one month's notice to the Trustee of its intention so to do terminate reduce or suspend the payment by that Employer of all or any of its contributions.

(2) Upon expiration of the one month's notice given by the Employer in accordance with sub-clause (1) of this Clause, the liability of that Employer to make those payments shall cease; wholly, to the

extent, for the period, or in the circumstances mentioned in the notice.

(3) Subject to the Act, any Employer that is a Related Body Corporate (as defined in Division 6 of Part 1.2 of the Corporations Law) of another Employer may pay contributions on behalf of Members in the Service of that other Employer.

(4) The Trustee may receive a shortfall component, within the meaning of the Superannuation Guarantee (Administration) Act 1992, in respect of a Member and any such amount will be treated as a contribution by the Employer in respect of the Member."

224. Rule 1.3 of the rules referred to the contribution obligations of the member, the employee:

(1) Subject to Rule 1.4 and in so far as the Act allows each Member shall (except while entitled to the payment of a benefit in terms of Rule 1.11) in respect of each Review Period contribute to the Plan at the rate of five per cent of the Member's Annual Salary. The Trustee may with the Employer's consent waive part or all of the Member's contributions under this Rule 1.3(1). In that event, the Employer will pay such additional amounts as may be required to avoid a shortfall in contributions. Any such contributions will be deemed to have been made by the Member.

(1A) (a) Subject to Rule 1.3(1A)(c) the Member may elect with effect on a Review Date (or any other date approved by the Trustee) to make contributions to the Plan additional to those referred to in Rule 1.3(1) at a particular rate, or to contribute such other amounts as may be agreed between the Member and the Trustee (having regard to the requirements of the Act).

(b) Subject to Rule 1.3(1A)(c) a Member who has elected to make contributions under Rule 1.3(1A)(a) may subsequently elect with effect on a Review Date (or any other date approved by the Trustee) to cease to pay, or to vary, such contributions as agreed between the Member and the Trustee, subject to the requirements of the Act;

(c) The contributions made by the Member under Rule 1.3(1A)(a) shall in so far as the Act allows commence on the Review Date (or such other date approved by the Trustee) as the Member elects to make those contributions and shall cease on the date the Member ceases to be in the Service of the Employer or to be a Member (whichever is the earlier) or in such other circumstances as comply with the relevant requirements of the Act.

(2) The contributions by the Member pursuant to Rule 1.3(1) shall in so far as the Act allows commence on the date he or she becomes a Member under this Defined Benefit Section of the Plan and shall cease on the Member's Normal Retirement Date or on ceasing prior to that date to be in the Service of the Employer or to be a Member whichever is the earlier or in such other circumstances as comply with the relevant requirements of the Act PROVIDED THAT in any case the contributions by the Member shall cease when the Member completes forty years of his or her Years of Membership.

(3) The Employer shall in so far as the Act allows in respect of each Review Period contribute to the Plan at a rate agreed upon with the Trustee being the rate or a rate within the range of rates contained in the report of the Actuary as provided for in Rule 1.3(4).

(3A) Subject to the Act, the Employer may make contributions additional to those referred to in Rule 1.3(3) on behalf of a Member of such amount as the Employer determines from time to time.

(4) (a) The Trustee shall arrange for an actuarial investigation and valuation of the Plan to be made by the Actuary at consecutive three yearly intervals (or at such other regular intervals not exceeding three years as may be approved by the Principal Employer).

(b) The Trustee shall supply the Actuary with information as may be required for the purpose of investigation and valuation.

(c) The Actuary shall provide a report in writing to the Principal Employer and to the Trustee upon the results of this investigation. Such report shall include details of the rate of contribution calculated as being required in respect of the funding of benefits under the Plan and, where there is more than one rate of contribution that will adequately fund benefits under the Plan, shall include details of such various rates of contribution."

231. Hence, by virtue of clause 2 of the trust deed Ansett covenanted to pay the employer's contribution in accordance with the rules. Under rule 1.3(3) the employer, Ansett, was required to contribute at "... a rate agreed upon with the trustee being the rate ... contained in the report of the Actuary ... ". Under rule 1.3(4) the trustee was required to arrange for an actuarial investigation and valuation to be conducted at three year intervals.

234. Thus, the moneys that were contributed to the fund were first of all the members' contributions of five per cent of salary and, secondly, the amount payable by the employer as agreed with the trustee.

237. The next important aspect of the trust deed was the requirement imposed on the trust deed to pay benefits to members upon certain events. Clause 3 of the trust deed provided:

(1) All amounts forming part of the Plan and the contributions by and in respect of the Members shall after payment of any taxes or duties be held in trust by the Trustee and applied to provide the benefits referred to in this Deed and the Rules for or in respect of the Members.

(2) The Trustee shall arrange for benefits to be funded in whole or in part by means of the investments authorised by this Deed and in whole or in part by means of a Policy of such form as is from time to time agreed upon by the Trustee, the Administrator and the Insurer (as the case may be) and the Trustee shall from the monies in its hands available for this purpose pay to the Insurer or the Administrator (as the case may be) the premiums under the Policy.

(3) Payments made with the concurrence of the Trustee by the Employer to either the Administrator or the Insurer in connection with the Plan shall be deemed to have been paid by the Employer to the Trustee and by the Trustee to either the Administrator or the Insurer (as the case maybe).

(4) When for any reason a benefit becomes payable (whether in a lump sum or otherwise) to or in respect of a Member in accordance with this Deed and the Rules the Trustee shall subject to the terms and conditions of any Policy receive from either the Administrator or the insurer (as the case maybe) the amount so payable.

(5) If in respect of the funding of any benefits under the Plan amounts are invested other than in payment of premiums under a Policy, the investments and the proceeds from them shall to the extent, if any, that the benefits funded by means of the Policy may be equal to or less than the benefits required to be funded under the Plan, be held upon the same trusts as those relating to the benefits funded by means of the Policy and the provisions of this Deed and the Rules shall in the same way apply to those investments and proceeds."

244. In essence, therefore, the trustee was to provide benefits to members as required by the deed and the rules. There was a suite of benefits subject to an overarching obligation to pay that which was termed a minimum benefit as provided in rule 1.16:

(1) Notwithstanding any other provisions in this Deed and the Rules no benefit payable under these Rules shall be less than the minimum benefit as required by the Act.

(2) The Trustee will treat amounts held in the Plan in respect of a Member as minimum benefits except where the Act otherwise permits."

251. In rule 1.16 the reference to "the Act" was a reference to the Commonwealth superannuation regime already described. This aspect was addressed in the context of the applicable legislative regime.

254. Subject to that overarching requirement there were several core types of benefit. First, the normal retirement benefit at 65 years of age set out in rule 1.5:

"1.5 BENEFITS ON OR AFTER THE NORMAL RETIREMENT DATE (AGE 65)

(1) If the Member retires on his or her Normal Retirement Date the benefit payable shall, subject to Rule 1.4 and Rule 1.5(4) be the value of the Member's Member Voluntary Account, Roll-over Account and Employer Account and in addition an amount equal to:

(a) in the case of a Member who has completed at least four complete Years of Participation, the sum of:

(i) sixteen and two-thirds per cent of the Member's Final Average Salary multiplied by that part of the Member's Years of Membership (measured in years and days) falling prior to the first day of July 1978; and

(ii) eighteen per cent of the Member's Final Average Salary multiplied by that part of the Member's Years of Membership (measured in years and days) falling on or after the first day of July 1978 to the Member's Normal Retirement Date,

PROVIDED THAT if the Member was classified as a Shift Worker under the Staff Plan as at the first day of July 1981 the date referred to in this Rule 1.5(1)(a) (i) and (ii) shall be read as the first day of July 1981; or

(b) in the case of a Member who has completed less than four complete Years of Participation an amount calculated in accordance with Rule 1.12(1)(b).

(2) If the Member continues on or after the Normal Retirement Date to be in the Service of the Employer the Member shall with effect from the Normal Retirement Date cease to be a Member of the Defined Benefit Section and become a Member of the Accumulation Section.

(3) The benefit calculated under this Rule 1.5 will be adjusted for interest at the Net Earning Rate under the Capital Stable Investment Option, calculated from the date the Member ceases to be in the Service of the Employer to the date of payment.

(4) Where the benefit calculated in this Rule 1.5 is less than the benefit available pursuant to Rule 1.12, the benefit payable will be an amount not less than the amount available under Rule 1.12."

265. Second, the early retirement benefit on or after 55 years of age set out in rule 1.6:

"1.6 BENEFITS ON RETIREMENT PRIOR TO THE NORMAL RETIREMENT DATE

(1) If the Member retires within 10 years prior to his or her Normal Retirement Date, the benefit payable shall subject to Rule 1.4 and Rule 1.6(3) be the sum of:

(a) the value of the Member's Member Voluntary Account, Employer Account and Roll-over Accounts; and

(b) an amount calculated in the manner set out in Rule 1.5(1)(a) as if the Member had retired on his or her Normal Retirement Date but reduced by 18% of the Member's Final Average Salary for each year in the period (measured in years and days, expressed as years and fractions of a year) from the Member's actual retirement date to the Member's Normal Retirement Date PROVIDED THAT in the case of a Member who has completed less than four complete Years of Participation this benefit shall be an amount equal to an amount calculated in accordance with Rule 1.12(1)(b).

(2) Benefits under this Rule 1.6 will be adjusted for interest at the Net Earning Rate under the Capital Stable Investment Option, calculated from the date the Member ceases to be in the Service of the Employer to the date of payment.

(3) Where the benefit calculated in this Rule 1.6 is less than the benefit available pursuant to Rule 1.12, the benefit payable will be an amount not less than the amount available under Rule 1.12."

272. Third, the death benefit contained in rule 1.8:

(1) If the Member dies prior to his or her Normal Retirement Date the benefit payable shall, subject to Rule 1.4, be the amount determined in the manner specified in Rule 1.5(1) as if (for the purposes of determining that part of the benefit referred to in Rule, 1.5(l)(a) and (b)) the Member had continued in the Service of the Employer until, and had retired on, the Normal Retirement Date and for this purpose the Member's Annual Salary at the date of the Member's death shall be deemed to have continued to be the Member's Annual Salary up to his or her Normal Retirement Date PROVIDED THAT if the Member participated in the Staff Plan immediately prior to the Date of Commencement the benefit payable in terms of this Rule 1.8(1) shall not be less than the benefit which would have been payable in respect of the Member under the Staff Plan had the Member died immediately prior to that date.

(2) The benefit under this Rule 1.8 calculated as described above will be adjusted for interest at the Net Earning Rate under the Capital Stable Investment Option calculated from the date of death to the date of payment."

279. Fourth, the total and permanent disablement benefit set out in rule 1.10:

"1.10 BENEFITS ON TOTAL AND PERMANENT DISABLEMENT

(1) If the Member becomes Totally and Permanently Disabled prior to attaining the age of sixty-five years the benefit payable shall, subject to Rule 1.4, be calculated including interest at the Net Earning Rate under the Capital Stable Investment Option to the date of payment in the manner described under Rule 1.8 as if the Member had died on the Member's Date of Disablement.

(2) If the Member becomes Totally and Permanently Disabled as aforesaid the Trustee shall pay or apply the benefit payable in accordance with this Deed and the Rules to or for the benefit of the Member or (if permitted by the Act) any one or more of the Member's Dependants in such shares and proportions and in such manner as the Trustee shall in its absolute discretion determine PROVIDED HOWEVER THAT while the Member is still in the Service of the Employer payment shall not (unless otherwise allowed under the relevant requirements of the Act) be made in terms of this Rule 1.10 except (if permitted by the Act) for the maintenance or support of the Member or the Member's Dependants and for the purpose of relieving hardship or otherwise in accordance with the Act PROVIDED FURTHER THAT if the Member dies before the whole of the benefit payable in respect of the Member has been paid or applied in accordance with this Rule 1.10 the Total and Permanent Disablement benefit payable or the balance thereof (as the case may be) shall be paid to the persons and in the manner referred to in Rule 1.9."

286. Fifth, the temporary total disablement benefit contained in rule 1.11:

(1) While the Member is Temporarily Totally Disabled the Trustee shall pay to the Member a monthly income benefit (in this Rule 1.11 called the "income benefit") the amount of which (subject to Rule 1.4 and except as provided below) is equal to one-twelfth of twelve and one-half per cent of.

(a) the amount which would have been payable under Rule 1.10 as if the Member had become Totally and Permanently Disabled on the Member's Date of Disablement; LESS

(b) the sum of the value of the Member's Member Voluntary Account, Employer Account and Roll-over Account."

293. Sixth, the resignation benefit contained in rule 1.12:

"1.12 BENEFITS ON CEASING TO BE IN THE EMPLOYER'S SERVICE

(1) Subject to Rule 1.12(2), if the Member prior to his or her Normal Retirement Date ceases (other than by reasons of his or her death or the circumstances set out in Rule 1.6, 1.10 or 1.13) to be in the Service of the Employer the benefit payable to the Member shall subject to Rule 1.4 be the sum of the value of the Member's Member Voluntary Account, Employer Account and Roll-over Account and an amount determined as follows:

(a) in the case of a Member being at least thirty-five years of age and so long as the Member's Years of Participation are at least four years - an amount equal to the sum of:

(i) ten per cent of the Member's Final Average Salary multiplied by that part (measured in years and days) of the Member's Years of Participation falling prior to the first day of January 1987;

(ii) a percentage (as set out in Appendix `A' to this Deed), determined according to the Member's age (last birthday) at the date the Member joined the Plan (or in the event that the Member participated in the Former Plan immediately prior to the Date of Commencement the date the Member joined the Former Plan) and the Member's age (last birthday) at the date of ceasing to be in the Employer's Service, of the Member's Final Average Salary multiplied by that part (measured in years and days) of his Years of Participation falling on or after the first day of January 1987; and

(iii) three per cent of the Member's Final Average Salary multiplied by that part (measured in years and days) of the Member's Years of Participation falling after the first day of January 1987 PROVIDED THAT a higher percentage of the Member's Final Average Salary may apply to any period of the said part of the Member's Years of Participation PROVIDED FURTHER THAT any such percentage and the period to which it is applicable shall be as determined by the Employer and advised to the Trustee.

(b) in the case of any other Member the sum of:

(i) an amount equal to a percentage .as set out below (depending on the Member's Years of Participation) of the Member's Final Average Salary multiplied by the Member's Years of Participation:

(ii) three per cent of the Member's Final Average Salary multiplied by that part (measured in years and days) of the Member's Years of Participation falling after the first day of January 1987 PROVIDED THAT a higher percentage of the Member's Final Average Salary may apply to any period of the said part of the Member's Years of Participation PROVIDED FURTHER THAT any such percentage and the period to which it is applicable shall be as determined by the Employer and advised to the Trustee.

(2) The amount determined in terms of either Rule 1.12(1)(a) or (b) (whichever is applicable) shall not be less than the sum of:

(a) an amount equal to the Member's contributions or deemed contributions to the Plan and the Former Plan (if any) together with compound interest in terms of Rule 1.12(3) (the `Basic Amount');

(b) an amount equal to a percentage (as set out in the table hereunder according to the Member's Years of Participation) of the Basic Amount specified in Rule 1.12(2)(a) above;

(c) three per cent of the Member's Final Average Salary multiplied by that part (measured in years and days) of the Member's Years of Participation falling after the first day of January 1987 PROVIDED THAT a higher percentage of the Member's Final Average Salary may apply to any period of the said part of the Member's Years of Participation PROVIDED FURTHER THAT any such percentage and the period to which it is applicable shall be as determined by the Employer and advised to the Trustee.

(3) For the purposes of Rule 1.12(2) compound interest additions shall be calculated and added yearly on each Review Date and on the date on which the Member ceases to be in the Employer's Service from the date the Member joins the Plan (or in the event the Member participated in the Staff Plan immediately prior to the Date of Commencement the date the Member joined the Former Plan) up to the date on which the Member ceases to be in the Employer's Service at the rate of five per cent per annum (or at such other rate (being not less than two and one half per cent per annum) as is from time to time determined by

the Principal Employer in accordance with the relevant requirements of the Act and after considering the advice of the Actuary with the Trustee's consent, if required by the Act) on the assumption that contributions paid by the Member during any Review Period were paid mid-way through that period.

(4) For the purposes of this Rule 1.12 a Member is deemed to have contributed to the Plan at the rate of five per cent per annum of his Annual Salary during any period of Temporary Total Disablement under Rule 1.11.

(5) Benefits under this Rule 1.12 will be adjusted for interest at the Net Earning Rate under the Capital Stable Investment Option, calculated from the date the Member ceases to be in the Service of the Employer to the date of payment."

310. Importantly, therefore, under Rule 1.12(2) a member who qualified for aged retirement under Rule 1.5 or earlier retirement under Rule 1.6 but also qualified under Rule 1.12 was to be paid an amount not less than the amount payable under Rule 1.12.

313. Over and above the six categories of benefits there was one further benefit being the retrenchment benefit contained in Rule 1.13:

"1.13 BENEFITS ON RETRENCHMENT Subject to Rule 1.4 if the Member prior to his or her Normal Retirement Date ceases to be in the Service of the Employer on account of Retrenchment the benefit payable shall be equal to the greater of:

(a) the benefit determined under Rule 1.12; or the sum of.

(b) the sum of:

(i) the value of the Member's Member Voluntary Account, Employer Account and Roll-over Account;

(ii) the greater of:

(A) an amount equal to three times the Member's contributions to the Plan and (if the Member participated in the Staff Plan immediately prior to the Date of Commencement) the Former Plan together with compound interest thereon (in terms of Rule 1.12(3)); and

(B) (if the Member has completed at least twenty five Years of Participation but is not within ten years prior to the Normal Retirement Date) a percentage (as set out in Appendix `A' to this Deed), determined as if the Member's age at the date the Member Joined the Plan (or in the event that the Member participated in the Former Plan immediately prior to the Date of Commencement the date the Member joined the Former Plan) was thirty-two years or less and according to the Member's age (last birthday) at the date of the Member's ceasing to be in the Employer's Service, of the Member's Final Average Salary multiplied by the Member's Years of Participation; and

(iii) three per cent of the Member's Final Average Salary multiplied by that part (measured in years and days) of the Member's Years of Participation falling after the first day of January 1987 PROVIDED THAT a higher percentage of the Member's Final Average Salary may apply to any period of the said part of the Member's Years of Participation PROVIDED FURTHER THAT any such percentage and the period to which it is applicable shall be as determined by the Employer and advised to the Trustee,

PROVIDED THAT if the Member is within ten years prior to his or her Normal Retirement Date, the total benefit payable shall be not less than the amount calculated in terms of Rule 1.6.

(2) For the purposes of this Rule 1.13, a Member is deemed to have contributed to the Plan at the rate of five per cent per annum of his Annual Salary during any period of Temporary Total Disablement under Rule 1.11.

(3) Benefits under this Rule 1.13 will be adjusted for interest at the Net Earning Rate under the Capital Stable Investment Option, calculated from the date the Member ceases to be in the Service of the Employer to the date of payment."

324. The retrenchment benefit and its consequences lay at the heart of the proceeding for the simple reason that it derived a larger benefit than a resignation benefit for affected members. Nonetheless, the retrenchment benefit in Rule 1.13 is subject to the overarching benefit set out in Rule 1.16. On its face, Rule 1.13, concerned as it is with retrenchment, appears to arise in two respects. Initially, in the context of the employment contract between the member and Ansett but also in the context of the benefits regime set out in the trust deed.

327. For the purposes of considering the retrenchment benefit the definition provisions of the Rules are relevant. Rule 1.1 defines "retrenchment" as meaning "a reduction of staff declared by the employer for the purposes of these Rules". It is this definition that underlies the questions asked of the Court in the proceeding by the trustee, that is to say, what does the definition of "retrenchment" in the Rules mean?

330. There are remaining incidental aspects of the trust deed. Clause 20(1) is concerned with the termination of contributions by the employer. It provides:

"20. DISCONTINUANCE OF THE PLAN If all of the Employers terminate their contributions to the Plan, the Plan shall be closed to new entrants from the effective date of termination of contributions and no further contributions shall be accepted from Members. The Trustee shall cause a valuation to be made of the assets of the Plan (after the payment of all expenses incurred as a result of winding up the Plan) and allocate the amount as ascertained by the valuation among the Members in such shares and proportions and in such manner as it shall determine to be fair and equitable after considering the advice of the Actuary. The amounts so allocated shall be held in trust and invested by the Trustee as authorised by this Deed and the amounts so allocated to a Member shall, subject to the other provisions of this Deed and the Rules, become payable upon the Member ceasing to be in the Service of the Employer (or as otherwise permitted under the relevant requirements of the Act) or in the event of the Member's death."

334. Thus, Ansett is vested with power to terminate its contributions to the Plan. It has not exercised that power.

337. The next relevant matter that arises under the Rules is the auditing of accounts. Clause 25(a) requires an annual audit of accounts. Next, there is the matter of actuarial investigation.

340. The trust deed is subject to the statutory regime. The Rules refer in various ways to the "Act". Rule 1.1 defines "Act" -

"`Act' means (as the context requires) the Income Tax Assessment Act 1936, Income Tax Assessment Act 1997 and the Superannuation Industry (Supervision) Act 1993 and the Regulations under those Acts as amended from time to time, any re-enactment of those Acts for the time being in force and any other Act, Regulations, operational standards, guidelines or rules with which the Plan must comply in order to secure concessions or advantages or avoid penalties, detriments or disadvantages as described in Clause 1(1)(b) of the Deed."

344. Clause 1(1)(b) and (2) of the trust deed clarify the reference to the legislation:-

(1) (a) .....

(b) A reference to the relevant requirements of the Actor to what the Act permits or allows shall be construed to include a reference to the requirements of the standards or other provisions contained in, or prescribed under, the Act, being standards or other provisions which must be complied with to:

(i) secure or better secure any concession or advantage whatsoever for the Plan, an Employer, a Member or any other person who is or may be entitled under the Plan, including any concessions or advantages in respect of tax or other governmental imposts which is or may become payable in connection with the Plan or anything done or to be done pursuant to the Deed and Rules; or

(ii) avoid what the Trustee may consider to be a relevant penalty, detriment or disadvantage to the Plan, a Member, Employer or the Trustee.

The terms `concession or advantage' and `penalty, detriment or disadvantage' are to be construed in the widest possible sense. In particular, the application of these terms is not limited to taxation or financial matters.

(2) Any requirement of the Act which the Act requires to appear in the governing rules of a regulated superannuation fund within the meaning of the Act is deemed to be incorporated in this Deed and to prevail over any provisions of the Deed or Rules which are inconsistent with those requirements."

351. The cross-references to the legislation are woven through the trust deed but most importantly for present purposes in clause 4(4). It provides:-

(1) .....

(2) .....

(3) .....

(4) Contributions by the Employer in respect of the Defined Benefit Section of the Plan will not be less than is required by the solvency requirements under the Act."

358. Thus, pursuant to clause 4(4) the employer is obliged to make contributions not less than the solvency requirements under the Act. It is necessary to return to the topic of solvency requirements but initially some general observations are required.

361. The solvency requirements of the trust deed and the legislation were highly important in the proceeding. Clause 32 of the trust deed addressed the matters of actuarial investigation and solvency:-

"32. ACTUARIAL CERTIFICATION AND INVESTIGATION If required by the Act, the Trustee will arrange for:

(1) an actuarial investigation of the Plan;

(2) the submission by the Actuary of a report relating to that investigation; and

(3) the preparation by the Actuary of a funding and solvency certificate and its distribution to the Employers,

369. There is a dialectic that occurs between the trust deed and the statutory regime. In effect, the definition of "Act" in Rule 1.1 and the inclusion by incorporation of the current statute means that the current statute is the Act that governs the trust deed.

Authorities on relationship of Federal Legislation to Superannuation Deeds

373. Here, the trust deed had been amended in 1989 and 1994 as a result of which it had purported to incorporate the provisions of the SIS Act and the SIS Regulations. Relevant parts of the SIS Regulations required a trustee to comply with an order or determination of the Superannuation Complaints Tribunal which had been established under the Superannuation (Resolution of Complaints) Act 1993 (Cth) ("the Complaints Act"). Under the Complaints Act, the Tribunal had all the powers, obligations and discretions that were conferred on a trustee. Another provision of that Act provided that a decision of a trustee as varied by the Tribunal or a decision made by the Tribunal in substitution for a decision of a trustee was taken to be a decision of a trustee. The principal Australian authority on the relationship of Federal legislation to superannuation plans is Attorney-General (Cth) v Breckler.[22] Breckler was a member of a superannuation plan constituted by a trust deed. In that case, the validity of part of the Complaints Act was challenged on the ground that it purported to confer the judicial power of the Commonwealth on a tribunal and was, therefore, inconsistent with Chapter 3 of the Commonwealth Constitution. A Full Court of the Federal Court held that part of the Act invalid. The High Court allowed an appeal from the decision of the Federal Court.

376. In its decision, the majority of the Court considered the relationship of the SIS Act and SIS Regulations to a private trust deed. In that case (as in practically every case including the present case), the Plan or Fund was a "regulated superannuation fund" within the meaning of the Income Tax Assessment Act 1936. To qualify as a regulated superannuation fund, it was necessary to comply with the requirements of the SIS Act. The majority in Breckler considered the effect of the amendments to the Trust Deed which satisfied the requirements of the SIS Act. According to the majority[23]

"In the case of the Plan, the amendments made on 22 August 1994, which had the effect of varying the changes made on 14 December 1989 so as to oblige the trustees to act or refrain from acting in order to comply with requirements of the Supervision Act and the Supervision Regulations, were expressly made in order that the Plan remain a continuously complying superannuation fund as defined in Pt. IX. Further, the effect of these amendments was to treat the requirements of the Supervision Act and the Supervision Regulations as part of the trust deed itself and therefore as elements in the charter of rights, duties and powers of the trustees and also of those with interests in the Plan."

380. Further, the majority in Breckler dealt with the interaction between the provisions of the Trust Deed and the legislation. They said:[24]

"[44]) ...The application of the provisions of the Complaints Act was possible only because the plan had the status of a regulated superannuation fund. The attainment of that status was the product of the exercise of an election provided to the trustees by the Supervision Act. Given the importance of attracting the operation of Pt IX of the Income Tax Act, cases may readily be imagined where it would be a breach of trust not to exercise the election so as to obtain the revenue benefits which follow, albeit at the concomitant price of attracting the regulatory regime of which the Tribunal is a component ... ".

385. There are two core components to the Plan, constituting as it does under the legislation, a regulated superannuation fund. The first is the benefit certificate. The second is the funding and solvency certificate.

388. The relevant benefit certificate is for the period 1 July 1997 to 30 June 2002, a five year period. Ansett used the Plan to meet its obligations and, also, gain the derivative benefits, under the superannuation legislative regime.

391. The trust deed placed obligations on Ansett to contribute. There is an obligation arising from clause 32 that the fund is solvent as assessed by the actuarial report. There is then the obligation under clause 4.4 of the trust deed to ensure that the fund is solvent. Solvency under the legislation is manifested by the funding and solvency certificate.

394. Regulation 9.15 of the SIS Regulations specifies the means of conducting the calculations in order to determine solvency. At the heart of the calculation is the identification of the minimum requisite benefits of each member of the fund in order to calculate the total minimum requisite benefits of the fund. The next step is the determination of the minimum benefit index. Once that is known solvency can be determined. Once solvency is known the minimum contributions to achieve solvency upon the expiry date of the certificate can be determined. In effect, reverting back to the requirements of the legislation, the notional employer contribution rate is defined in terms of the minimum requisite benefits and minimum benefits is defined in terms of the notional employer contribution rate. The purpose and effect of the benefit certificate is to release the employer from an obligation to pay a superannuation charge. In order to achieve certainty as to the amount or assets of the subject fund a funding and solvency certificate is required under the legislation.

398. The funding and solvency certificate does not stand in isolation. The certificate is solely concerned with solvency. There is, in addition, the requirement of actuarial investigation where the actuary is concerned with the calculation of accrued benefits. SIS regulation 9.27 defined accrued benefits:

"Accrued benefits in relation to a member of the defined benefit fund means the benefits to which the member has an absolute or potential entitlement at the valuation date on account of the length of time the member has been a member of the fund at that date".

402. Here, in accordance with clause 32 of the deed, the SIS Act and the SIS Regulations, the actuary conducted an actuarial investigation. The outcome of the investigation was the document dated 3 April 2001 entitled "actuarial report - ground staff plan". Thus, the report was delivered almost six months before the administration commenced. In the report the actuary recommended a contribution by Ansett as employer of nine per cent of salary. It contributed the agreed rate for the purposes of the trust deed. In the course of the report on the actuarial investigation the actuary observed[25] that there were sufficient assets to meet the entitlements of members as may arise from time to time. However, the actuary made the additional observation that there would be a shortfall in the order of $316,000,000 to meet retrenchment benefits under Rule 1.13 for all members if such circumstance arose.

405. The administrators acknowledged an obligation on the part of Ansett to pay the nine per cent contribution as agreed and arising from the report of the actuary of 3 April 2001. However, the acknowledgment and its consequences were a significant matter of controversy between the parties.

Funding and Solvency Certificates 4 and 5 ("FSC 4" and "FSC 5")

409. In the present case the actuary of the fund prepared a total of five funding and solvency certificates including two during the administration of Ansett known as "FSC 4" and "FSC 5". FSC 4 was made on 23 January 2002, effective on 23 October 2001 and expired on 30 June 2005. FSC 5 was completed on 24 April 2002, effective on the same date and expired on 30 June 2005. The actuary is required to identify in the funding and solvency certificate the minimum contribution that the employer must make to the fund in order to ensure that the fund is solvent on the expiry date of that certificate. In each of FSC 4 and FSC 5 the expiry date was 2005.

412. In simple terms, the effect of FSC 5 was that the actuary assessed events since his previous certificate and formed a view, namely, the retrenchment of Ansett employees on a massive scale giving rise to an entitlement to payment of a retrenchment benefit to those employees would deplete the assets of the fund. The actuary was of the opinion in FSC 5 that in order for the fund to be solvent at 30 June 2005 a contribution by Ansett was required.

415. FSC 5 provides for contributions for three membership groups. They are: Group 1 being "Defined Benefit Members", Group 2 being "Accumulation Only Members" and Group 3 being "Any Member Advised to the Trustee as a retrenched employee". The "Total Contribution" specified for "Defined Benefit Members" is the contribution rate. That rate is 14 per cent.[26]

418. The "Total Contribution" specified for Membership Group 3 is:

"A lump sum amount determined as (the amount of the member's Retrenchment benefit minus the amount of the member's resignation benefit) divided by 0.85".

422. There are two important aspects of FSC5. First, its duration and its purpose. Secondly, its express acknowledgment that the amounts specified exceed the minimum required by the solvency requirements of the SIS Act.

425. The issue of duration and purpose arises in the following way. The minimum requisite benefits are calculated in accordance with the benefit certificate dated 14 August 1998. The actuary has estimated, as at 19 March 2002, that the minimum requisite benefits were then $424,300,000 and that assets were then $587,000,000. Thus, presently assets substantially exceed minimum requisite benefits. Nonetheless, the actuary certified that the fund is solvent as at the effective date of the certificate, 24 April 2002. The actuary made provision for the contributions in relation to membership Group 3, that is, "retrenched employees" funding and solvency because the certificate is required to be prospective. Regulation 9.10(1)(f) of the SIS Regulations requires certification of the minimum contributions expected to be required to secure solvency at the expiration of the certificate, that is, on 30 June 2005.[27]

"will be jeopardised if net assets were to be reduced by the payment of a retrenchment benefit to members whose employment has already been terminated or might hereafter be terminated."

429. In other words, the funding and solvency certificate addresses the issue of solvency, that is, inadequate coverage of minimum requisite benefits in 2005 when, if assets are depleted by payment of retrenchment benefits consequent upon the terminations during the administration of Ansett, there will be insufficient assets to cover the minimum requisite benefits of remaining members.

432. Finally, the Funding and Solvency Certificate's terms are such that if "Retrenchment" benefits under Rule 1.13 are not payable there will be no further "minimum contribution" for Group 3. The trustee lodged proofs of debt pursuant to FSC 5. The proofs of debt assert that the subject debt was due on 12 September 2001.

436. Three components contribute to the assets of the plan: the members' contributions of 5 per cent; the employer's contributions at the agreed rate; and the progress of the investments of the fund over time.

439. Under the requirements of the trust deed the accounts of the fund are audited annually. Historically, the audit revealed that the assets of the fund were sufficient to meet the entitlements of the members. However, by letter dated 12 July 2002 the actuary informed the trustee that the fund had insufficient assets to pay retrenchment benefits to all employees. The actuary projected a shortfall in the range of $150,000,000 to $200,000,000. The matter of the shortfall was pivotal in the proceeding.

445. The trustee led evidence as to formal matters principally (but not exclusively) being the history of the trust deed, the deed itself, the history of the superannuation legislative regime, the appointment of the administrators and the administration of Ansett, the calculation of members' entitlements, the funding and solvency certificates, the actuarial reports and the assessment of the shortfall. These matters have been largely described already and were not in contention between the parties.

448. Aside from the formal, non-contentious matters, the trustee led evidence as to the practice of Ansett before the commencement of the administration. The evidence of the practice of Ansett fell into two sections. The main section of the evidence relating to the practice of Ansett was concerned with the way Ansett managed redundancies, to the effect that if an employee became redundant Ansett accepted entitlement to a retrenchment benefit under Rule 1.13.

451. The other section was the description of collective bargaining agreements reached between Ansett and its employees' unions.[28] To a lesser extent the trustee relied upon the agreements to establish that Ansett identified the benefits that will accrue to an employee upon the employee being made redundant. Further, the trustee relied upon the fact that in the collective bargaining agreements Ansett stipulated that upon a relevant employee being made redundant that employee will be entitled to a retrenchment benefit under the trust deed.

454. The plaintiff relied upon evidence given by affidavit by a number of witnesses. Some of the witnesses were cross-examined.

458. The plaintiff relied upon the evidence of Graeme Clifford Allison who is the Chairman of the Board of Directors of the first plaintiff, Ansett Australia Ground Staff Superannuation Plan Pty Ltd. He was, in effect, the spokesperson for the trustee of the Ground Staff Plan. He was previously an employee of Ansett including a term between 1990 and 1993 as the National Manager - Superannuation of Ansett. At that time he was responsible for all of the Ansett superannuation funds including the Ground Staff Plan. Mr Allison was, also, the company secretary of Ansett from March 1993 until October 2000. Since 1990 he was a director or chairman of directors of each of the trustees of the Ansett Superannuation Funds.

461. Mr Allison described the establishment of the Ground Staff Plan by way of a trust deed dated 18 March 1988 and of the subsequent amendments to the plan culminating in the consolidated trust deed dated 17 August 1999.

464. Mr Allison stated that during the period 1988 to July 2001 the day to day administration of the Ground Staff Plan was conducted by an administrator, AMP Consulting Pty Ltd ("AMP").

467. Mr Allison described the actuarial investigation for the Ground Staff Plan delivered 1 July 2000 and the core aspects of the investigation. First, that the recommended contribution rates payable from 1 July 2001 for the defined benefit section of the trust deed were nine per cent of salaries on the employer contribution rate and five per cent of salaries on the member contribution rate. Secondly, that between 1 July 1998 and July 2000 the number of defined benefit members reduced from 10,468 to 8,829. Thirdly, the conclusion of the actuarial investigation upon the adequacy of the assets of the Plan to meet current benefit entitlements for the defined benefit section if all members of the plan left voluntarily at 1 July 2000 that the total vested benefit was $583,925,000. Fourthly, that if all defined benefit members were entitled to retrenchment benefits under rule 1.13 of the trust deed the assets of the Plan would be insufficient and there would be a shortfall of approximately $316,000,000.

470. Mr Allison described the introduction of redundancy programmes by Ansett from May 1991. The first was a non-voluntary redundancy plan that commenced in May 1991 and certain procedures were attached to the plan. The procedures were analogous to the retrenchment benefits described in rule 1.13 of the Ground Staff Plan. In November 1998 the non-voluntary redundancy plan was replaced by the business recovery redundancy programme. It operated until 31 December 2001. It provided that where compulsory redundancy occurred and there was a prospect of disadvantage to an employee under the business redundancy recovery package the earlier programme, that is, the non-voluntary redundancy plan would apply. The result was that from November 1998 onwards in the event of compulsory redundancy the employee was paid under the retrenchment provision of the trust deed.

473. Mr Allison set out in some detail the history of the Federal Court proceedings and the history of the administration of Ansett in so far as it related to the trust fund. He also produced the annual reports of Ansett Holdings Limited for the years 1995 to 2000.

476. Mr Allison described that membership of one or another of the Ansett Staff Superannuation Plans was compulsory for all Ansett employees from 1987. He described the position that unless an employee was eligible to become a member of one of the Flight Attendants' Plan, the (Pilots') Accumulation Plan or the Pilots' Management Plan or was already a member of the Flight Engineers' Plan then Ansett required the particular employee to join the Ground Staff Plan.

479. He stated that members of the Ground Staff Plan were given booklets of information so as to inform them of rights and obligations under the Ground Staff Plan. The booklets are addressed later in these reasons.

482. Mr Allison described a meeting with representatives of the administrators on 27 September 2001. He said that at that meeting there was discussion to the effect that there would be shortfalls in the Ground Staff Plan and other Ansett superannuation plans if members were made redundant by the administrators and they were entitled to retrenchment benefits under the trust deed. Mr Allison said that the representatives of the administrators made no comment upon receiving that information save to indicate that they were seeking legal advice. Mr Allison described, further, an additional meeting with representatives of Ansett on 23 January 2002. He produced a minute of the meeting. He said that at that meeting discussions had taken place between the actuary of the Plan and Andersen (who acted for the administrators) and that a new funding and solvency certificate would be issued. Mr Allison said that there had not been any comment on the proposed funding and solvency certificate.

486. The plaintiff relied upon evidence from John Ian Cann who was employed by AMP, the administrator of the Ground Staff Plan, during the period 1974 to 1993. Mr Cann gave evidence that during that period he had overall responsibility for all corporate superannuation plans administered by AMP including each of the Ansett Staff Superannuation Plans. He described that in June 1993 he resigned from AMP and commenced employment at Ansett as the National Superannuation Manager. He remained in that position until late 1998 when he moved to another position at Ansett. Mr Cann was retrenched from Ansett in March 2001. Further, during the period 1993 to 1997 Mr Cann was the fund secretary of each of the Ansett Staff Superannuation Plans. His responsibilities included ensuring compliance so that appropriate contributions were made to the Ansett plans. So far as defined benefit plans were concerned including the Ground Staff Plan, he was required to liaise with actuaries to the plans in order to co-ordinate actuarial reviews. Once the actuaries conducted their reviews and made recommendations as to the appropriate level of contributions to be made to the various plans by Ansett those recommendations were conveyed to the trustees and to Ansett management. Mr Cann would take the actuaries' reports to a committee known as the Superannuation Policy Committee of Ansett consisting of senior executives. The committee had overall responsibility for superannuation policy matters across Ansett and would consider the actuaries' recommendations. Mr Cann gave evidence that in his experience the committee always accepted the recommendations of the actuaries. Once that occurred, Mr Cann would arrange for the appropriate level of contributions to be made by Ansett to the various superannuation plans.

489. Mr Cann described the process applied for the purpose of arranging the payment of benefits to members of the Ansett plans, including the Ground Staff Plan. The first step was the provision by the payroll section of Ansett to its superannuation department of a document known as a "payroll termination advice". Mr Cann produced samples of such advice documents. The second step was that the superannuation department of Ansett would complete a "notification of exit form" or a "benefit payment request form" addressed to AMP, the administrator of the particular plan. The superannuation department of Ansett was specifically authorised by the trustees of each of the plans to complete the forms on behalf of the trustees. The third step was the requirement that on each of the notification of exit forms or the benefit payment request form, as the case may be, it was necessary to indicate the type of exit of the member or the type of benefit that was payable. The entry made in that regard by the superannuation department of Ansett was dependent upon information contained in the payroll termination advice form. If the advice form informed the reader that the reason for termination was "redundancy", "retrenchment" or under another programme such as the "business recovery plan" meaning redundancy, AMP was advised that the employee was entitled to be paid the retrenchment benefit. The fourth and remaining step was that after the forms were processed by AMP cheques were issued and returned to the superannuation department of Ansett and in due course despatched to recipients.

492. Finally, Mr Cann gave evidence that in his experience during the period from 1993 until March 2001 no formal declaration was made by Ansett for the purposes of the Ground Staff Plan utilising the exact expressions contained in the definition of "retrenchment" in the rules of the trust deed.

496. The plaintiff relied upon the evidence of Kelvin Thomas Cosgriff who has been employed by AMP since 1981. In 1987 he became a fund administrator in the superannuation section of AMP with a primary function to manage the administration of the various Ansett staff superannuation plans. Mr Cosgriff gave extensive evidence as to the history of the Ansett Superannuation Plans from about the 1940s to 1996. Otherwise, his evidence essentially corroborated that of Mr Cann.

500. The plaintiff relied upon the evidence of Peter John Salerno. He is a manager employed by NSP Buck Pty Ltd ("Buck") as a team leader. Buck was appointed as the administrator of the Ansett Australia Ground Staff Superannuation Plan and the Ansett Transport Industries Pilots/Management Superannuation Plan in July 2001. Mr Salerno is responsible for the day to day administration of both plans.

503. He described the processes employed by Buck upon the termination of the employment of a member of either of the plans. He said it was the practice from July 2001 until September 2001 for the payroll section of Ansett to forward a "termination advice" to Buck and upon receipt of that advice Buck was authorised by the trustee of the particular plan to pay the member the appropriate benefit. Mr Salerno produced samples of termination advices provided by the payroll department of Ansett to Buck. In addition, Mr Salerno described a requirement that before a payment is made to a member Buck is to receive a completed payment instructions form from the particular member including details and information as to payment of the benefit. He produced a sample of the form. Further, Mr Salerno gave evidence that the processes used by Buck to administer the Ansett plans never provided for any distinction between termination by reason of "redundancy" and termination by reason of "retrenchment". He said that in either case a retrenchment benefit was paid to the subject member.

507. The plaintiff relied upon the evidence of Iain Bruce Lang, a director of the plaintiff, the trustee. He is also the federal president of the Australian Licensed Aircraft Engineers Association ("the Association").

510. Mr Lang described the current Ansett Australia union collective bargaining agreement (1999) which is certified under s.170LJ of the Workplace Relations Act 1996. The Association is a party to the agreement. Mr Lang gave evidence that the employment conditions of each member of the Ground Staff Plan are governed by the collective bargaining agreement. He highlighted clause 21 of the collective bargaining agreement describing it as a "redundancy clause". Clause 21 of the collective bargaining agreement includes a table of the entitlements of employees of Ansett under a business recovery redundancy programme and which applied to all employees where Ansett deemed a redundancy to have occurred or where an application for voluntary redundancy was accepted prior to 31 December 2001. Importantly, in relation to superannuation, the table in clause 21 of the agreement provides that employees' entitlements are those contained in the retrenchment provisions, namely, rule 1.13, of the trust deed.

513. Mr Lang gave evidence, also, of his attendance at the first meeting of creditors of Ansett on 18 September 2001, as the proxy holder for the trustee. He said that he provided to a representative of the administrators at the meeting a proof of debt form with respect to the Ground Staff Plan, attaching documents that disclosed a shortfall of the fund. Mr Lang gave evidence, further, of his attendance at a meeting with representatives of the administrators on 27 September 2001. He said he was told by the representatives that they, presumably the administrators, were at that point aware of the potential for a shortfall in the Ground Staff Plan if members of the plan became entitled to receive retrenchment benefits. Mr Lang said he was told that the administrators were seeking legal advice on the issue of redundancy and in relation to the priority status of any shortfall payment. Mr Lang said at the meeting on 27 September 2001 he provided the representatives of the administrators with a copy of a letter to him from Paul Francis dated 18 September 2001 (referred to later in these reasons). He described, also, his attendance at meetings on 9 and 19 October 2001 and said that the matter of the shortfall in the defined benefit superannuation plans was raised. Finally, Mr Lang said that he attended a meeting on 23 January 2002 with representatives of the administrators and was informed that the administrators neither accepted nor rejected the draft funding and solvency certificate then prepared. In addition, Mr Lang described other meetings he attended relating to the Ansett staff superannuation plans on 28 September, 7 and 19 November and 19 December 2001 when matters relating to the funding and solvency certificate, and the financial position of the fund were discussed.

517. The plaintiff relied upon the evidence of Nigel Antony Fish, superannuation manager for Ansett from 1998. Previously, Mr Fish had been the superannuation administration manager for Ansett between 1996 and 1998. He described the history of the Ground Staff Plan and the amendments culminating in the trust deed dated 17 August 1999. His evidence corroborated that of Mr Allison.

520. Mr Fish said that to his knowledge at no time from October 1996, when he was appointed the superannuation administration manager for Ansett, had Ansett ever made a formal declaration of a reduction of staff for the purposes of the rules utilising the exact terminology of the definition of "retrenchment" as set out in rule 1.1. He described the processes used by the superannuation department of Ansett. His evidence corroborated that of other witnesses, Mr Cosgriff concerning AMP and Mr Salerno concerning Buck as to the payment of retrenchment benefits. Mr Fish gave evidence that he attended a meeting of a sub-committee of the trustee board on 19 April 2001 where there was a discussion of the actuarial investigation report for the year 2000 recommending contributions by Ansett at the rate of nine per cent of salary. Mr Fish said at the meeting he confirmed that Ansett would accept the contribution recommendations contained in the actuarial investigation. The administrators objected to part of the evidence of Mr Fish relating to the Pilots/Management Plan as being irrelevant. I uphold the objection. The evidence did no more than add flavour to the evidence of Mr Fish. It was not relevant.

523. Mr Fish gave evidence that after the appointment of the administrators discussions occurred between the administrators, Buck, staff from the payroll section of Ansett and himself to identify the method of informing Buck of termination by the administrators of members of the staff superannuation plans. He said that administrators later provided Buck with a spreadsheet listing each Ansett employee and setting out relevant information such as current employment status, whether employment had been terminated and the like. Mr Fish gave evidence on the basis of information from Mr Salerno as to his belief concerning the numbers of Ground Staff Plan members who were classified or regarded as redundant. As at May 2002 he believed the numbers totalled 7,705 members. On the basis of subsequent information from Mr Salerno, Mr Fish revised the latter figure to 7,768 employees.

526. In addition, Mr Fish gave evidence that he had a telephone conversation with Andrew Proebstl, an accountant employed by Andersen, on 25 September 2001. Mr Fish met Mr Proebstl on 26 September 2001 in order to discuss a number of matters, including the superannuation trust deeds, and that one way or another he provided Proebstl with copies of those deeds. He gave evidence, further, that at another meeting on 27 September 2002 representatives of the administrators advised that the administrators were seeking legal advice about the priority ranking of the trustee's claims for additional contributions to meet shortfalls in defined benefit plans.

530. The plaintiff relied upon the evidence of Paul Daniel Francis, the actuary for the Ground Staff Plan. He was appointed actuary in 1990. Mr Francis described his formal qualifications including his fellowship of the Institute of Actuaries of Australia. His formal qualifications and expertise were not challenged. Mr Francis was appointed the actuary of the Ground Staff Plan in 1990. Mr Francis described the fact that he had prepared actuarial investigations for the Ground Staff Plan for the years 1990, 1992, 1994, 1996, 1998 and 2000. He received information from the plan administrator at the particular time, formerly AMP and more recently Buck. Pursuant to regulation 2.21 of the SIS Regulations he was provided with a benefit statement with respect to each member that included the personal information of the member, salary, the multiple salary that the member would receive upon resignation, the amount of the benefit that the member would receive on resignation at that date and as at 12 months previously, the amount the member would receive upon death or disablement and the multiple salary that the member would receive upon retirement at age 65.

533. He described in his evidence the preparation of the actuarial investigation for the year 2000 and his recommendation in that report that the rate of contribution of Ansett should be nine per cent of salary. He gave evidence as to his belief that Ansett paid contributions at that rate. Mr Francis gave evidence concerning his knowledge of the requirements of the SIS Act and the SIS Regulations and, in particular, the requirement of a funding and solvency certificate. He then gave evidence as to the process he embarked upon for the purposes of preparing a funding and solvency certificate. He provided the description as to how he went about the preparation of FSC 5. He gave evidence as to information he gave to the administrators as early as December 2001 when he discussed the draft of FSC 4. Mr Francis said that he informed one Dominic Emmett, a representative of the administrators, that he was intending to certify minimum contributions that were higher than the best estimate minimum contribution. Mr Francis said that he informed Mr Emmett that he would proceed on the basis of the draft FSC 4 unless he heard otherwise. As Mr Francis did not hear further from Mr Emmett or the administrators he proceeded to produce FSC 4.

536. Mr Francis gave evidence that the benefits to which remaining members are entitled are supported by existing net assets and the continued payment of contributions at the rate of 14 per cent, constituted by the nine per cent contribution by the employer and the five per cent contribution by the member. Mr Francis said that the support of the benefits to which remaining members are entitled would be jeopardised if the net assets were reduced by the payment of a retrenchment benefit to members whose employment had already been terminated or might be terminating hereafter. He said that, accordingly, in FSC 4 and FSC 5 he made provision to ensure that the benefits of members remaining in service would continue to be supported despite the payment of a retrenchment benefit to departing members.

539. Mr Francis gave evidence, also, as to his belief that the net assets of the plan are sufficient to pay for vested benefits (under rules 1.5, 1.6 and 1.12), that the net assets of the plan are not sufficient to cover any part of the difference between vested benefits and retrenchment benefits. He gave evidence that if the employer contributed the difference between vested benefits and retrenchment benefits he expected that the Ground Staff Plan would have sufficient assets to pay both retrenchment benefits and the benefits to which members remaining in the service of Ansett are entitled.

542. There was some significant correspondence between Mr Francis and the trustee and also with the administrators. I consider these matters later.

546. The plaintiff relied, also, on the evidence of its solicitor, Peter Edmund Cash. He provided a thorough history of the proceedings in the Federal Court, SEESA, the TESNA transaction and the process of administration of Ansett.

549. Mr Cash exhibited, further, affidavits filed by the administrators, that is, Messrs Mentha and Korda in proceedings in the Federal Court.

553. The plaintiff relied upon the evidence of another of its solicitors, Jeanette Rachel Thomson. She gave evidence, by affidavit, that her enquiries of one of the original administrators, Peter Hedge, revealed that no employees of Ansett were dismissed while the original administrators were in place.

557. The plaintiff relied upon another of its solicitors, Richard James Campbell. He gave evidence that he inspected boxes of documents produced to him by AMP relating to advice received by AMP from Ansett of the termination of employment of Ansett employees during the period 1 June to 17 August 1999. Mr Campbell conducted an analysis of terminations during that period. He gave evidence with respect to each of the employees to whom the reasons stated for termination included the word "redundancy" and he identified payments of a retrenchment benefit in a table he produced.

561. The plaintiff relied upon the evidence of Richard Sampson Mitchell, an actuary. The purpose of his evidence was to provide independent expert actuarial evidence of the work carried out by Mr Francis. The sum effect of the evidence of Mr Mitchell was to confirm the approach adopted by Mr Francis. He was not cross-examined.

565. The plaintiff relied upon the evidence of another of its solicitors, Mark Daniel Abramovich. He acted as solicitor for the trustee of the Ground Staff Plan as well as the trustees of each of the other Ansett staff superannuation plans.

568. Mr Abramovich gave evidence that he attended a meeting on 27 September 2001 with representatives of the various staff superannuation plans and representatives of the administrators. Mr Abramovich said that at the meeting he informed those present of the prospect of shortfalls in some of the superannuation plans. He said that during the meeting he was informed by a representative of the administrators, Mr Thorn, that legal advice was being sought in relation to superannuation issues.

571. Mr Abramovich gave evidence, further, that he attended a meeting on 9 October 2001 with various persons including representatives of the administrators. He said that at the meeting he made enquiries as to further contributions by the administrators and the future intentions of the administrators in relation to the trust deeds. Mr Abramovich said that he was told by one of Messrs Thorn or Binetter, on behalf of the administrators, that superannuation contributions would be continued but that so far as employer contributions were concerned the administrators would pay the superannuation guarantee minimum only. Mr Abramovich said he made enquiries as to the prospect of a retrenchment programme being conducted by the administrators and was told the position was unknown and, also, that there was a potential conflict between the obligations of the employer in relation to the redundancy provisions under the superannuation plan. Mr Abramovich gave evidence that he informed Messrs Binetter and Thorn that a partial retrenchment of members could trigger a notifiable event warranting a new funding and solvency certificate in turn requiring additional funding to meet any shortfall and that a claim for additional funding may have priority under s.556(1)(e) of the Corporations Act. Mr Abramovich said he was then informed that the prospect of retrenchments was very likely. A discussion then ensued as to termination by the administrators of the defined benefits sections of Ansett staff superannuation plans.

574. Mr Abramovich gave evidence, also, of his attendance at various meetings involving the administration of Ansett and the sale to TESNA.

578. The plaintiff relied upon the evidence of Sylvana Marie Karam. She is employed in the human resources division of Ansett for the trustee of the plan and other Ansett superannuation plans. She has held that position since April 2001. Her role is to act as the liaison point between the payroll department of Ansett and the administrator of the plans, previously AMP and subsequently Buck.

581. Ms Karam gave evidence that from April 2001 until August 2001 Ansett made monthly payments to the plan administrator of the Ground Staff Plan in respect of member contributions and employer contributions in the proportions of five per cent and nine per cent respectively. She gave evidence that since the appointment of the administrators, Ansett employees have been paid by Ansett on the basis of their actual hours worked rather than in accordance with their pre-administration salary arrangements. Ms Karam gave evidence, further, that in about October 2001 she became aware of a change in the payroll system of Ansett so that the amount of employer contributions payable to the plan by Ansett was calculated at nine per cent of actual wages and salaries paid to members rather than nine per cent of the members' superannuable salary. The net difference for the period from 16 September 2001 to 30 June 2002 was an amount of $1,546,562.03.

585. The administrators called a number of witnesses.

589. Mr Korda gave formal evidence concerning his qualifications, his appointment with Mr Mentha as administrators of Ansett and the fact that the financial records of Ansett as at 12 September 2001, the day administration commenced, showed the company had a deficiency of assets over liabilities of $106,018,000. He described that the original administrators ceased all Ansett flight operations on 14 September 2001, two days after the administration commenced. He described that on 17 September 2001 he and Mr Mentha embarked on a programme known as "Ansett Kick Start" consisting of the recommencement of Ansett flights.

592. Mr Korda said that the redundancy entitlement set out in the letter of 17 October 2001[29] were determined in consultation with the Australian Council of Trade Unions and the relevant unions.

595. In particular, Mr Korda gave evidence that the letter of invitation of 17 October 2001 was not intended to be a declaration for the purposes of rule 1.1 and rule 1.13 of the Ground Staff Plan. Indeed, he said that he was not aware of rules 1.1 and 1.13 at the time of the dispatch of the letter of 17 October 2001.

598. Mr Korda gave evidence that since the commencement of the administration Ansett has been forwarding on a weekly basis to Buck a list of the Ansett staff the employment of whom had been terminated. Mr Korda gave evidence that of the 8,663 members of the Ground Staff Plan, 4,734 applied for redundancy and of those 4,569 were made redundant. He gave evidence that the redundancies made since the appointment of the administrators are a consequence of the insolvency of Ansett and decisions made by he and Mentha in their capacities as voluntary administrators and deed administrators. He gave evidence that the decisions were not made pursuant to any business recovery programme established prior to the appointment of he and Mr Mentha.

601. Mr Korda described, further, that as employment positions were no longer required Mr Mentha wrote to Ansett employees advising them that their positions were no longer required and that their employment would conclude by reason of redundancy. The letter was similar to that sent as an offer to employees earlier.

604. Mr Korda gave evidence that the letters were not intended to be a declaration for the purposes of rule 1.1 and rule 1.13 of the Ground Staff Plan. Further, he gave evidence that so far as employees who did not apply for redundancy and who were nonetheless made redundant, those redundancies were a consequence of the insolvency of Ansett and decisions made by the administrators and were not redundancies pursuant to any prior business recovery programme. He said, also, that neither he nor Mentha had made declarations of retrenchment for the purposes of rules 1.1 and 1.13 of the Ground Staff Plan. He said that he believed that to make a declaration would be contrary to the interests of Ansett and to the interests of its creditors as a whole because of the risk that such a declaration might increase the liabilities of Ansett in circumstances where it was already insolvent.

607. Mr Korda gave evidence that there were unpaid superannuation contributions that should have been paid by Ansett before 13 September 2001. He said there was no dispute that the unpaid superannuation contributions are entitled to priority under s.556(1) of the Corporations Act.

610. He gave evidence concerning the arrangements under SEESA. He described them as follows:

"Redundancy payments are split into payments for up to eight weeks and payments for more than eight weeks. Under the SEESA scheme, the Federal government has advanced money to the administrators to pay redundancy payments to employees for up to eight weeks' entitlement. The government stands in the position of the employees in respect of a repayment of the moneys advanced."

614. Mr Korda gave evidence that there is an estimated $720,000,000 of assets to be applied in payment of the employee entitlements referred to totalling approximately $779,000,000. On that basis, therefore, he believed that there may be a shortfall in payment of employee entitlements that would encompass unpaid superannuation contributions that ought have been paid before 13 September 2001, annual leave, long service leave, payment in lieu of notice and redundancy payments.

617. So far as the subject of shortfall and knowledge of the same was concerned, Mr Korda stated:

"Mr Mentha and I decided at an early point to continue making employer contributions of 9% (the rate Ansett had been paying at pre administration) of the earnings of employees actually working during the period of administration. We accepted that this would be an administration expense. Whilst I was aware of the issue of there being a `shortfall' in relation to retrenchment benefits in the superannuation plans, prior to shortly before the commencement of this proceeding I was not aware that it had ever been suggested that that `shortfall' was an administration expense."

621. Mr Korda gave evidence, also, that by late 2001 whilst he was aware that there were disagreements concerning the matter of retrenchment, shortfall and priority, he believed all these matters were referred to the court for determination. He said that if the question of shortfall had been raised he would have sought advice immediately. He said that he would in all likelihood have also sought an urgent direction from the court.

624. Finally, Mr Korda described the stand down orders and extensions of those orders made by the Australian Industrial Relations Commission. He referred to the memorandum of understanding with Air New Zealand Limited dated 3 October 2001 whereby Ansett received a substantial amount of money to continue its operation. It was this money that apparently facilitated the recommencement of Ansett's operations known as "Kick-Start". Prior to administration the Ansett group employed approximately 15,000 persons. Mr Korda gave evidence that upon the appointment of the administrators it was apparent that there would need to be a substantial number of redundancies. He said, also, that if the administrators had not re-launched the flight operations of Ansett through the vehicle of "Kick-Start" the redundancies of employees would have occurred in greater numbers earlier in time.

628. Mr Mentha corroborated the evidence of Mr Korda.

632. The administrators relied upon the evidence of Janet Belleli, one of their solicitors. She produced a document known as the Ansett Business Recovery Program, a memorandum to the Ansett Holdings Limited Board of Directors dated 20 August 1998, a Business Recovery Program dated 24 September 1998, the Industrial Relations update and a document called "BRP Redundancy Package" dated 9 August 2000.

636. The administrators relied upon the evidence of Dominic Emmett, a solicitor who acted for the administrators. He gave evidence that on 7 December 2001 he was informed by Mr Fish that the actuary for the four Ansett employee plans had drafted new funding and solvency certificates and that the actuary had advised that an increase to the employer contribution rate for the Ground Staff Plan was required from nine per cent to 14 per cent. Mr Emmett said that he met with Mr Francis, the actuary, in December 2001 and advised him, among other matters, that his position in relation to to the recommendations as to employer contributions was neither agreed to nor opposed.

640. The administrators relied upon the evidence of Carmel Lyndsay Flynn, an accountant employed by the administrators' firm. She described that her primary responsibility was liaison with the unions in the context of the administration of Ansett. She described her attendance at a meeting on 8 October 2001 with various representatives of the administrators and Ansett and, also, Mr Allison and Mr Fish and that at the meeting a number of options were discussed concerning the future of the superannuation plans. Ms Flynn said that a further meeting occurred on 9 October 2001 consisting of herself, Mr Thorn, Mr Fish, Mr Benitter, Mr Lang, Mr Abramovich and others where the subject of the staff plans continued under discussion. She had no recollection of discussion or reference to a new funding and solvency certificate. Ms Flynn was involved, also, in the preparation and dispatch of the letters concerning redundancy. She gave evidence that she was not aware of the issues surrounding retrenchment and the definition under the rules prior to 17 October 2001 when the letters were dispatched. Ms Flynn gave evidence concerning other meetings and dealings with the ACTU.

644. The administrators relied on the evidence of Michael Thomas Robert Binetter, a solicitor who was involved with the administration of Ansett. He described his attendance at a number of meetings during the period October 2001 to January 2002. He described the substance of the matters discussed at the meeting.

647. There were some aspects of the evidence of Mr Abramovich that Mr Binetter disputed. I deal with the effect of these differences later.

651. The plaintiffs relied upon the evidence of Andrew Proebstl, an accountant who conducted a review of superannuation arrangements for Ansett employees at the request of Andersen. He described his attendance at a meeting on 27 September 2001 with representatives of the trustees of the staff superannuation plans. His general recollection was uncertain.

655. The administrators relied, also, on the evidence of Dominic Gerard Emmett, a solicitor who worked on the administration of Ansett (not to be confused with Dominic Emmett). He gave evidence that the approach of the administrators based on his advice was to take no action in relation to staff superannuation that would alter the existing circumstances or status quo. He said that he and the administrators were concerned not to prejudice the rights of any person as a result of any unilateral action by the administrators. He gave evidence, also, concerning meetings in November 2001 and his dealings with Buck. He said that the solicitors for the trustee sent a letter dated 13 November 2001 advising of the position of the trustee in relation to shortfalls. He said that he responded by letter dated 27 November 2001 stating that:

" ... The information already provided is not intended to constitute a declaration of retrenchment, nor retrenchment, by the relevant employers under the terms of their restrictive trust deeds".

659. He confirmed that he may have been given a draft of a funding and solvency certificate in January 2002. He assumed that the matters of declaration, shortfall and priority were matters to be determined by the court.

662. There was some dispute between Mr Abramovich and Mr D.G. Emmett as to matters discussed on 23 January 2002. He alleged that he said at the meeting that employer contributions would be paid at the existing rates, namely, nine per cent.

665. Mr D.G. Emmett gave evidence, also, concerning the deed of amendment of the plan of 30 April 2002.

669. The administrators relied upon the evidence of Denis James Thorn, an accountant. He worked with Mr Proebstl in relation to the Ansett administration. He was present at a number of meetings during September and October 2001. His recollection was general and he was uncertain whether redundancy was discussed at the October meeting. In some respects he refuted the evidence of Mr Abramovich, in particular as to what occurred at a meeting on 9 October 2001.

673. The administrators relied on the evidence of Paul Francis Chiappi, their solicitor. He produced correspondence between his offices and that of the solicitors for the trustee.

677. The third defendant, being a representative party, Russell Thomas Booth, filed an affidavit in the proceeding. He stated that he applied for a position with Ansett as an aircraft maintenance engineer on 6 November 1980 and was interviewed on that day. He said that he was told during the interview, among other matters, that he would have access to "a generous superannuation scheme for ground staff after a qualifying period". Mr Booth said that he received a letter dated 2 December 1980 confirming his appointment to commence on 15 December 1980 when he commenced working at Ansett. He remained with Ansett until 2001.

680. Mr Booth said that he received a letter from Ansett in 1983 that he was eligible to join the Ground Staff Superannuation Plan and that he was automatically enrolled as a member of the plan effective from 1 July 1983. He has remained a member since. He produced various statements and newsletters that he received during the period of his employment with Ansett. He stated that he received member booklets.

683. He stated that he was stood down from Ansett on 13 September 2001 and received a letter from Ansett dated 17 October 2001 inviting him to apply for redundancy.[30] He completed a form headed "Application for Redundancy" on 23 October 2001 and sent it to Ansett on 26 October 2001. Thereafter he received a letter from Ansett dated 19 November 2001 notifying him that his employment was to cease by reason of redundancy effective from 9 November 2001.[31]

687. The original fourth defendant, James Herbert Hennessy, filed an affidavit in the proceeding. Subsequently Mr Hennessy during the course of the trial of the proceeding was made redundant. Accordingly, a new fourth representative defendant was substituted for Mr Hennessy, namely, Mr Clarke. He is a current employee of Ansett, that is, he is yet to be made redundant. On the evidence, he can expect to be made redundant at any time during the period from about two years from the time of the trial.

691. The plaintiff tendered a vast amount of documents in a court book consisting of 12 volumes. The amount of documents in this proceeding was, to say the least, substantial. I was taken in great detail to a selection of the documents such as the trust deed, the member booklets and the administrative documents of Ansett and the trustee. Included in documents tendered were many of the affidavits filed in the Federal Court proceedings. There were a large number of documents that I was not taken to but they were nonetheless tendered in evidence. The trial commenced as one in the Commercial List on an estimate of five days. Hence, the adoption of the expedited management of the trial including the use of court books. The trial eventually concluded after 20 sitting days. If not for the expedited approach of the Commercial List the trial would have run much, much longer.

PART IV

697. It is necessary to consider the approach of Ansett towards its employees historically and also the treatment of employees by the administrators of Ansett after their appointment. To some extent this has been partly described in the overview of the evidence of the various witnesses. It is appropriate to consider information that was provided to employees during these periods and, in particular, to consider the way in which Ansett conducted itself in relation to the treatment of persons who were retrenched from time to time.

701. There were three member booklets that applied to the Plan. The first booklet applied to members who joined prior to 1 January 1987. It was sometimes referred to in the proceeding as "Rainbow I". The second booklet applied to members who joined after 1 January 1987. It was sometimes referred to as "Rainbow II". The third booklet applied to members who joined after September 1995 and is the current booklet. It was sometimes described as "Clouds".

704. Given that membership of the Plan was a condition of employment for those employees of Ansett eligible to join the Plan, and that Booklets were issued, with the obvious approval of Ansett, containing a description of the benefits available under the Plan and promises by Ansett in relation to the provision of those benefits, the promises clearly formed part of the members' contract of employment with Ansett.

707. Prior to 1 January 1987 membership of the Ansett Superannuation Plan was not compulsory. The first booklet ("Rainbow I") applied to persons joining the Plan before 1 January 1987. In the introduction to that booklet, the Chairman of Ansett, Sir Peter Abeles said:

"Dear Staff Member, Superannuation is important to all Ansett employees to assist in your retirement. Ansett Airlines has been a leader in the provision of superannuation for its staff. In 1958 Ansett was one of the few companies to provide superannuation. The new scheme is set out in this booklet. Improvements were discussed and agreed with the ACTU and airline industry unions. Three Ansett staff will now be members of the Board of Trustees. The new scheme provides excellent retirement and withdrawal benefits and generous death and disablement provisions to protect your family. I am pleased that the new benefits assist in securing the future for Ansett staff. With kindest regards, Peter Abeles."

711. Under the heading "CONTRIBUTIONS How Much Does Ansett Pay?"[32] the Booklet said that -

"Ansett will pay the balance of the costs of providing the benefits [ie after the member pays five per cent of Benefit Salary into the Plan]. This includes the cost of death and disablement benefits and all management costs of the Plan."

715. From 1 January 1987 membership of the Plan became automatic. That is to say, it became compulsory for those qualified to join. The second booklet ("Rainbow II") applied to persons joining the Plan on or after 1 January 1987. The same introductory message from Sir Peter Abeles was incorporated in the second booklet. Again, members were assured[33] that "Ansett will pay the balance of the costs of providing the benefits [after the member pays five per cent of Benefit Salary into the Plan]".

718. A composite booklet for the Plan was produced in September 1995 ("Clouds"). This booklet contains an introduction to following effect:

"INTRODUCING YOUR SUPERANNUATION PLAN Membership of a well managed superannuation plan is desirable for a secure, rewarding retirement future. There are few other forms of saving or insurance that provide the same combination of advantages which are specifically aimed at giving you security during your working life and beyond. The Ansett Australia Ground Staff Superannuation Plan (Defined Benefit Section) has been designed in such a way that your retirement benefit is assured. This is because benefits are related to salary and not dependent on future investment earnings. You will always know what you are entitled to receive when you retire or leave the company. This booklet has been prepared to give you an understanding of your Superannuation Plan. Its intention is to tell you in plain language what you can expect to get from your Plan and how it is managed. If you have any questions or need assistance on superannuation matters at any time, please contact the Enquiries Officer at the Ansett Superannuation Department. This Department is staffed by your Ansett colleagues who understand superannuation from your view ..." Under the heading "How Much Does Ansett Pay Towards Your Superannuation?" , on page 3 of the Booklet, it is said: `This will vary from time to time, but will always be an amount sufficient to provide you with the benefits promised by the Plan. Ansett's contributions will also include the cost of providing you with death and disablement cover and all management costs of the Plan'."

722. Under the heading "Your Plan Is Called A Defined Benefit Plan",[34] it is said that:

"The important point to note is that your benefit is guaranteed by Ansett and is not affected by the investment performance of the Plan. The Plan is a joint commitment between you and Ansett. Each year you pay the five per cent we mentioned earlier and Ansett pays whatever amount is necessary to ensure that you receive the benefit promised to you."[35]

726. The current member booklet, "Clouds", deals with retrenchment benefits in the following terms:[36]

"RETRENCHMENT BENEFIT If you are retrenched by Ansett, the benefit payable will be the greater of your Retirement or Resignation Benefit and the `Retrenchment Benefit'. The `Retrenchment Benefit' is calculated in one of two ways, depending on your length of membership of the Plan.

1. The Retrenchment Benefit if you have completed less than 25 years of Plan membership is the sum of:

(i) Your `Member Account' multiplied by three (3). (Your Member Account is the accumulation of your standard 5% member contributions plus interest), and

(ii) Years of Membership (in years & days) X 3% X Final Average Salary.

2. The Retrenchment Benefit if you have completed at least 25 years of Plan membership is calculated by multiplying your `Final Average Salary' by your `Retrenchment Benefit Multiple'.

The `Retrenchment Benefit Multiple' is calculated as your `Years of Membership' multiplied by a `Special Factor.' The `Special Factor' can be obtained from the chart on the inside back cover of this booklet, using the row of the chart for `age 32 or less' and the column for your age at date of retrenchment. NOTE: If your Resignation or Retirement Benefit is higher than the Retrenchment benefit, remember the highest benefit will be paid. NOTE: Your Retrenchment Benefit may be subject to taxation and preservation. Refer to age 10 for more details."

The Historic Treatment by Ansett of Retrenchments

736. Relations between the employer and the trustee and members of the Plan were conducted on the basis of an assumption that retrenchment benefits would be paid under the scheme following an indication by the employer that retrenchment by reason of redundancy of position had occurred. There was no satisfactory evidence of any contrary assumption or of any contrary indication given by the employer. There was no evidence of a practice of a formal declaration made by Ansett of a reduction of staff for the purposes of the Plan in terms of Rule 1.1 ("Retrenchment"). So much was established by the evidence of Mr Cann, Mr Fish and Mr Allison.

"... the trustee needed certain information from the employer to make the payment and it needed three things: it needed to know the person had actually terminated employment because without that the benefit couldn't be paid under the [trust deed]. They needed certain information about contributions in order to calculate the benefits accurately and they needed to know the nature of the termination to know what payment to make."

743. With respect to Rule 1.1, Mr Cann said in evidence:

"My recollection is that the rule required the employer to determine the person to have been retrenched; it was actually not much more sophisticated than that. So the need from us to know whether a person was going out as a `resignation benefit' or whether they were in fact going out as `retrenched' was in fact for us, the employer, to certify that they had been retrenched and that's why this process was the way it was."

747. Similarly, Mr Allison observed: "As a matter of practice, throughout my term at Ansett, when people were made redundant, retrenchment provisions apply."

750. It must be acknowledged that prior to the administration, numbers of retrenchments were small. In the actuarial investigation at 1 July 1994, it was recorded that 13 people were retrenched between 1 July 1992 and 30 June 1994. In the actuarial investigation at 1 July 1996, 90 retrenchments between 1 July 1994 and 30 June 1996 were cited. However, Mr Fish gave evidence that at the end of 2000 and in early 2001 there were quite a number of retrenchments.

753. I was taken at some length to the administrative arrangements that occurred between Ansett and the trustee in the event of the retrenchment of an employee. The documentary evidence confirmed the description provided by Mr Cann. I conclude from the evidence both documentary and, in particular, the experiences of Messrs Cann, Fish and Allison, that in the appropriate circumstance notification of an employee's departure as a retrenchment was a routine matter rather than a formal declaratory process.

756. In so far as it has any bearing on the question of whether retrenchment required a formal declaration by the employer pursuant to the trust deed, I observe that pursuant to s.170LJ of the Workplace Relations Act 1996 a collective bargaining agreement was certified on 3 May 1999 with respect to Ansett and of which Ansett as the employer was a party. The agreement made reference to the entitlements of employees. I observe that the collective bargaining agreement made no reference to a requirement that the employer make a declaration as to retrenchments before an employee would be eligible for the attached benefits under the terms of the Plan.

Conduct Involving the Actuary Pre and Post Administration

760. The evidence revealed that the actuary provided actuarial investigations, in accordance with his obligations, on a periodic basis.[37] The actuary also provided Funding and Solvency certificates on a periodic basis.[38] In addition, in accordance with his obligations, the actuary provided Benefit Certificates.[39]

763. It is necessary to recite the events in 2001 preceding the appointment of the original administrators as between the actuary, the trustee and the administrators.

766. On 3 April 2001 the actuary forwarded the actuarial investigation as at 1 July 2000. In the covering letter, Mr Francis, the actuary, included a statement, as follows:

"The report [that is the actuarial review report] recommends a continuation of current employer contributions. The Plan's assets covered its Vested Benefit liability (the amount payable on the voluntary withdrawal of all members) with a margin of 3% at 30 June 2002, and covered its actuarial liability in respect of accrued benefits with a margin of 8%. Each of these shows a Plan in a sound financial position ... ".

770. The next relevant event occurred on 23 April 2001 when the actuary wrote to Ansett advising that the total liability in respect of retrenchment benefits was in the sum of $683,333,000 which exceeded the amount of assets by $84,440,000. In the letter, Mr Francis included the statement:

"The total liability in respect of retrenchment benefits is, based on data supplied to me, $683.333M. This exceeds the amount of assets by $84.44M. This position is not unexpected, and need not be a matter of concern unless there is a reasonable prospect of the contingency arising where a significant retrenchment programme will occur and the employer is unwilling or unable to finance the additional benefit liability. I suggest that the Trustee seek assurance from the employer, whenever a retrenchment programme is initiated, that additional contributions will be made to cover the difference between (say) retrenchment benefits and Vested Withdrawal benefits for the affected members, unless actuarial advice indicates that such additional financing is not required."

774. On about 29 May 2001 the actuary forwarded the funding and solvency certificate effective on 1 July 2001. The certificate recited that it ceased to have effect on the earliest of 30 June 2005, the occurrence of certain specified events or the withdrawal of the certificate. The actuary certified that the Plan was solvent.

777. On 16 September 2001 the trustee wrote to the original administrators advising that as at 30 June 2000 the assets of the plan were not sufficient to satisfy all benefits in the event of compulsory termination of the employment of each employee by the employer and advising that the estimated shortfall of assets to compulsory termination benefits was $84,400,000. The trustee advised, further:

"In light of current events I request that if a retrenchment programme is undertaken that additional employer contributions be made to cover the difference between the retrenchment benefits and Vested Withdrawal benefits of affected members unless actuarial advice indicates that such additional financing is not required."

781. After the administrators were appointed, the actuary wrote to the trustee on 18 September 2001 in relation to the subject of coverage of retrenchment benefits. In the letter, Mr Francis advised:

"As requested I have reviewed the position of the Plan's retrenchment benefits. The retrenchment benefit is defined in the Trust Deed in Rule 1.13. This letter has been produced for the purposes of the Creditors' Meeting and a more detailed response to the Trustee on this matter will be provided. June 2000 Coverage The retrenchment benefit entitlement for all members at 30 June 2000 was calculated by the then administrator and advised to me for the purposes of the 1 July 2000 Actuarial review. At that time, the Plan's assets covered benefits payable on the retirement (including early retirement) and resignation of all members. However, as the Trustee Board was aware, there was a shortfall of assets (which totalled $598.9M) to the total retrenchment benefit for all members (which totalled $683.3M) of $84.4 Million. Recommended contributions did not include any allowance for funding of any shortfall against the Plan's retrenchment benefits. Had there been any basis, at the time that the 2000 actuarial valuation was undertaken, to expect that retrenchment benefits were going `to become payable for the absolute majority of the Plan's members then the contributions recommended in my 2000 Actuarial report would have been higher. The contributions recommended would have been higher to the degree required to cover any expected excess of benefit payments over normal resignation/retirement benefits. Subsequent Experience I have made estimates of the level of retrenchment benefits at June 2001, based on data currently available to me. The estimate made should be regarded as approximate, s.271A pending clarification of various queries about member data, and further clarification on the position of investment markets. I estimate that the Plan's investments (which were about $573.3 Million) at June 2001. However, allowing for a subsequent reduction in assets values following market falls during July, August and September of 10%, I estimate the reduced value of investments to be $ 516.0 Million. The total retrenchment benefits at June 2001 are estimated to be $632.8 Million. This results is a shortfall of $116.8 Million. Immediate funding of this shortfall would require an employer contribution of some $137.4 Million after allowance for contribution tax of 15%. I emphasise that this shortfall is contingent on all members leaving the Plan due to retrenchment as defined in the Deed."

785. On 18 September 2001 the trustee wrote to the administrators advising that superannuation contributions had not been received for the plan from the employer for the months of August and September 2001 and requesting urgent payment. On 17 October 2001 the solicitors for the trustee wrote to Mr Binetter then solicitor acting for the administrators, referring to the letter to employees calling for voluntary redundancies dated 17 October 2001. The trustee's solicitors requested that the administrators confirm that acceptance of the voluntary redundancy letter by employees would constituted a "retrenchment" for the purposes of the rules. No response was forthcoming from the administrators.

788. On 20 September 2001 the actuary wrote to the directors of the trustee raising a number of concerns in relation to the solvency of the fund and the possibility of the fund being wound up in such circumstance. In addition, Mr Francis expressed a number of views as to the correct construction of the trust deed including a reference to the fact that under the deed the employer was required to make a declaration of retrenchment in order for the benefit as defined to become payable. On 23 October 2001 the actuary wrote to the trustee advising that the investment performance of the Plan during the September 2001 quarter was at a level that caused the funding and solvency certificate dated 29 May 2001 effective 1 July 2001 to cease to have effect. Mr Francis raised concerns in his letter as to the solvency position of the Plan. The actuary provided a draft funding and solvency certificate intended to be effective at 13 November 2001 certifying that the Plan was solvent. On 5 December 2001 the actuary wrote to the trustee advising of a number of significant matters. First, that the net assets fell short of vested benefits. Secondly, that the net assets also fell short of total retrenchment benefits. Thirdly, that there remained uncertainty as to how much more the employer would be able to pay in contributions and that in turn may effect the calculation of benefits further. Fourthly, the actuary highlighted potential concerns if the members of the Plan who had been made redundant were treated as retrenched.

791. On 23 January 2002 the actuary wrote to the trustee confirming that the Plan was funded to approximately the level of vested benefits and provided a new funding and solvency certificate (FSC 4) effective 23 October 2001 and expiring 30 June 2005. In FSC 4 the actuary certified that the plan was solvent. However, in FSC 4 the actuary advised that minimum contributions were payable by the employer with respect to any member advised to the trustee as a retrenched employee. The actuary stated in the certificate that the contributions by the employer due for members falling within the category of retrenched employees (termed "Group 3") should be paid immediately upon the trustee being notified of the member being a retrenchment under the Plan.

794. In the meantime, correspondence ensued between the solicitors for the trustee and the solicitors for the administrators. On 12 November 2001 the solicitor for the administrators, Mr Emmett, advised:

"With regard to the current redundancy programme, the present intention of the Administrators is to notify your clients in a manner consistent with the way in which notification has been made by Ansett in the past. We appreciate that it may be an issue as to whether that notification constitutes retrenchment ... We agree that an expeditious judicial determination of this issue would seem appropriate."

798. Correspondence continued. The administrators progressed the administration. On 21 December 2001 the solicitors for the trustee wrote to the solicitor for the administrators, Mr Emmett, and requested payment of contributions from the administrators in their capacity as employer with respect to the shortfall in vested resignation benefits and retrenchment payments. No payment was made. Eventually the TESNA agreement collapsed, the airline closed down and the deed of arrangement was entered into.

801. Meanwhile, the administrators were progressing their redundancy programme on an ongoing basis. By 4 March 2002 the airline services of Ansett ceased. On 19 March 2002 the actuary wrote to the trustee in relation to the specific topic of coverage of retrenchment benefits by the plan. In the letter, the actuary advised that the net assets covered vested benefits but not retrenchment benefits. In terms of the projected retrenchment level the actuary stated:

"Based on an estimated 600 members remaining in an on-going arrangement ... then the amount payable for members whose service is terminated is estimated to be some $656 million, contrasted to Vested Benefits for those members of $568 million. The required additional funding to pay retrenchment benefits, rather than Vested Benefits, is then $104 million."

805. On 24 April 2002 the actuary wrote to the trustee advising that a notifiable event under the funding and solvency certificate had occurred and that the certificate had thereby lapsed. The notifiable event was identified as the non-payment by the employer of contributions as specified in the funding and solvency certificate. As a consequence, on 24 April 2002 the actuary issued a new funding and solvency certificate effective on 24 April 2002 and expiring on 30 June 2005 (FSC 5). The certificate certified that the plan was solvent subject to the payment, among other matters, of entitlement to retrenched employees notified to the trustee, that is, those employees falling within Group 3.

808. On 12 July 2002 the actuary advised the trustee that he estimated that the shortfall of assets to retrenchment benefit liabilities of the fund was in the order of $150,000,000 to $200,000,000. The letter was significant. He advised in the letter as follows:

"This letter has been produced for the purposes of the Creditors' Meeting and a more detailed response to the Trustee on this matter will be provided. June 2000 Coverage The retrenchment benefit entitlement for all members at 30 June 2000 was calculated by the then administrator and advised to me for the purposes of the 1 July 2000 Actuarial review. At that time, the Plan's assets covered benefits payable on the retirement (including early retirement) and resignation of all members. However, as the Trustee Board was aware, there was a shortfall of assets (which totalled $598.9M) to the total retrenchment benefit for all members (which totalled $683.3M) of $84.4 Million. Recommended contributions did not include any allowance for funding of any shortfall against the Plan's retrenchment benefits. Had there been any basis, at the time that the 2000 actuarial valuation was undertaken, to expect that retrenchment benefits were going `to become payable for the absolute majority of the Plan's members then the contributions recommended in my 2000 Actuarial report would have been higher. The contributions recommended would have been higher to the degree required to cover any expected excess of benefit payments over normal resignation/retirement benefits. Subsequent Experience I have made estimates of the level of retrenchment benefits at June 2001, based on data currently available to me. The estimate made should be regarded as approximate, 6.271A pending clarification of various queries about member data, and further clarification on the position of investment markets. I estimate that the Plan's investments (which were about $573.3 Million) at June 2001. However, allowing for a subsequent reduction in assets values following market falls during July, August and September of 10%, I estimate the reduced value of investments to be $516.0 Million. The total retrenchment benefits at June 2001 are estimated to be $632.8 Million. This results in a shortfall of $116.8 Million. Immediate funding of this shortfall would require an employer contribution of some $137.4 Million after allowance for contribution tax of 15%. I emphasise that this shortfall is contingent on all members leaving the Plan due to retrenchment as defined in the Deed. Possible Future Contribution requirements The Plan's contribution requirements for the future will depend on a number of matters. A significant factor is the question of whether departing members are eligible for a retrenchment benefit. The contributions detailed in my Funding and Solvency Certificate of April 2002 are designed to seek additional contributions for any retrenched member, that contribution being the excess of the retrenchment benefit over the Vested Benefit for the member (i.e. the resignation or early retirement benefit). As the Plan assets have at times fallen short of coverage of Vested Benefits, even if members are not paid retrenchment benefits, but do receive their Vested benefit, it is probable that additional contributions will be required. The process for identifying the additional contribution requirement would be that either the current FSC would be withdrawn by me when I considered that action desirable, or a Notifiable Event under that Certificate would occur (in particular when coverage of Vested Benefits is identified as being less than 99%). The level of additional contributions needed would depend on the circumstances of the Plan at the time, but would likely be additional lump sum contributions required from the employer to ensure coverage of vested benefits at a suitable date, or over an agreed time period (recognising that some members may continue in employment for some time yet). I estimate that, at 13 September 2001, assets fell short of Vested Benefits by some $76M. The shortfall (if any) at a later date will be influenced by a number of factors, some of which remain open for further decisions (such as whether accruals after 13 September should be on an accumulations basis), so estimation of coverage is problematic. Benefit Estimate at 13 September 2001 - Retrenchment Benefits Counsel has asked a question about coverage at the date of appointment of the company administrator, which I understand was 13 September 2001. The question relates to a possible interpretation of Section 556(1)(e). Establishing asset values at that date has problems, as quotation of values had been suspended in a number of investment markets following the attack on the World Trade Center on September 11. I have estimated an asset value by taking the values at 30 September as cited by the Plan's custodian, and reducing that value by 1% (to reflect the estimated differences in asset values at 30 September and 13 September). More precise information may need to be obtained from the Plan's investment managers to determine the asset value as close to 13 September as possible. The approach above is likely to be adequate as an indicator of the financial position of the Plan at that date. I have also reflected subsequent transactions (contributions due prior, received after, and transfer payment due to the Ansett Management fund). I have made estimates of benefit liabilities and net asset values, based on data currently available to me. While final numbers may vary, I am satisfied that the estimates made and detailed below are reasonable indicators of the Plan's financial position for current Trustee considerations. I have also included an allowance in the asset value of a net contribution amount (member and employer) for the period to 13 September, paid after that date, of just over $11 million. I have deducted a sum of $4.2 million being the transfer value due to the Pilots/Management Plan. Benefit liabilities are estimated as at 13 September 2001. I have not allowed in these calculations for any share of the projected special costs involved in the subsequent administration after 13 September or in any ultimate wind-up of the Plan. My estimate of Plan liabilities is as follows: Estimated Vested Benefits: $606 million Estimated Retrenchment Benefits: $700 million Estimated Net Assets: $530 million Accordingly, the shortfall of assets to retrenchment benefits is estimated as $170M, and the shortfall to Vested Benefits is estimated to be $76M. Benefit Accrued at 13 September - Paid Later In preparing the values above, I have used estimates of the relevant factors affecting the benefit as at 13 September. Different interpretations of the meaning of some of the wording in the Corporations Act may result in a slightly different approach. For example, while the relevant benefit multiple at (or member contributions to) 13 September may be readily identifiable, there may be different views on what Final Average Salary is relevant (at 13 September or at date of cessation of service), and what interest is due (to 13 September or to payment date). For the purposes of the estimates made, I have relied on an interpretation of Section 558 of the Act, which refers to treating an employee under section 556 as if "... his or her services with the company had been terminated by the company on the relevant date. " Accordingly, all benefits have been calculated using relevant factors as at 13 September 2001 (as estimated where necessary). Final and more accurate calculations can be made via NSP Buck's administration records when required. Coverage at 30 June 2002 The coverage of benefits at this date will depend on a number of factors, including what date members ceased employment. Allowing for estimated investment returns to the end of June 2002, I estimate that the shortfall of assets to retrenchment benefit liabilities is of the order of $150M to $200M."

812. The shortfall was confirmed by Mr Francis, the actuary in the course of evidence.

815. There was other correspondence that warrants consideration.

818. In response to a letter concerning redundancies from the Australian Licenced Aircraft Engineers Association the solicitor for the administrators on 26 October 2001 advised the association in a letter as follows:

"I am instructed by the Administrator to confirm that the redundancy process currently being conducted is a bona fide redundancy process whereby a number of Ansett employees are being retrenched in a situation where their positions are no longer required and no longer exist. The Administrators are using the current process of inviting current Ansett employees to indicate their interest in retrenchment in the short term so that early decisions can be made by the Administrators. Thus the decision by employees to indicate their interest does not detract from the fact that the Adminstrators retained the right to determine retrenchment of employees as necessary and those employees will be retrenched from their employment by virtue of the redundancy of their positions."

822. There was no suggestion by the administrators in this letter of any change from the status quo.

825. Finally, the administrators relied upon and highlighted part of their first letter of offer of redundancy to employees on 17 October 2001.[40] The letter from the administrators stated in part:

"When considering whether to apply for redundancy, it is important to keep a number of things in mind: ...

(g) Your benefits under the relevant superannuation scheme are separate to these proposed arrangements. If your application for redundancy is accepted, your fund will supply you with details of your superannuation entitlements."

832. Similar information was conveyed in the consequential notice of redundancy.[41]

835. Further, in the "Frequently Asked Questions" concerning superannuation, attached to the letter, inquiries by applicants for redundancy were referred to the superannuation administrator. A similar statement was included in the 9 November 2001 letter and in other letters sent to employees of Ansett subsequent to that date. The administrators submitted that on the plain meaning of these letters, superannuation benefits are stated to be separate and distinct from the benefits available on the terms of the redundancies offered.

838. I am satisfied on the evidence that at all times prior to 12 September 2001 Ansett adopted a general approach of treating redundancies as retrenchments. In particular, so much is revealed from the course of correspondence between Ansett, the fund manager and the trustee.

841. At trial, much focus was placed by the trustee and the representative defendants upon the conduct of the administrators before the controversy surrounding the alleged shortfall came to the fore. In summary, the trustee asserted that the administrators had approached the obligations of Ansett under the trust deed and the commensurate obligations to make contributions to the fund as an expense in the administration. The trustee complained that it was only after the later funding and solvency certificate came to light, in particular, FSC 5, that the administrators resiled from their previous position. I do not consider that there is sufficient evidence to make such a finding against the administrators. In any event, even so far as there is any evidence, and Mr Mentha made some concessions during the course of his evidence, the position of the administrator prior to FSC 5 could not be construed as a fully informed position. It would not be appropriate, in my view, for the administrator to be regarded as bound by the approach taken to the treatment of expenses in the administration. In any event, the question of whether an expense constitutes an expense in the administration will be a matter of fact and law. In those circumstances, I would not regard the administrators as bound or estopped by any position or attitude they adopted prior to receipt of FSC 5. Furthermore, in so far as any statements or acquiescence can be derived from correspondence of representatives of the administrators, I am of the view, also, that it would be inappropriate to treat the administrators as bound.

844. Notwithstanding my findings as to the conduct of Ansett prior to the administration and the attitude of the administrators thereafter until the solvency of the Plan became an issue, the relevance of the approach of Ansett to the requirement, if any, to make a declaration under Rule 1.1 of the Rules turns upon the interpretation of the requirements of Rule 1.1. If in any event there is no requirement upon the employer to make a declaration as such under the Rules the conduct of Ansett prior to administration and the conduct of the administrators thereafter largely ceased to be significant. I turn to consider the requirements of Rule 1.1.

850. The submission of the trustee supported by the representative defendants was that Ansett had an obligation under the trust deed to make contributions and those contributions were measured, in part, by the solvency requirements of the Act as invoked by clause 4.4 of the trust deed.

853. The trustee sought answers from the Court in order to clarify these matters. Supported by the representative defendants, the trustee submitted that the relevant employees were entitled to the highest level of benefits, namely, the retrenchment benefit under Rule 1.13. The submission was based upon the terms of the trust deed, the contract of employment between Ansett and the individual employees, and, also, the conduct of Ansett prior to administration. To some extent, also, the trustee and the representative defendants relied upon the initial conduct of the administrators. Arising from such entitlement, the trustee and the representative defendants submitted that there was a shortfall which the administrators were obliged to meet. They alleged, further, that the shortfall constituted an expense in the administration of Ansett within s.556(1)(a) of the Corporations Act and thereby took priority over other creditors. The administrators challenged that submission.

856. In summary, the position of the administrators was that Rule 1.13 gives the employer a power to exercise at its discretion to grant entitlements under Rule 1.13. They submitted, further, that Ansett and, in turn, the administrators themselves, have not exercised and will not exercise that power. If the administrators' submission was accepted and it was held that the administrators standing in the shoes of the employer, Ansett, had the power to confer the retrenchment benefit under Rule 1.13 the trustee asked the Court to answer a question: are the administrators obliged in any event to exercise that power? If answered in the negative, the trustee asked the Court a further question: is the trustee in its capacity as trustee under the Ground Staff Plan entitled to determine that members of the Plan have been made redundant and thereby entitled to a retrenchment benefit under Rule 1.13? The trustee asked a further question: if the administrators were entitled to refuse to exercise a power under Rule 1.13, should the Court exercise that power itself?

The Relevant Questions in the Originating Motion

860. The formal questions in the originating motion asked by the trustee of the Court at the time of the proceeding were:

1. Are all or any of the members of the Ansett Australia Ground Staff Superannuation Plan who have been made redundant by the administrators of Ansett Australia Limited since 12 September 2001 entitled to retrenchment benefits under Rule 1.13 of the first schedule to the Ground Staff Plan's Trust Deed dated 17 August 1999 made between Ansett and Ansett Australia Ground Staff Superannuation Plan Pty Ltd?[42]

to give any necessary declarations so as to entitle members who have been made redundant since 12 September 2001 to retrenchment benefits under Rule 1.13 of the first schedule to the Ground Staff Plan's Trust Deed dated 17 August 1999?[43]

3. Are the plaintiffs each entitled to determine as trustee under the respective said Plans that the said members who have been made redundant since 12 September 2001 are entitled to receive retrenchment benefits as described above?[44]

4. Should there be a declaration by the Court itself of a reduction of staff for the purposes of the rules of the Ground Staff Plan so as to entitle those members of the Defined Benefits Section who were made redundant after 12 September 2001 to retrenchment benefits under Rule 1.13 of the First Schedule?[45]

5. Declarations as to whether Ansett is obliged to make further contributions, and if so what further contributions, to the Ansett Ground Staff Superannuation Plan?[46]

6. In the event that Ansett is not under any obligation to make further contributions to the said plan:

(a) Does it have a power to make further contributions?

(b) Is that power exercisable by the administrators?

(c) Can the Court compel any such power under (a) or (b) to be exercised?

(d) Can the Court compel the power to be exercised in a particular way?

(f) If the answer to (c) and (d) is yes, an order compelling the exercise of such power so as adequately to fund the payment of benefit entitlements under the said Plans as required.

(g) If the answer to (e) is yes, an order exercising the power so as adequately to fund the payment of benefit entitlements under the said Plans, as required.[47]

7. Declarations as to whether any such further contribution is:

(a) An expense within the meaning of s.556(1)(a) of the Corporations Act 2001 (Act);

(b) a debt within the meaning of s.556(1)(c) of the Act;

(c) an expense within the meaning of s.556(1)(dd) of the Act;

(d) a superannuation contribution within the meaning of s.556(1)(e) of the Act.[48]

Interpretation of Trust Deed: Construction of "Retrenchment"

Authorities on proper interpretation of Pension Deeds

888. I turn to the interpretation of the trust deed and in particular the construction of the term "Retrenchment" in the deed.

891. The basic approach applied by the courts to the interpretation of pension schemes is practical and purposive. The courts pay heed to the fact that the beneficiaries under a pension scheme are not volunteers and that the rights of those beneficiaries are founded in the contract of employment. The approach was stated by Warner J in Mettoy Pension Trustees Limited v Evans:[49]

"I propose first to advert to a number of points of a general nature. The first is as to the legal effect of the various announcements that were made to employees, the explanations given to them at meetings and the 1973 and 1978 booklets. In the early stages of the hearing it appeared that I might have to hear argument about that, and in particular an argument by Mr Inglis-Jones on behalf of Mr Idwal Evans based on equitable estoppel. In the event that became unnecessary because Mr Nugee on behalf of Mettoy accepted that, whether by reason of an equitable estoppel or otherwise, the provisions of the 1973 booklet were binding on all parties, Mettoy, the trustees, and the members of the scheme from 6 April 1973 to 6 April 1978, and that, likewise, the provisions eventually embodied in the 1978 booklet were binding on all parties from 6 April 1978 onwards. Secondly, as was submitted to me by Mr Walker and conceded by Mr Mann in his reply, the court's approach to the construction of judgment of Millett J in In re Courage Group's Pension Schemes,[50] where he said that, whilst there were no special rules of construction applicable to a pension scheme, `nevertheless, its provisions should wherever possible be construed to give reasonable and; practical effect to the scheme.' That is in my judgment particularly so where, as here, the documents governing the scheme include not only documents such as the 1973 and 1978 booklets but also documents such as the memoranda of 1973 and 1976 and the deed of 1978, which were intended to have legal effect but were couched in very general terms. Thirdly, although there are no special rules governing the construction of pension scheme documents, the background facts or surrounding circumstances in the light of which those documents have to be construed-their "matrix of fact" to use the modern phrase coined by Lord Wilberforce-include four special factors. The first factor is that, as the Court of Appeal pointed out in two unreported cases of which I have been provided with Lexis transcripts, namely Kerr v British Leyland (Staff) Trustees Ltd[51] and Mihlenstedt v Barclays Bank International Ltd,[52] the beneficiaries under a pension scheme such as this are not volunteers. Their rights have contractual and commercial origins. They are derived from the contracts of employment of the members. The benefits provided under the scheme have been earned by the service of the members under those contracts and, where the scheme is contributory, pro tanto by their contributions. Secondly, as was common ground, pension scheme documents have to be construed in the light of the requirements of the Inland Revenue Commissioners from time to time for their approval of a scheme and also of the statutory requirements from time to time in force for the issue of contracting out certificates. About the former there are before me a `Guide to the Approval of Superannuation Funds' issued by the Life Offices' Association and the Associated Scottish Life Offices in September 1968, (which all counsel accepted as accurate), and a document referred to as `IR12' issued by the Inland Revenue in 1979 which contains `Notes on the approval of Occupational Pension Schemes' under the Finance Act 1970 as amended by the Finance Act 1971. Thirdly it was also common ground that the relevant background facts or surrounding circumstances included common practice from time to time in the field of pension schemes generally, as evinced in particular by the evidence of the actuaries and by textbooks written by practitioners in that field. Fourthly, temporary and imprecise documents of the kind exemplified by the memoranda of 1973 and 1976 and by the deed of 1978 are brought into existence as a result of the practice of the Inland Revenue and of the Occupational Pensions Board which is to recognise and give effect to such documents for statutory purposes, albeit to a limited extent. It would be inappropriate and indeed perverse to construe such documents so strictly as to undermine their effectiveness or their effectiveness for their purpose. I do not think that, in saying that, I am saying anything different from what was said by Lord Upjohn when in In re Gulbenkian's Settlements,[53] he referred, in the context of a private settlement, to `the duty of the court by the exercise of its judicial knowledge and experience in the relevant matter, innate common sense and desire to make sense of the settlor's or parties' expressed intentions, however obscure and ambiguous the language that may have been used, to give a reasonable meaning to that language it if can do so without doing complete violence to it.' What the court has to do here is to perform that duty in the comparatively novel and different context of pension scheme trusts."[54]

895. Most recently, the English Court of Appeal in Stevens & Ors v Bell & Ors revisited the approach to be applied. Arden LJ, with whom Auld and Waller LLJ agreed, observed:[55]

"The interpretation of pension schemes There have been several reported cases about the interpretation of provisions of pension schemes in recent years. There are no special rules of construction but pension schemes have certain characteristics which tend to differentiate them from other analogous instruments. I mention some of those characteristics in the following paragraphs. First, members of a scheme are not volunteers: the benefits which they receive under the scheme are part of the remuneration for their services and this is so whether the scheme is contributory or non-contributory. This means that they are in a different position in some respects from beneficiaries of a private trust. Moreover, the relationship of members to the employer must be seen as running in parallel with their employment relationship. This factor, too, can in appropriate circumstances have an effect on the interpretation of the scheme. Second, a pension scheme should be construed so to give a reasonable and practical effect to the scheme. The administration of a pension fund is a complex matter and it seems to me that it would be crying for the moon to expect the draftsman to have legislated exhaustively for every eventuality. As Millett J said in Re Courage Group's Pension Schemes [1987] 1 WLR 495 at 505: `[its] provisions should wherever possible be construed so as to give reasonable and practical effect to the scheme, bearing in mind that it has to be operated against a constantly changing commercial background. It is important to avoid unduly fettering the power to amend the provisions of the scheme, thereby preventing the parties from making those changes which may be required by the exigencies of commercial life.' In other words, it is necessary to test competing permissible constructions of a pension scheme against the consequences they produce in practice. Technicality is to be avoided. If the consequences are impractical or over-restrictive or technical in practice, that is an indication that some other interpretation is the appropriate one. Thus in the National Grid case, to which I refer below, where there was a choice of possible constructions, Lord Hoffmann held that the correct choice depended `upon the language of the scheme and the practical consequences of choosing one construction rather than the other.' (see [2001] UKHL 20; [2001] 1 WLR 864 at 887, paragraph 53)."

"Third, in pension schemes, difficulties can arise where different provisions have been amended at different points in time. The effect is that the version of the scheme in issue may represent a "patchwork" of provisions: see per Robert Walker J in the National Grid case. Pension schemes are often subject to considerable amendment over time. The general principle is that each new provision should be considered against the circumstances prevailing at the date when it was adopted rather than as at the date of the original trust deed: see per Millett J in Re Courage Group's Pension Schemes, above, at 505 - 506. Likewise, the meaning of a clause in the scheme must be ascertained by examining the deed as it stood at the time the clause was first introduced. Thus, for instance, at the time clause 11 was introduced, neither clause 24 nor its predecessor formed part of the APS Trust Deed, so that clause is not to be taken into account in the interpretation of clause 11. (1 should add that the appellants have recently made a complaint to the Pensions Omsbudsman about the introduction of clause 24. We are not concerned with that complaint.) Fourth, as with any other instrument, a provision of a trust deed must be interpreted in the light of the factual situation at the time it was created. This includes the practice and requirements of the Inland Revenue at that time, and may include common practice among practitioners in the field as evidenced by the works of practitioners at that time. It has been submitted to us that the factual background is only relevant if the document is ambiguous. I do not accept this submission, which is inconsistent with the approach laid down by Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896. In Lord Hoffmann's words `[i]nterpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background that would reasonably have been available to the parties in the situation in which they were at the time of the contract' (912H). Lord Hoffmann also distinguished the meaning of the words to be found in dictionaries from the meaning of documents: `(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] A.C. 749.' Fifth, at the end of the day, however, the function of the court is to construe the document without any predisposition as to the correct philosophical approach. Both sides urged on us their respective philosophical approaches. Mr Inglis-Jones submitted that the overall approach of the APS Trust Deed was favourable to the members. BA submitted that it should be remembered that this was a balance of cost scheme and so the fact that there was a surplus meant that the employer had paid too much. As Brooke LJ, giving the judgment of this Court (Nourse, Schiemann, Brooke LJJ), said in the National Grid case [2000] ICR 174, 193 `The solution to the [problem of construction in that case] lies within the terms of the scheme itself, and not within a world populated by competing philosophies as to the true nature and ownership of an actuarial surplus.' In the same case, in the House of Lords, the beneficiaries of the scheme argued that the surplus represented their contributions or their deferred remuneration. Lord Hoffmann rejected this approach. He expressed the view that, once it was established that the employer could exercise powers conferred by a scheme in its own interests, "I do not see the relevance of the way in which the surplus was funded" (page 869G). I discuss the National Grid case in detail below. Sixth, a pension scheme should be interpreted as a whole. The meaning of a particular clause should be considered in conjunction with other relevant clauses. To borrow John Donne's famous phrase, no clause `is an Island entire of itself'."

901. Here the ground staff plan is not only a pension scheme but also a defined benefit scheme. These types of schemes are sometimes termed "contributory" or "balance of cost" funds or schemes. They involve a contribution by employees of a fixed proportion of earnings and the contribution by the employer of the balance of cost of providing the benefits under the rules of the scheme. Browne-Wilkinson VC described these schemes succinctly in Imperial Group Pension Trust Limited v Imperial Tobacco:[56]

"The scheme is a contributory scheme, members having to pay contributions annually. The company is bound to pay such sums as the actuary may certify are necessary to make the fund actuarially solvent, i.e., it is a balance of cost scheme."[57]

905. Here the general observation can be made that the deed confers many powers on the trustee but also upon Ansett in its capacity as employer. The powers conferred on Ansett generally affect or have the potential to affect the contributions that Ansett may be required or may elect to make under the trust deed.[58]

908. It is necessary to consider the nature and purpose of the retrenchment provision under the deed. In so doing, it is instructive to recall the command of the English authorities that these types of schemes are pension schemes to which the beneficiaries, employees, are not volunteers. They are part of a complex pension and taxation arrangement.

911. Rule 1.1 defines "Retrenchment" to mean "a reduction of staff declared by the Employer" [Ansett] for the purposes of these Rules". The trustee went so far as to describe Rule 1.1 as constituting a declaration power. It was submitted, also, that the declaration power exists to enable the "Employer" to regulate the availability of Rule 1.13 "Retrenchment" benefits. The trustee emphasised that the declaration power becomes significant where redundancies are high and there is a potential for a shortfall thereby affecting the viability of the fund. The trustees submitted, further, that this analysis gave effect to the plain words of the Rules 1.1 and 1.13. The trustee submitted this was so because Rules 1.1 and 1.13 require the making of a declaration for the purposes of the Rules and because the employer is the party called upon to make the subject contributions. This approach was said to be consistent with the trust deed as a whole and, in particular, the powers of the employer under clause 2.[59] The consequences of termination, reduction or suspension of contributions under clause 20 and 21 and the default provision in Rule 1.12 were concerned with all types of cessation of employment.

914. Nevertheless, the trustee went so far as to suggest that the power conferred upon Ansett as the employer was not in the nature of a trust power but was in the nature of a mere power.[60] The administrators answered the point by asserting that the real question was whether Ansett, as the holder of a mere power is under any fiduciary obligation when exercising such power. The administrators relied upon Lock v Westpac Banking Corporation.[61]

917. The power conferred on the board of the Bank in Lock was the power to amend the provisions of a superannuation trust deed (with the consent of the trustee of the plan). The board exercised the power so as to insert provisions enabling the board, subject to certain conditions, to apply the surplus of the fund in certain ways, including the repayment to the Bank. Waddell CJ in Eq. held[62] that, on the construction of the trust deed, the power conferred upon the board was not fiduciary:

"Having regard to the provisions of the deed, and in particular to the fact that the scheme provides defined benefits, that the employees contribute fixed amounts and the Bank is obliged to make sufficient additional contributions to fund the designated benefits and to the circumstance that the provision of superannuation benefits is an incident of the relationship between the Bank and its employees, there seems to me to be no reason to conclude that in making any amendments the Bank was under a fiduciary duty not to act in its own interests. The deed deliberately qualifies the capacity of the Bank to make amendments pursuant to cl 35 by the restrictions imposed therein. Those restrictions recognise that, subject to the Bank complying with them, it is entitled to act in its own interests."

"In my opinion, the power of amendment is subject to an implied condition that it be exercised honestly and in good faith, but is not a fiduciary power."

923. The administrators submitted that the power is not fiduciary because it is intended that the employer should exercise it taking into account its own interests.

926. The administrators submitted that where the exercise of a power may have an impact upon the financial position of a party and the exercise of that power is then conferred on that party it must, except in unusual cases, have to have been intended that that party could properly take its own interests into account. If it can take its own interests into account, the power will not be fiduciary (or, if fiduciary, the duties would be confined so as to permit the party to take its interests into account). If it were otherwise a conflict between interest and fiduciary duty would inevitably and invariably arise whenever an occasion for a significant exercise of the power were to arise.

929. As the trustee observed, powers have been traditionally classified as powers simply collateral, powers in gross and powers appendant or appurtenant: see In re D'Angibau.[63] In Mettoy Pension Trustees Ltd v Evans,[64] Warner J[65] accepted a submission that the classification of powers in D'Angibau was of antiquarian interest only and adopted a classification of discretions into four categories. First, any power given to a person to determine the destination of trust property without that person being under any obligation to exercise the power or preserve it. The donee of such a power owes a duty to the beneficiaries under the trust not to misuse the power, but owes no duty to the objects of the power. This is category one. Second, any power conferred on the trustees of property or on any other person as trustee of the power itself - a fiduciary power in the full sense. A power in this category cannot be released; the donee of it owes a duty to the objects of the power to consider, as and when it may be appropriate, whether and if so how to exercise it; and he is to some extent subject to the control of the courts in relation to its exercise. This is category two. Third, any discretion which is really a duty to form a judgment as to the existence or otherwise of particular circumstances giving rise to particular consequences. This is category three. Fourth, discretionary trusts, being those cases where usually the trustee, is under a duty to select from among a class of beneficiaries those who are to receive and the proportion in which they are to receive, income or capital of the trust property. This is category four.

932. In Mettoy, the company held the power to appoint any surplus in its pension fund, which was vested in a separate trust company, in favour of its pensioners. In default of appointment, the surplus was payable to the company itself. On the company becoming insolvent, its liquidator sought to release this power of appointment so the surplus could be paid to the company for the benefit of the general creditors.

935. One of the questions for the Court to determine was whether the discretion given to the company fell within category one or two described by Warner J. The answer was: [66]

"... depends on whether the words by which that discretion is expressed to be conferred on the employer mean in effect no more than that the employer is free to make gifts out of property of which it is the absolute beneficial owner or whether those words import that the employer is under a duty to the objects of the discretion to consider whether and if so how the discretion ought to be exercised. That is a question of construction of the deed of 1983 in the light of the surrounding circumstances."

939. Having undertaken that analysis, Warner J held that the power given to the employer was a fiduciary power in the full sense (category two) His Honour stated:[67]

"I have come to the conclusion that the discretion conferred on the employer by the last paragraph of rule 13(5) of the 1983 rules is a fiduciary power in the full sense. The considerations that have led me to that conclusion are these. If that discretion is not such a fiduciary power it is, from the point of view of the beneficiaries under the scheme, illusory. As I have pointed out, the words conferring the power mean no more, on that construction of them, than that the employer is free to make gifts to those beneficiaries out of property of which it is the absolute beneficial owner, so that at best those words amount to what Hutchison J in El Awadi v Bank of Credit and Commercial International SA Ltd [1990] 1 QB 606, 617, called "a true but pointless assertion." The Courage Group case [1987] 1 WLR 495 illustrates one possible consequence of the discretion being of that nature. If the employer were acquired by a take-over raider (to use Millett J's expression in that case) there would be nothing whatever to prevent that raider from rendering itself entitled to the entire surplus. On the simple cesser of the employer's business at a time when the employer was solvent, the position would be governed (in 1983) by the principle of Parke v Daily News Ltd [1962] Ch 927 as modified by section 74 of the Companies Act 1980. The exercise of the discretion would accordingly in general require the approval of a resolution of the shareholders, and it is doubtful if such a resolution could approve its exercise in favour of beneficiaries other than employees or former employees, for instance their widows. If, as has happened in this case, the employer should become insolvent, the discretion would inevitably not be exercised, because it would become exercisable on behalf of the employer by someone, be he receiver or liquidator, whose duties to creditors required him to refrain from exercising it."

"If the discretion were in a will or in a private settlement in favour of beneficiaries who were volunteers, the conclusion that the person on whom it was conferred owed no duty to the objects of it would not be startling. However, in deciding between a construction of the deed of 1983 which would lead to a like conclusion and a construction of it leading to the conclusion that the employer did owe a duty to the objects of the discretion, one must in my view have regard to the fact that the beneficiaries under a pension scheme are not volunteers. As I pointed out earlier, their rights are derived from the contracts of employment of the members as well as from the trust instrument. Those rights have been earned by the service of the members under those contracts as well as by their contributions. I do not mean by that that, on some default by the trustees, a member would have an alternative right of action against the employer in contract for payment of the benefits due to him under the scheme. I mean only that, in construing the trust instrument, one must bear in mind as an important part of the background, the origin of the beneficiaries' rights under it."

"The considerations which in my view tip the scale in favour of construing the words in rule 13(5) of the 1983 rules conferring the discretion on the employer as imposing on the employer a duty to consider whether, and if so how, the discretion ought to be exercised are (briefly expressed) that otherwise they are from the point of view of the beneficiaries under the scheme illusory, particularly in the event of the employer becoming insolvent, and that the beneficiaries under the scheme are not volunteers." .[68]

947. The solution is found in Esso Australia Ltd v Australian Petroleum Agents & Distributors Association,[69] per Hayne J, where after referring to the classification of fiduciary discretions in Mettoy his Honour held:[70]

"Until the nature and extent of the discretion is identified, it is not possible to place it within one or other of the categories identified in the Mettoy case. Clearly it is impermissible to argue from the existence of these categories to any particular classification of a discretion without first identifying the nature and limits of that discretion."

951. In my view, the identification of the nature and limits of the discretion of the employer in Rule 1.1 is comparatively simple. The discussion over whether the power under Rule 1.1 is ultimately a discretionary power or whether it is a fiduciary power is capable of resolution by consideration and analysis of the function of Rule 1.1. The rule does not confer a discretion on the employer to determine, by formal declaration, whether members who have been retrenched are entitled to retrenchment benefits under Rule 1.13. Rule 1.1 ("Retrenchment") merely indicates the obvious, namely that a member whose service with the employer has ceased is entitled to retrenchment benefits if the employer clearly indicates to the trustee that the cause of cessation of service was staff reduction i.e. retrenchment of the member as a consequence of the redundancy of the member's position. The word "declared" does not contemplate, as a condition precedent to an entitlement to retrenchment benefits, the making, in the exercise of its discretion, of some sort of formal declaration by the employer. It does not contemplate that, if it is otherwise clear that a member has been retrenched, retrenchment benefits may be withheld as a consequence of the employer exercising a discretion not to make a declaration in terms of Rule 1.1. If the trustee is informed by the employer that a member has been retrenched, it can only be for the purposes of the rules.

954. The third defendant submitted that the net effect of the contentions put forward by the administrators is that, under the Plan but subject to the SIS Act, retrenchment benefits are payable to retrenched members at the absolute and uncontrolled discretion of the employer and that retrenchment benefits are in effect conferred as part of the bounty of the employer. The criticism is valid. On its plain meaning no discretion as urged by the administrators arises under the Rule. Furthermore, the position of the administrators is not supported by the Current Member Booklet ("Clouds") and its approach to retrenchment benefits.[71]

957. Strictly speaking, it might be unnecessary to consider conduct and surrounding circumstances in construing a trust deed, although Mettoy and Stevens suggest the contrary. However, here there was complete evidence of a modus operandi implemented by Ansett where a formal declaration was never made or required to be made. The administrators submitted that extraneous material, in particular plan booklets, which may be relevant to issues such as estoppel, cannot be relied upon when construing the trust deed itself.[72] It was submitted that booklets are "... merely the employer's or trustee's attempt to summarise the meaning and effect of the Scheme and its Rules ..."[73] "... being highly abbreviated and generalized précis of the rules are unlikely to be a precise and accurate reflection of those rules ..."[74] and ought not to be relied upon when to do so "... would amount to allowing the booklet rather than the deed to govern the scheme ...".[75] It seems to me that the submissions of the administrators with respect to extraneous material do not accord with the principles expressed by the English authorities, in particular the observations of Warner J in Mettoy Pension Trustees Limited v Evans.[76] It is repeated throughout the authorities that the approach of the court on construction should be practical and purposive. The general extraneous circumstances surrounding the operation of the trust deed by the trustees and the employer, Ansett, makes the position abundantly plain. The conduct of the employer at all times was a practice at an administrative level of treating persons as having been retrenched. This is borne out by the course of correspondence and the various documents produced by the trustees with respect to the operations of Ansett. It is supported, also, by the matters contained in the member booklets. The administrators urged caution in the application of the fourth principle listed by Arden LJ in Stevens & Ors v Bell & Ors.[77] Because of the principles stated by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of NSW[78] and Royal Botanic Gardens and Domain Trust v South Sydney City Council.[79] Nevertheless, the factual matrix of the relationship between Ansett and its employees with respect to the superannuation legislative regime, the trust deed, the roles of the trustee and the actuary, the funding and solvency certificates and the administrative role of Ansett in communicating the fact of terminations to the trustee cannot be ignored.

960. Furthermore, there was no evidence that new or continuing members of the Plan were ever informed by other means or at any other time that retrenchment benefits would only be payable at the sole and uncontrolled discretion of the employer. The first time the matter of discretion was raised occurred after the letter from the Fund Actuary to the directors of the trustee of the Plan dated 20 September 2001 and a letter from the Plaintiffs' solicitors to Messrs Thorn and Binetter dated 17 October 2001.

963. Applying the approach in Mettoy and Stevens to the trust deed, common sense dictates that where a member ceases to be in the employer's service prior to normal retirement date, it will be necessary, if the trustee is to arrange payment of a retrenchment benefit, for the trustee to be informed by the employer that the Member has been retrenched as a consequence of staff reduction. In this instance Rule 1.1 defines "Retrenchment" in terms of a reduction of staff declared by the employer for the purposes of the Rules. Ordinarily, "Redundancy" means that the employee is no longer required to perform his or her job because of changes in operational requirements, that is, the job is redundant. "Retrenchment" means termination by the employer of the employment of an employee as a result of redundancy and the employee is retrenched.[80] In accordance with the authorities, applying a practical and purposive approach, the word "declared" appearing in the definition means no more than "clearly indicated".

966. The third defendant postulated the question: can the employer refuse to "clearly indicate" whether an employee who ceases to be in the employer's service did so for reasons of staff reduction? The approach provides a useful test. Under clause 30(1) of the Deed the trustee is permitted to require the employer to provide relevant information upon receiving notice that a member has ceased service. The employer is not empowered to withhold the "clear indication" and thereby to effectively determine whether a retrenched member will or will not receive retrenchment benefits. Hence if a member ceases to be in the employ of the employer, the employer so informs the trustee. Further, at the same time, the employer indicates the circumstances of termination so that the trustee may arrange for appropriate payment to be made by the fund administrator. In effect, by informing the trustee that the member is retrenched, the employer declares for the purposes of Rule 1.1 ("Retrenchment"). On the other hand, if the employer fails to inform the trustee of the circumstances of termination, the trustee is entitled to require the employer to do so.

969. On close scrutiny, the position taken by the administrators suggests that retrenchment benefits are additional benefits payable on retrenchment as part of or pursuant to the bounty of the employer. Such approach does not accord with the manner in which modern superannuation schemes are viewed by the English authorities. Relevantly, Lord Browne-Wilkinson in a non-curial context has observed:

"By reason of their employment, the beneficiaries of a scheme (the members) give valuable consideration for the benefits they enjoy under the scheme. The consideration they give is of two kinds. In all cases (including non-contributory schemes) they are working on the terms of a contract of employment which treats the provision of pension rights as part of the pay which they receive for their services. In many schemes, employees are compelled to join the scheme. Second, in contributory schemes the members are bound to pay into the fund out of their salaries. Therefore, the concept of a settlor acting out of bounty, which underlies much of trust law, has no application. In my view, the most realistic analysis is that there is no settlor of a superannuation scheme. Both the employers and employees provide the trust fund in discharge of contractual obligations between them. Neither side is being generous. Even if this is not correct, it certainly cannot be said that the employer is the only settlor ..."[81]

973. Under the trust deed, there is no room for arbitrary decision-making by the employer in relation to the availability of retrenchment benefits. The Court's approach to the construction of a superannuation trust deed is properly required to be practical and purposive rather than detached and literal. The trust deed provisions should be construed to give reasonable and practical effect to the scheme. See Mettoy Pension Trustees Ltd v Evans;[82] In re Courage Group's Pension Schemes;[83] Lock v Westpac Banking Corporation;[84] Collins v AMP Superannuation Ltd.[85]

976. It follows, that in my view, the words of the trust deed are plain. In so far as it is necessary to express a view, the extraneous material and circumstances relating to the conduct of the plan by the trustees and the employer demonstrate a modus operandi to the effect that a member whose service with the employer has ceased due to redundancy was treated as entitled to the retrenchment benefit. In summary, therefore, no power is conferred upon the employer by Rule 1.1 ("Retrenchment") to give the relevant declaration. The administrators decided to reduce staff by effecting retrenchments, they acted on that decision and notified the trustee accordingly. It follows, further, that the administrators have discharged the obligation referred to in that they have clearly indicated that the members were retrenched as a consequence of their jobs becoming redundant.

979. As observed, already, the relationship between the trust deed and the superannuation legislative regime is one of interdependence. The legislation imposes a statutory framework. The trust deed, within that framework, provides the vehicle for the employer to comply with the legislative framework and, further, reap the benefits thereunder. The two instruments, that is, the superannuation legislative regime and the trust deed cannot be considered separately in the context of this proceeding. As observed already, their relationship is symbiotic.

982. Stepping back, then, to view the obligations arising under the trust deed and the superannuation legislative regime, the effect of the funding and solvency certificate must be considered. The effect of FSC 4 and FSC 5 was to require Ansett to pay superannuation contributions in the calculated amount for the total members retrenched. However, the effect of the certificates is a different issue as to when the obligation arising under the certificate was incurred. The calculation contained in the certificates was made by the actuary in accordance with the requirements of the SIS Regulations.

985. In order to calculate solvency the actuary must first deduct the interest of any former employee who has an, as yet unpaid, entitlement. A person ceases to be a member of the plan when employment is terminated. The calculation is made pursuant to the minimum benefit index. After the calculation is made there are then the remaining assets of the fund to be applied to current members of the plan. The remaining amount of assets is divided by the funded MRBs for current members thereby deriving the notional sum payable for current members. The actuary is required to determine solvency at the end of the certificate period. In this case, the actuary calculated an amount in both FSC 4 and FSC 5. In order to achieve solvency at the expiration of the certificate the relevant contributions must be paid by Ansett with respect to all retrenchments. To do otherwise would render the particular certificate ineffective. Hence, Ansett must be construed has having an obligation under the trust deed and the SIS Legislation to make a contribution to achieve solvency. The measure of the contribution will be the amount necessary to ensure that the retrenchment benefits under the plan are capable of payment.

988. The administrators made a number of submissions attacking FSC 4 and FSC 5, particularly the latter, and the approach of the actuary. I reject the criticism. First, as a party to the trust deed Ansett agreed to the superannuation legislation regime incorporated in the Plan. It may also be taken to have approved the obtaining of the funding and solvency certificate on the lapse of the existing certificate dated 29 May 2001 and thereby be taken to have agreed to the rates of the employer contributions in FSC 4 and FSC 5. Secondly, Ansett is obliged to pay contributions as prescribed by SIS Regulation 9.08. Thirdly, clause 4(4) of the trust deed requires that the employer, Ansett, contribute not less than as is required by the solvency prescription under the SIS Act. Fourthly, I accept the evidence of Mr Francis, the actuary, as to his method of calculation. There were alternative methods put to him which he rejected in evidence as impractical. Further, no expert evidence was called to contradict the evidence given by the actuary.

991. The third defendant made an alternative submission that the administrators are prevented by the doctrine of estoppel by convention from contending that they have not exercised the power so as to trigger Rule 1.13.[86] In light of my findings it is unnecessary to consider this point.

994. The trustee raised that in the event that Ansett is not under any obligation to make further contributions to the Plan whether other obligations or powers arise. In the circumstances, it is unnecessary for me to consider these matters.[87] The trustee made an alternative submission for an implied term in support of an obligation on the employer to make contributions. This is also unnecessary to consider.

1000. The trustee and the fourth defendant submitted that a further basis exists for saying that the employer is liable to make such contributions as will ensure that all defined benefits are paid to members of the Plan. The trustee and the representative defendants submitted that there was a contractual obligation imposed on Ansett to contribute an amount to the Plan that was sufficient to provide the benefits promised by the Plan including the retrenchment benefit under rule 1.13.

1003. The trustee and the representative defendants relied upon two factors to support the assertion of the contractual obligation imposed on Ansett. First, the standard terms and conditions of Ansett that required all Ansett employees to be a member of one of the Ansett superannuation plans. Second, promises made by Ansett in the applicable Plan member booklets from time to time. The fact of the mandatory requirement of membership and the promises contained in the member booklets was not in issue. However, the approach to and application of those factors was challenged by the administrators. I have no difficulty that there was a contractual obligation imposed on Ansett. The question is, however, when the liability arising thereunder was incurred. On proper analysis, the obligation fell upon the administrators arising from two separate sources. First, under the trust deed and the superannuation legislative regime. Secondly, under the contracts of employment of the employees. I accept that the obligation of Ansett arises under both the trust deed and the SIS Legislation and also as an additional or commensurate obligation under the contract of employment. The liability that arises under either obligation is provable in the winding up pursuant to s.553 of the Corporations Act. Indeed, the trustee submitted a proof of debt.

1006. I turn then to the priority, if any, to be allocated to the debt with respect to the shortfall.

PART VIII

Priority Under s.556 of the Corporations Act 2001

1012. In essence, the plaintiffs submitted that there was an obligation to make further contribution to the Fund because of the terms of the Trust Deed, the provisions of the SIS Act and the SIS Regulations and the correlative obligation under FSC 5 and, finally, the individual contracts of employment.

1015. These obligations having been established, it is necessary therefore to consider the applicable priority under s.556 of the Corporations Act. The section prescribes the order in which a relevant authority, in this case the administrators, must pay debts and claims of a company.

1018. The relevant parts of s.556(1) and (2) of the Corporations Act provide:

"(1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:

(a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business;

(dd) next any other expenses (except deferred expenses) properly incurred by a relevant authority;

(df) if a committee of inspection has been appointed for the purposes of the winding up - next, expenses incurred by a person as a member of the committee;

(e) subject to subsection (1A) - next, wages and superannuation contributions payable by the company in respect of services rendered to the company by employees before the relevant date;

(f) next, amounts due in respect of injury compensation, being compensation the liability for which arose before the relevant date;

(g) subject to subsection (1B) - next, all amounts due:

(iii) to, or in respect of, employees of the company; and

(h) subject to subsection (1C) - next, retrenchment payments payable to employees of the company.

company means a company that is being wound up.

deferred expenses, in relation to a company, means expenses properly incurred by a relevant authority, in so far as they consist of:

(a) remuneration, or fees for services, payable to the relevant authority; or

(b) expenses incurred by the relevant authority in respect of the supply of services to the relevant authority by:

(i) a partnership of which the relevant authority is a member; or

(iii) a member or employee of such a partnership; or

(c) expenses incurred by the relevant authority in respect of the supply to the relevant authority of services that it is reasonable to expect could have instead been supplied by:

(ii) a partnership of which the relevant authority is a member; or

employee, in relation to a company, means a person:

(a) who has been or is an employee of the company, whether remunerated by salary, wages, commission or otherwise; and

(b) whose employment by the company commenced before the relevant date.

excluded employee, in relation to a company, means;

(i) at any time during the period of 12 months ending on the relevant date; or

(i) at any time during the period of 12 months ending on the relevant date; or

or who is, the spouse of an employee of the kind referred to in paragraph (a); or

(c) an employee of the company who is a relative (other than a spouse) of an employee of the kind referred to in paragraph (a).

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

relevant authority, in relation to a company, means any of the following:

(a) in any case - a liquidator or provisional liquidator of the company;

(b) if the winding up began within 2 months after the end of the period of official management of the company - an official manager appointed for the purposes of the official management;

(c) in any case - an administrator of the company, even if the administration ended before the winding up began;

(d) in any case - an administrator of a deed of company arrangement executed by the company, even if the deed terminated before the winding up began.

retrenchment payment, in relation to an employee of a company, means an amount payable by the company to the employee, by virtue of an industrial instrument, in respect of the termination of the employee's employment by the company, whether the amount becomes payable before, on or after the relevant date.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Superannuation contribution, in relation to a company, means a contribution by the company to a fund for the purposes of making provision for, or obtaining, superannuation benefits for an employee of the company, or for dependents of such an employee."

1070. The relevant date for the purposes of this proceeding is 12 September 2001.

The Legislative Context of Section 556

1074. Section 556 falls within the winding up Part of the Corporations Act: Part 5.6 - Winding Up Generally. It falls, further, under the Division of that Part concerned with claims: Division 6 - Proof and Ranking of Claims. Specifically, s.556 falls under Sub-division D - Priorities.

1077. Section 555 provides that, save as otherwise provided in the Corporations Act, all debts and claims proved in the winding up rank equally. I address s.556(1) separately but, suffice to say, s.556 provides a cascading order of debts and claims allocated priority over all other unsecured claims.

1080. Section 553 falls within Sub-division A of Division 6 and is concerned with debts or claims that are provable in the winding up. Sub-sections (1) and (1A) of s.553 provide:

"553 Debts or claims that are provable in winding up

(1) Subject to this Division, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company.

(1A) Even though the circumstances giving rise to a debt payable by the company, or a claim against the company, occur on or after the relevant date, the debt or claim is admissible to proof against the company in the winding up if:

(a) the circumstances occur at a time when the company is under a deed of company arrangement; and

(b) the company is under the deed immediately before the resolution or court order that the company be wound up.

This subsection has effect subject to the other sections in this Division."

1087. Section 9 defines "relevant date" as:

"relevant date, in relation to a winding up, means the day on which the winding up is taken because of Division 1A of Part 5.6 to have begun".

1091. Section 558 deals specifically with debts due to employees. It also deals with retrenchments. The section provides:

(1) Where a contract of employment with a company being wound up was subsisting immediately before the relevant date, the employee under the contract is, whether or not he or she is a person referred to in subsection (2), entitled to payment under section 556 as if his or her services with the company had been terminated by the company on the relevant date.

(2) Where, for the purposes of the winding up of a company, a liquidator employs a person whose services with the company had been terminated by reason of the winding up, that person is, for the purpose of calculating any entitlement to payment for leave of absence, or any entitlement to a retrenchment amount in respect of employment, taken, while the liquidator employs him or her for those purposes, to be employed by the company.

(3) Subject to subsection (4), where, after the relevant date, an amount in respect of long service leave or extended leave, or a retrenchment amount, becomes payable to a person referred to in subsection (2) in respect of the employment so referred to, the amount is a cost of the winding up.

(4) Where, at the relevant date, the length of qualifying service of a person employed by a company that is being wound up is insufficient to entitle him or her to any amount in respect of long service leave or extended leave, or to any retrenchment amount in respect of employment by the company, but, by the operation of subsection (2) he or she becomes entitled to such an amount after that date, that amount:

(a) is a cost of the winding up to the extent of an amount that bears to that amount the same proportion as the length of his or her qualifying service after that relevant date bears to the total length of his or her qualifying service; and

(b) is, to the extent of the balance of that amount, taken, for the purposes of section 556, to be an amount referred to in paragraph 556(1)(g), or a retrenchment payment payable to the person, as the case may be.

(5) In this section, retrenchment amount, in relation to employment of a person, means an amount payable to the person, by virtue of an industrial instrument, in respect of termination of the employment."

1098. Section 560 is concerned with priority payments in respect of employees and refers, specifically, to superannuation contributions. It provides:

"560 Advances for company to make priority payments in respect of employees

Where a payment has been made by a company on account of wages or of superannuation contributions (within the meaning of section 556), or in respect of leave of absence, or termination of employment, under an industrial instrument, being a payment made out of money advanced by a person for the purpose of making the payment, the person by whom the money was advanced has, in the winding up of the company, the same right of priority of payment in respect of the money so advanced and paid, but not exceeding the amount by which the sum in respect of which the person who received the payment would have been entitled to priority in the winding up has been diminished by reason of the payment, as the person who received the payment would have had if the payment had not been made."

The History of Section 556

1104. Section 556 is concerned with provable debts and claims and the allocation of priority. The Act also allocates priority to costs, charges and expenses with respect to a voluntary winding up[88] and a court ordered winding up.[89] However, s.556 requires the subject debt to be provable whereas the other provisions in the Act do not.[90] Historically, under English company legislation the expenses of a liquidation were not allocated priority but nevertheless were treated differently. There was a requirement of the retention of a sufficient sum to pay the costs and expenses of the winding up. The requirement was a condition of discharging the priority debts of the company.[91]

1107. Section 275 of the Companies Act 1961 (Vic) allocated the highest priority to the proper costs, charges and expenses of and incidental to the winding up. Section 292 of that Act fixed priorities in the following order:

(1) costs and expenses of the winding up

(2) all wages or salaries including special contractual or award amounts up to £300

(3) all workers' compensation entitlements

(4) annual and long service leave entitlements

(5) rates and taxes.

Of these priorities, (2) to (5) inclusive were required to have accrued before the winding up.

1113. Under s.414 of the Companies (Vic) Code provided:

"All proper costs, charges and expenses of and incidental to the winding up (including the remuneration of the liquidator) are payable out of the property of the company in priority to all other claims."

1117. Pursuant to s.441 of the Code the priority of debts to be paid were clarified in the following order:

(1) costs, charges and expenses of the winding up

(2) the cost of any provision liquidation

(3) and (4) costs, charges and expenses of any official management

(5) wages

(6) injury compensation payments

(7) wages, employee remuneration and leave entitlements

(8) rates and taxes

(9) statutory obligations of the company.

Of these priorities, (5) to (9) were required to have accrued before the relevant date, that is, the winding up.

1123. Section 512 of the Corporations Law in its original form was identical to s.414 of the Companies Code. Section 556 of the Corporations Law was cast in terms very similar to the existing s.556 in the Corporations Act save for certain differences. First, s.512 of the Law dealt specifically with the cost of the winding up and allocated the highest priority. Such treatment was removed in the Corporations Act and the highest priority was allocated in s.556(1). Secondly, there was no provision in the Law for separate treatment of "deferred expenses" as provided in s.556(1) and (2) of the Act. Thirdly, there was no provision in the Law for specific allocation of priority to expenses incurred "in preserving, realising or getting any of the property of the company, or in carrying on the company's business" whereas such provision is set out in s.556(1)(a). Fourthly, there was no separate provision with respect to superannuation contributions or retrenchment payments payable to employees such as s.556(1)(e) of the Act.

1126. In England the statutory regime has been somewhat different in that rules have distinguished between various types of costs, charges and expenses.[92]

1129. Section 556 was introduced by the Corporate Law Reform Bill 1992 following the recommendations by the Australian Law Reform Commission in its General Insolvency Inquiry Report No. 45, 1988 known as the Harmer Report ("the Harmer Report").[93]

1132. The Harmer Report[94] considered the rationale for the priority of the costs and expenses of the winding up. Earlier, the Committee had recommended[95] that the various components be ranked as follows:

"1. fees (other than remuneration) and expenses incurred by a liquidator, interim liquidator or administrator in protecting or realising assets or carrying on the business of the company;

3. costs of the report as to the company's affairs (companies legislation s 375);

4. costs of an audit of the liquidator's accounts (companies legislation s 422);

5. other necessary disbursements and the remuneration of the liquidator, interim liquidator or administrator; and

6. out-of-pocket expenses of the committee of inspection."

1141. The same ranking was recommended in the final report.[96] The recommendations gave rise to the provisions of the Corporate Law Reform Bill 1992, that were enacted and came into operation on 23 June 1993. The bill enacted s. 556(1) in its present form. The Explanatory Memorandum to the bill stated: [97]

"908. Proposed paragraph 556(1)(a) accords first priority to the expenses properly incurred by the `relevant authority' (to be defined in subsection 556(2) as amended by paragraph 96(b) to mean a liquidator, a provisional liquidator, an official manager, an administrator of a company or an administrator of a deed of company arrangement in preserving, realising or getting in the assets of the company or in carrying on the business of the company. Excluded from the priority to be accorded by paragraph (1)(a) will, however be `deferred expenses' (to be defined in subsection 556(2), as amended by paragraph 96(b) to mean remuneration or fees for service payable to the `relevant authority'; expenses incurred by the relevant authority for the services of his or her partnership, employees or partners; and expenses incurred by the relevant authority that it is reasonable to expect that relevant authority or his or her partnership, employee or partner could have instead supplied). The effect of the exclusion will be to exclude remuneration payable directly and indirectly to a liquidator, provisional liquidator, official manager, administrator of a company or administrator of a deed of company arrangement, including the professional fees of their partners and the salary or other costs incurred by them in paying their employees or the employees of `service' companies or other entities that may be interposed between them and the company that is being wound up.

909. However, the term `expenses' is otherwise intended to have a wide meaning, to include all payments properly made by the liquidator, provisional liquidator, official manager, administrator of a company or administrator of a deed of company arrangement including the payment of the fees of persons such as solicitors, real estate agents and stocktaking agents who are independent of the liquidator, provisional liquidator, official manager, administrator of a company or administrator of a deed of company arrangement and who are engaged by them for the purposes of preserving, realising or getting in the assets of the company or carrying on the business of the company."

1146. Essentially, the Harmer Report recommended that the expenses of the winding up should be divided into various classes and that they should be paid in order of specified priority. The order included expenses incurred in "protecting or realising assets or in carrying on the business of the company" (as now reflected in paragraph (a) of s.556(1)) and necessary disbursements of the liquidator (other than expenses otherwise dealt with) as reflected in paragraph (dd) of s.556(1). It seems that the paragraphs (a) and (dd) reflect the English provisions in wording and in their content.

1149. The rationale underlying the allocation of priority to the expenses of the winding up was explained in the Harmer Report as being based on the principles set out in In re Universal Distributing Company Limited.[98] In considering a debenture charge over the assets of an insolvent company Dixon J held[99] that the debenture charge was "paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realisation of the fund affected by the security must be borne by it." Dixon J, further, in Universal, held that only part of the costs of the liquidation should be thrown on the proceeds of realisation of the assets subject to the creditor's security. The rationale underlying the reasoning was that some of the general costs of the liquidation could not be said to have been incurred in creating the fund of money from which the creditor was entitled to be paid. Hence, a narrow view was taken of the types of expense that came within the principles.

1152. In any event, there does not appear to be any indication in the history of the Australian legislation, the Harmer Report, the explanatory memorandum or the actual section itself to suggest that the classes of expense covered in paragraphs (a) and (dd) of s.556(1) are wider than those covered by the English legislation. It seems clear that the equivalent English provisions apply to after incurred, that is, non-provable, claims, leaving aside the contingent liability principle lying in In re Lundy Granite Co.[100] All these matters are addressed in the judgment of Lord Hoffmann in In re Toshoku Finance UK plc.[101] I will return to the speech of Lord Hoffmann shortly.

1155. An important aspect of the Harmer Report was the consideration of the treatment of employees. In Construction Industry Long Service Leave Board v Irving[102] the Full Court of the Federal Court considered whether a claim should be admitted to proof as a priority creditor under s.556(1)(g) of the Corporations Law. In the course of the judgment of the court, consideration was given to the policy underlying the treatment of entitlements due to employees. The court observed:[103]

"In construing s556(1)(g) of the Corporations Law, it should be borne in mind that insolvency legislation commonly accords special treatment to entitlements to employees. The rationale for that special treatment is important. The Australian Law Reform Commission, Report on General Insolvency Inquiry (AGPS 1988, Report No 45) (the Harmer Report) observed (vol 1, para 721) that the: `... reason generally put forward to support the priority given to debts due to employees is that they are in a particularly vulnerable position if their employer becomes bankrupt or is wound up. The priority was first introduced into insolvency legislation for social welfare reasons `to ease the financial hardship caused to a relatively poor and defenceless section of the community by the insolvency of their employer'. (Footnote omitted.) The Harmer Report expressed the view that the rationale for employee priority had been significantly diminished by the development of a `sophisticated social welfare system' (para 722). Moreover, the priority has the effect of depriving other unsecured creditors, including some who may be as vulnerable as employees, of their claim to a share of available assets. The ALRC thought that the interests of employees could best be protected by the creation of a wage-earner protection fund, but in the end accepted that there was strong support for the retention of `the existing priority accorded to employees' (para 727)."

1159. Further, the Full Court of the Federal Court concluded as to the policy aspects of s.556(1) in relation to employees' entitlements:[104]

"In our view, the conclusion we have reached is consistent with the policy underlying the priority provisions of the Corporations Law. Section 556(1)(g) forms part of a group of provisions designed to protect individual employees, or their dependants, by according priority to their entitlement. Subparagraph (e) of s556(1) covers wages and superannuation contributions payable by the company; subpara (f) covers injury compensation; and subpara (h) covers retrenchment payments."

1163. All these matters provide the setting and background to s.556 in its present form.

The Construction of Section 556(1) of the Corporations Act

1167. A starting position is to assess the purpose and meaning of the various relevant categories of priorities. Some general observations are called for. Broadly, the matters in paragraphs (a) to (df) of s.556(1) are concerned with post winding up expenses or expenses that occurred immediately before. Paragraphs (e) to (h) are concerned with pre liquidation expenses and are entirely devoted to employee matters and entitlements. Section 556 accommodates expenses that may be incurred in a variety of ways as reflected in the definition of "relevant authority" in s.556(2) and "relevant date" in s.9 of the Corporations Act. The guiding principle in relation to the issue of priority is that s.556(1) of the Corporations Act envisages and provides that all employee entitlements shall be the subject of some priority.

1170. Superannuation contributions constitute an indirect form of employee entitlement but have been equated with wages. Thus in the Explanatory Memorandum to the Corporate Law Reform Bill 1992, the Commonwealth Attorney-General, when referring to the addition of a reference to superannuation contributions to s.556(1)(e), observed:

"920. The effect of the amendment to current paragraph 556(1)(e) is to make it clear that superannuation contributions are given the same priority as wages for the purposes of priority payments under section 556. Thus, where an employee has foregone wage increases in exchange for enhanced superannuation contributions by his or her employer, the employee will not be disadvantaged in a winding up."[105]

1174. Hence, in 1992, s.556(1)(e) was amended by the addition of the words "and superannuation contributions" between the word "wages" and the expression "payable by the company". Superannuation contributions and wages are treated in precisely the same manner under s.556(1). Thus if superannuation contributions are payable in respect of services rendered before the relevant date, s.556(1)(e) applies. "Superannuation contribution" is defined in s.556(2) of the Act. Leave of absence payments due on or before the relevant date are payable as a priority under s.556(1)(g). Again, leave of absence payments due after the relevant date are payable as a priority under s.556(1)(g). "Leave of absence" is defined in s.9 of the Act.

1177. "Retrenchment payments" also constitute a priority under s.556(1)(h). "Retrenchment payments" are defined in s.556(2) in terms that do not appear to draw a distinction as to whether such payments become payable before, on or after the relevant date. The explanation may lie in the expectation of the draftsperson that the payments arise as a result of termination of employees as a direct incident of the winding up of the company. So much seems to be reflected by the treatment of debts to employees in s.558. Indeed, under the common law the publication of a winding up order operates as notice of dismissal to all the company's employees.[106]

1180. If, for the purposes of the winding up of the company, the liquidator employs a person whose services with the company were terminated by reason of the winding up, that person shall be deemed, for the purposes of leave entitlements and retrenchment payments to be employed by the company: see s.558 (2). Where, after the relevant date, an amount in respect of long service leave or extended leave, a retrenchment amount becomes payable in respect of a continuing employee, the amount is a cost in the winding up: see ss.558(3) and 561(b).

1183. To some extent the operation of s.556(1), which is expressed to apply "in a winding up of a company", is affected and explained by provisions such as s.558 and, to a lesser extent by s.561 of the Act.[107]

1186. Turning to the matter of priority, the trustee and the representative parties submitted that the superannuation obligations of Ansett constituted an expense properly incurred by Ansett and, therefore, qualified as a first expense under s.556(1)(a).[108] If accepted, the effect would be that the superannuation entitlements of the retrenched Ansett employees would attract the highest order of priority, over and above that of other creditors. In the alternative, it was submitted for the trustee and the representative parties that the superannuation entitlements of the retrenched employees attracted priority as an "other expense" under s.556(1)(dd). Alternatively, they submitted that if there was a shortfall it fell under s.556(1)(e) in terms of priority.

1189. The essential question for determination was whether the obligation alleged, pursuant to the FSC 5 and clause 4(4) of the trust deed to make the further contributions required by FSC 5 or the terms of the trust deed or the individual employment contracts, to make such further contributions as are required to fully fund all benefits, is an "expense properly incurred by [the administrators] in ... carrying on the company's business" or otherwise.

1192. As to whether an expense is "properly incurred", in HIH Insurance Limited (in Liq) & Ors,[110] Santow J stated:

"It seems clear enough that the expressions "properly incurred" in s 556(1)(a) and (dd), Corporations Act 2001 is interpreted broadly: cf Price v Price [1904] VicLawRp 99; (1904) 29 VLR 719; 25 ALT 215; 10 ALR 86; Re Just Juice; James v Commonwealth Bank [1992] FCA 420; (1992) 37 FCR 445; 109 ALR 334; 8 ACSR 444. Nevertheless, these provisions must be viewed in the context of the functions and duties of a liquidator. Those duties are primarily to realise and get in the assets of a company as soon as is practicable (see s.478, Corporations Act 2001 (Cth)) and to distribute it to the persons entitled."

1196. The role of the administrator is significant. Division D3 of Part 5.3A of the Corporations Act is concerned with the administration of a company and, in particular, the functions of the administrator. Section 437A of the Act empowers the administrator to control and carry on the company's business, property and affairs and among other matters to perform any function or power that the company could perform if not for the administration.[111] In so doing, pursuant to s.437B, the administrator is taken to be acting as the company's agent. Section 437D provides that only the administrator may deal with the property of the company.

1199. In the performance of the functions of an administrator the expression "properly incurred" has been the subject of judicial scrutiny. In HIH Insurance Limited, Santow J was concerned with the issue of whether expenses by the liquidator in co-operating with the Royal Commission appointed to investigate the collapse of the subject company was an expense "properly incurred" for the purposes of s.556(1). His Honour found it was and, in so doing, placed weight on the public interest that lies in the proper investigation of possible civil or criminal proceedings arising out of the insolvency of corporations. Santow J held[112] that to the extent that the expenditure of the liquidators in relation to the subject Royal Commission was consistent with such objective, the expense was properly incurred. Whilst in the course of his reasons his Honour expressed the view that the expression "properly incurred" ought be interpreted broadly, the method or approach of interpretation was not analysed. In Price v Price,[113] Holroyd J considered whether the costs of settling the remuneration of a receiver was a cost "properly incurred". It was held that on a review of taxation the receiver was not restricted to party and party costs but was entitled to all costs properly incurred. In perfunctory reasons, Holroyd J considered there was not "any reason whatever" why the receiver was not entitled to all costs properly incurred. His Honour considered that the costs that the receiver incurred in "maintaining his title to that which has been judicially held to be due to him" fell within the expression "costs properly incurred".[114]

1202. In Re Just Juice Corporation Pty Ltd (receivers and managers appointed),[115] Gummow J considered, among other matters, whether debts incurred by a receiver were incurred as the result of improper conduct of the receivership and, therefore, not properly incurred in the course of the receivership. After referring to the duties, obligations and standards of conduct of a receiver as explained by Picarda,[116] O'Donovan[117] and Blanchard[118] his Honour held:[119]

"I accept the submission by counsel for ABN that the determination of whether a debt was properly incurred by the receiver in the course of the receivership involves an examination of the duties imposed upon him by virtue of his acceptance of the office of receiver. Accordingly, the inquiry as to whether a debt was properly incurred within the meaning of cl 1 of the ABN Indemnity is not necessarily restricted to an examination, in isolation or as between the receiver and the trade creditor, of the transaction which created the liability for which the receiver seeks recoupment under a contract of indemnity with the secured creditor which appointed him as receiver. In particular, the receiver, in exercising the powers given him by his appointment was obliged to meet certain standards of conduct. I have referred to the position at general law. As I have indicated, if the Debts were incurred in consequence of negligence default or breach of duty in improper performance of the applicant's duties as receiver, the Debts would not attract an obligation to indemnify the applicant. The Debts would not have been properly incurred. Do the express terms of the ABN Indemnity produce a different result by use of the term `properly incurred' in a particular context? Some assistance, by way of analogy, is provided by the rule that a trustee is entitled to reimbursement for moneys paid for expenses `properly incurred' in the execution of the trust. The phrase `properly incurred' has been construed as meaning `reasonably as well as honestly incurred' (Re Beddoe [1893] 1 Ch 547 at 562) and the inquiry may extend to an examination of the general performance by the trustee of the `duty to execute the trust with reasonable diligence and care': RWG Management Ltd v Commr for Corporate Affairs [1985] VR 348 at 396."

1206. The approach to be drawn from Just Juice is that in determining that an expense has been "properly incurred" the duties imposed upon the subject individuals should be examined. A similar approach appears to be reflected in the earlier authorities cited by Gummow J in Just Juice.[120]

1209. The administrators submitted that the rationale of s.556(1)(a) and (dd) is to give priority to expenses incurred by the relevant authority which are a necessary incident of the process of undertaking the administrators' functions. The proposition is supported by Just Juice.[121] The administrators submitted that the position in relation to certain types of expenses has always been clear. It was said that these expenses are "incurred" in the ordinary sense by the liquidator in the course of the winding up. Reliance was placed in support of the proposition upon the cases where liquidators incurred litigation expenses.[122] In Deputy Commissioner of Taxation v Tideturn Pty Ltd,[123] Santow J held that the failure by the subject company to remit group tax deductions gave rise to a post-liquidation debt payable, but not provable, in the liquidation as a priority payment under s.556(1)(a). His Honour held that such post-liquidation debt was an expense properly incurred by the liquidator in carrying on the company's business. Santow J held that the group tax deduction was an amount that the subject company was required to deduct and remit to the Commissioner from employees' salaries and wages who were employed in the course of carrying on the business.[124] The facts in Tideturn were that the liquidator permitted the company to trade on but eventually there were insufficient funds to pay the company's debts. During the trading on period wages were paid to employees but no group tax deductions were remitted to the Deputy Commission. In the circumstances Santow J held that the group tax deductions was an expense properly incurred in carrying on the company's business. The observation can be made that in Tideturn the liquidator appeared to require the employees of the company to work on for the purposes of enabling the company to trade and thereby incurred the group tax deductions. By contrast, in the present case, when the administrators resolved to continue the business of the airline it was a different business in terms of scale and services from that which operated before 12 September 2001. Furthermore, the retrenchment of employees did not form part of the continuation of the business of Ansett.

1212. The expression "incurred" has been given an extended meaning in relation to liabilities in connection with obligations arising under contracts which pre-dated the relevant date. That extended meaning may be summarised as embracing liabilities which are incurred by reason of obligations retained for the benefit of the company. A discussion of such obligations is found in In re Toshoku Finance UK plc.[125] There Lord Hoffmann traced the origins of what had been described in earlier authorities as a discretionary liquidation expense principle. In rejecting the proposition that the principle conferred on courts a discretion to allow as expenses those costs which are not in fact expenses, his Lordship said that the principle was merely one by which the court interpreted what are the expenses on the facts of a given case:

"The court will of course interpret [the rule defining post liquidation expenses] to include debts which, under the Lundy Granite Co principle, are deemed to be expenses of the liquidation. Ordinarily this means that debts such as rent under a lease will be treated as coming within [the general paragraph applicable to expenses for `preserving, realising or getting in' assets], but the principle may possibly enlarge the scope of other paragraphs as well. But the administration of the company or the winding up. The principle is one of general application and is not confined to particular types of contract."[126]

1216. It was acknowledged by the administrators that a difficult area arises where liabilities occur during winding-up that relate to activities involving the liquidator but which also relate to obligations undertaken by the company prior to winding up.

1219. The High Court has held that in giving priority with respect to expenses of the collecting of assets of the company for the distribution the legislation applied the principle that persons entitled to share in the distribution of a fund should take subject to the costs of establishing the funds by way of collecting, preserving and realising those assets.[127] The courts have treated costs in employing staff, including group deductions[128] and costs in obtaining goods and services[129] incurred to carry on the business of a company pending realisation as a first priority expense.

1222. It has also been held and considered that the expression "expenses" should be given a wide meaning.[130]

1225. In McPherson, The Law of Company Liquidation[131] it is observed:

"The term `expenses' is clearly not ... a term of art, but one that has been said to cover any expenses that the liquidator (or other relevant authority) might be compelled to pay in respect of preserving, realising or getting in of property of the company. Thus, it includes the costs of recovery, preservation and realisation of the assets, such as solicitors' and real estate agents' costs, costs awarded against the liquidator in proceedings brought, continued or defended by her or him, whether in compulsory or voluntary winding up, irrespective of the form in which the order is made - whether it be an order for payment of costs simpliciter or for costs out of the assets or for costs to be paid by the liquidator personally with liberty to retain the amount out of assets coming into the hands of the liquidator. It also embraces all manner of debts and liabilities incurred in the winding up in carrying on the business of the company, such as salaries and wages of employees, rent and rates payable on premises occupied by the company and even liability to taxation on profits earned during this period. On occasion, it may be necessary to apportion liabilities between liquidation and pre-liquidation periods for the purpose of determining what expenses of winding up are entitled to priority."

1229. Indeed, the Explanatory Memorandum relating to the sub-s.(1) of s.556 stated that "expenses" is intended to have a wide meaning.[132] The Harmer Report that preceded the legislation declared that the reason for according first priority to the expenses incurred after the appointment of an administrator or liquidator is that " ... the creditors have a community of interest in having a common agent maximise a fund for distribution among them."[133] However, whilst "expenses" will be given a wide meaning it must fall within the confines of the statute and have sufficient nexus with the preservation, realisation or gathering of property or the carrying on of the company's business as the case may be.

1232. The trustee and the representative defendants pressed that paragraph (a) of s.556(1) encompassed superannuation contributions where, as asserted in this case the contributions were made or required in order to or, as a consequence of, carrying on the business of the company. If the proposition is correct it would remain curious that wages and superannuation contributions were specifically covered and allocated at a lower order of priority under paragraph (e). If the argument was valid it would involve the re-characterisation of superannuation contributions into something inherently different, namely, an expense incurred in the carrying on of business. As an approach to statutory interpretation, the parliament may be assumed to have comprehended that superannuation contributions required specific priority under s.556(1). At the time that superannuation contributions were inserted in paragraph (e) the parliament could have elevated superannuation contributions to a higher priority perhaps by specific insertion in paragraph (a). It did not in that paragraph. Furthermore, it was open to the parliament to not include superannuation contributions in paragraph (e) at all rather to treat such expense, at least in part, as one encompassed by paragraph (a) in the event. It did not. The parliament specifically determined to include superannuation contributions in paragraph (e) and to confine the priority to obligations incurred before the relevant date. The words of the paragraph are clear and the meaning is plain. The priority of superannuation contributions must fall under paragraph (e) or not at all and not paragraph (a). Indeed, this is borne out by the views of the Harmer Report as to the social policy underlying the priority allocated to employees' entitlements.[134] The Harmer Report provided part of the foundation for the regime of priorities set out in s.556(1), including the treatment of superannuation. The parliament, for whatever reason, did not include superannuation obligations incurred after the relevant date.

1235. The approach of the trustee and the representative defendants seemed to be that there is no sound basis why an item could not fall under more than one of the priority levels. In my view such an approach to the statute would obviate the fundamental purpose of s.556(1). It is intended to prioritise debts and claims in a particular order.

1238. It was suggested for the third defendant that paragraphs (a) and (e) are distinguished and serve separate purposes. It was argued that paragraph (e) necessarily draws a distinction between superannuation contributions payable by the company in respect of services rendered to the company by employees before the relevant date and superannuation contributions payable by the company in respect of service rendered to the company after the relevant date. It was said it would be difficult to accept that the parliament would allocate priority (under paragraph (e)) to the former, the before context, and ignore the latter, the after context. Hence, it was submitted if it were thus, the court would inevitably face the difficulty of differentiating between the two categories. The argument suggested that the only plain meaning must be different treatment in terms of priority between the before and the after. I reject the analysis. It reads meaning into s.556(1) that is not there and invites the court to rewrite the sub-section.

1241. The trustee and to some extent, the representative defendants, submitted that in the present case, none of the Category 3 contributions payable by Ansett pursuant to FSC4 and FSC5 is payable in respect of the period leading up to the relevant date. It was submitted that all contributions for the period leading up to the relevant date have been paid. Rather, it was said that the outstanding Category 3 contributions are payable in respect of a period commencing after the relevant date and accordingly fall within s.556(1)(a) or (dd). Reliance was placed on the fact that the administrators admitted in October 2001 that the obligation to pay the contributions is an "expense" within section 556(1)(a) and (dd) and that they treated the obligation as such. I cannot be satisfied that the administrators made the admission asserted against them. Even if they did the admission was not made on an informed basis as to the legal position. Moreso, the admission is not relevant to determining the legal point. It is a question of law as to whether or not the shortfall constituted an expense within the meaning of s.556(1)(a) or, for that matter, under sub-paragraph (dd).

1244. The administrators and the ACTU described the Category 3 superannuation contribution obligations as constituting a result or outcome of terminating employees who were members of the fund rather than as an expense incurred in carrying on the company's business. Furthermore, they submitted that the shortfall constituted at best an obligation incurred in winding down the business of Ansett. It was submitted by the third defendant that Category 3 contributions, as with the nine per cent contributions, are superannuation contributions within s.556(2) of the Act and are thereby payable in respect of a superannuation plan conducted for the benefit of continuing members. However, the definition of "superannuation contribution" in s.556(2) makes no reference to a superannuation plan or scheme conducted for the benefit of continuing members. Furthermore, sub-s.(2) of s.556 refers to " ... superannuation benefits for an employee of the company ... ". The sub-section also defines "employee" as meaning a person "who has been or is an employee of the company" and a person "whose employment by the company commenced before the relevant date". On one view, therefore, it might be said that the definition of "superannuation contribution" contemplates continuing superannuation obligations for employees who remain an employee of the company, that is, after the relevant date. However, if such construction was correct it again throws up a hiatus as to why the parliament drew a distinction between superannuation contributions in respect of services rendered before the relevant date (paragraph (e)) and remains silent as to superannuation contributions payable after the relevant date. Moreso, paragraph (e) confines superannuation contributions to circumstances where they are payable by the company in respect of services rendered before the relevant date. Paragraph (e) does not admit of any suggestion or nuance of continuation.

1247. It was also submitted that the shortfall qualifies as an expense under s.556(1)(a) because it arose from an obligation that the administrators kept for the benefit of the administration by virtue of continuing the business of the airline including continuing employing members and by continuing the plan itself. It was on that basis that the administrators embarked on the retrenchment programme. It was said that the fundamental distinction lies in the facts of the continuation of the business, the employment of members and the continuation of the plan. The third defendant, in particular, relied upon four events that demonstrated the connection between these facts. First, the commencement of flying operations through Kick-Start in order to revive the airline business of the company. Secondly, the maintenance of the business of the company with a view to attracting a buyer. Thirdly, the maintenance of the business as a going concern pending the completion of the contract of sale involving TESNA on and after 8 November 2001. Fourthly, upon the collapse of the TESNA transaction on 26 February 2002 the orderly cessation of flying operations by the administrators in order to maintain the assets of the company with a view to realisation and, also, the termination of all staff not required to facilitate realisation. The third defendant submitted that the expense incurred for the superannuation contribution by virtue of FSC 4 and FSC 5 fell within the meaning of "incurred" in the facilitative sense.

1250. Consideration is warranted of the conduct of the administrators on and post the relevant date, 12 September 2001.

1253. They continued the standing down of staff and then resolved to pursue a very different business. It was scaled down massively but remained an airline. The airline went from one flying hundreds of flights to an extensive range of destinations across Australia and thereby employing thousands of staff to a core operation flying approximately ten planes to a handful of destinations and employing vastly reduced employees. It was analogous to where an insolvent manufacturing company ceases to manufacture most of its production lines and confines production to core, saleable items. Kick-Start was not an entirely new business. It was a dramatically reduced, streamlined continuation of the business of Ansett but was an inherently different business in service, size and scale. Kick-Start was launched to facilitate a sale of Ansett and that was achieved through the TESNA transaction. The continuation of the business of the airline thereafter was no more than a contractual obligation. When TESNA fell through the conduct of the administrators by way of terminating all unnecessary staff was not part of the maintenance of the assets of the company. It was a consequence of the final collapse of the airline business. It would be artificial to regard otherwise the terminations effected after the TESNA transaction failed. But the fundamental fact remains that when the administrators launched Kick-Start, the terminations that followed were not part of Kick-Start. Rather, the terminations were a consequence of the company going into administration on 12 September 2001. It would be artificial to construe these terminations differently.

1256. I turn to the question of the contractual obligations to pay superannuation contributions. On proper analysis the contractual obligation was incurred prior to the relevant date. It does not fall, therefore, within paragraph (e) of s.556(1). For the reasons already expressed, there is no provision in s.556(1) with respect to superannuation contributions incurred after the relevant date. Such obligation as it arises can only fall within paragraph (dd).

1259. To summarise, thus far, there is no legislative command in s.556(1) to indicate that superannuation contribution obligations incurred after the relevant date fall within the sub-section. The court cannot read into a statutory provision words that are not drafted in the provision. To accept the submissions on construction of the trustee and the representative defendants would involve an effective re-drafting of the provision. In my view, this approach is not open because of the underlying history of the priority provision now enshrined in sub-s.(1) of s.556. In particular, the parliament having the benefit of the Harmer Report resolved to limit the ambit of the priority conferred on superannuation contributions as contained in paragraph (e) of s.556(1).

1262. In any event, in my view, the evidence does not bear out a finding that the actions of the administrators in terminating employees after 12 September 2001 constituted an expense properly incurred in "preserving, realising or getting in" the property of Ansett or in carrying on the business of Ansett.

1265. The questions of the trustee are largely capable of determination, therefore, upon the construction of s.556(1) and, also, the determination of the facts relating to the conduct of the administrators from the relevant date onwards.

1268. Much argument during the trial revolved around the topic of "expenses" in the winding up and the relevant authorities. I turn to consider the analysis of the cases.

1272. In order to demonstrate their position, the administrators relied upon three groups of cases. First, the rent cases being cases where liability for rent arose after winding up but under a lease entered into before winding up. Secondly, the approach of the courts to other types of liabilities arising during administration or winding up under an obligation incurred before administration or winding up, in particular, the approach of the High Court in K.D. Morris & Sons Pty Ltd v Bank of Queensland.[135] Thirdly, the cases concerned with contingent obligations.

1276. The administrators took me at length to the rent cases. These cases all address liability for rent arising after winding up pursuant to a lease entered into by the company prior to winding up.[136] I consider them in some detail as they also arise in more recent authority. At the outset, however, it is desirable to visit the important authority of In re Lundy Granite Co.[137] The case was concerned with an island that was let to a third party and a landlord distrained upon items belonging to a company that had been left upon the tenant's property. The distraint was for rent due for more than a year after the winding up order in relation to the company. The tenant agreed to assign the lease to the company but had not effected the assignment but had allowed the company into possession and the company had brought its items upon the land. After the winding up order of the company the liquidator retained possession with a view to a sale of the company's assets on the land. The distress was allowed to proceed because it was not in relation to a claim for rent that could have been proved in the liquidation and because the liquidator had retained possession of the land for the purposes of the liquidation.[138] In Lundy Granite, James LJ held:[139]

"if the company for its own purposes, and with a view to the realisation of the property to better advantage, remains in possession of the estate, which the lessor is therefore not able to obtain possession of, common sense and ordinary justice require the court to see that the landlord receives the full value of the property."

1280. In re Lundy Granite is the kernel of legal principle in this area and runs through all the authorities.

1283. In re ABC Coupler & Engineering Co Ltd (No. 3),[140] concerned claims against a company in liquidation in respect of a lease entered into by the company prior to winding up. The claims made against the company in liquidation were a claim for payment in full, as part of the expenses of the liquidation, of rent payable in respect of possession after the presentation of the petition but before the winding up order; a claim for payment in full, as part of the expenses of the liquidation, of rent payable in respect of possession after the date of the winding-up order until the date of surrender of the lease; a claim for damages for breach of the repairing covenant in the lease; and a claim to prove in the liquidation for breach of the covenant to yield up the premises at the expiration or determination of the lease with full vacant possession.

1286. Plowman J at 707, in considering the first two claims against the company, stated that, prima facie, rent accruing after the commencement of a winding-up is not payable in full, that is, prima facie it is provable but not an expense of the winding-up. His Lordship said that the general position was that stated by Lindley LJ in In re Oak Pits Colliery Co[141] as follows:

"The object of the winding-up provisions of the Companies Act, 1862, is to put all unsecured creditors upon an equality, and to pay them pari passu. A landlord who has not put in a distress before the commencement of the winding up is an unsecured creditor. He can prove against the company under section 158 for all rent in arrear at the time of his proof, but his right to distrain is taken away by section 163, unless circumstances exist which, in the opinion of the court, require it to give him leave to distrain under section 87.[142] In all cases, however, in which a landlord seeks to distrain after a winding-up order, or seeks to be paid his rent in priority to other creditors, he must shew why he should have such an advantage over the other creditors."[143]

1290. After reviewing the relevant principles as stated in Buckley on the Companies Acts[144] which included reference to dicta in In re Lundy Granite Co,[145] Plowman J said that the test for liability for payment in full of rent accrued since the winding up is:

"... whether the liquidator has retained possession "for the convenience of the winding up," and that whether he has done so or not, depends upon his purpose in retaining possession ... his motivation." [146]

1294. Plowman J then proceeded to consider the authorities in which these principles had been laid down. His Lordship referred to both In re Oak Pits Colliery,[147] and In re Lancashire Cotton Spinning Co.[148]

1297. In re Oak Pits Colliery, Lindley LJ, delivering the judgment of the Court of Appeal, commented as follows as to rent accruing after the commencement of the winding-up:

"1. If the liquidator has retained possession for the purposes of the winding-up, or if he has used the property for carrying on the company's business, or has kept the property in order to sell it or to do the best he can with it, the landlord will be allowed to distrain for rent which has become due since the winding-up: In re Lundy Granite Co ...

2. But if has kept possession by arrangement with the landlord and for his benefit as well as for the benefit of the company, and there is no agreement with the liquidator that he shall pay rent, the landlord is not allowed to distrain: In re Progress Assurance Co (1870) LR 9 Eq 370; In re Bridgewater Engineering Co (1879) 12 Ch D 181.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

But no authority has yet gone the length of deciding that a landlord is entitled to distrain for or be paid in full rent accruing since the commencement of the winding-up, where the liquidator has done nothing except abstain from trying to get rid of the property which the company holds as lessee."[149]

1304. In Re Lancashire Cotton Spinning Co supra, the liquidator remained in possession of certain cotton mills for more than a year after the winding up in the hope of selling the mills as a going concern. The liquidator paid the expenses of keeping the premises and the machinery in repair but did not operate the cotton mills. The mortgagees of the mills, who were shareholders in the company and intended to establish a new company to purchase the mills and machinery. The mortgagees acquiesced in this arrangement. The Court of Appeal held that the occupation of the liquidator was for the benefit of the mortgagees as well as of the company, and accordingly the mortgagees were not entitled to distrain. Cotton LJ held:[150]

"It is very true that the liquidator delayed selling in order to get a better price and in the hope that he would get something after paying the mortgagees. That looks as if the delay in selling was for the benefit, not of the mortgagees in any way coming here as landlords, but for the benefit of the company. But we must remember what the position of the mortgagees was. They were executors and were very largely interested in this company, one of them in his own right and all of them in respect of shares which had belonged to the testator. They were anxious to get up a new company, and one of the objects of postponing the sale was to do what was necessary in order to start a new company in which one of the executors was to take a very large share. So that the mortgagees delayed to exercise their power of sale as mortgagees in order to enable that to take place which was for the benefit not only of the company but of themselves who were interested in the company. I do not think the judge was wrong in the conclusion which he arrived at, and it cannot in my opinion be considered as in any way inequitable for the company on behalf of its creditors to insist on the provisions of sect. 163; and, in my opinion, there is nothing which would justify us in dealing with the interest payable to the mortgagees as part of the expenses of winding up this company, when that interest accrued under the circumstances to which I have referred." [151]

1308. Plowman J, in ABC Coupler, applying the above principles to the facts of the case held that from "the time when the official receiver had been given leave to sell the company's assets and had taken advice as to the best method of doing so, his tactics were directed to carrying out that advice and that he retained the lease for the purposes of carrying it out for the benefit of the liquidation."[152] Accordingly, his Lordship held that unless the retention of the lease could be fairly regarded as having been for the joint benefit of the landlord and the company, the landlord was entitled to be paid the rent accruing during the winding-up in full.[153]

1311. In this respect, Plowman J, after referring to the submissions of counsel, said: [154]

"Mr Arnold submitted that while the question of "retention for convenience of the winding up" is a question of the liquidators' motivation (ie. subjective) the question of joint benefit is purely objective. I agree that the dicta in one or two cases which are consistent with this submission, though in my view they are quite inconclusive. But none of the cases, in my judgment, goes to the length of deciding that once one can find a benefit to a landlord, however insubstantial, he is necessarily precluded from receiving payment of his rent in full, irrespective of the nature of that benefit, the intention of the parties and the circumstances of the case. One must, I think, look at the matter from a broad commonsense point of view, and in the circumstances of the present case I am not prepared to hold that the official receiver retained the lease for the joint benefit of himself and the applicants or that I am deprived of my discretion to allow payment of the rent in full for such period as it seems fair that the applicants should have it."

1315. On the basis of the authorities, his Lordship held that the claim in respect of the rent referable to the period prior to the winding up was not payable as part of the expenses of the liquidation but that the rent referable to the time the lease was retained for the benefit of the winding up until surrender of the lease was part of the expenses of the liquidation. With respect to the claim for damages for breach of the covenants to repair in the lease, his Lordship held that such damages were provable but not payable as an expense of the liquidation.

1318. The rent cases were recently reviewed by Lord Hoffmann in In re Toshoku Finance UK plc,[155] a case concerning a liability to pay corporation tax on profits that had accrued after the liquidation date. The review occurred in considering submissions for the liquidator that a liability falling within the United Kingdom equivalent to s. 556(1), namely, Rule 4.218(1) of the Insolvency Rules 1986, was payable as an expense only if it arose as a result of a step being taken with a view to, or for the purposes of, obtaining a benefit for the estate.

1321. After referring to cases such as In re Lundy Granite Co; In re Oak Pits Colliery Co and In re ABC Coupler & Engineering Co Ltd (No. 3), Lord Hoffmann summed up the principle as follows:[156]

"The principle evolved from Exhall Coal Mining Co Ltd [1864] EngR 439; 4 De GJ & S 377 and Lundy Granite Co LR 6 Ch App 462 is thus one which permits, on equitable grounds, the concept of a liability incurred as an expense of the liquidation to be expanded to include liabilities incurred before the liquidation in respect of property afterwards retained by the liquidator for the benefit of the insolvent estate. Although it was originally based upon a statutory discretion to allow a distress or execution against the company's assets, the courts quickly recognised that its effect could be to promote a creditor from merely having a claim in the liquidation to having a prior right to payment in full. As in the case of other equitable doctrines, the discretion hardened into principle. By the end of the 19th century, the scope of the Lundy Granite Co principle was well settled."

"Rule 4.218 determines what counts as expenses, subject only to the limited discretion under section 156 of the 1986 Act to re-arrange the priorities of expense inter se. The court will of course interpret rule 4.218 to include debts which, under the Lundy Granite Co principle, are deemed to be expenses of the liquidation. Ordinarily this means that debts such as rents under a lease will be treated as coming within paragraph (a), but the principle may possibly enlarge the scope of other paragraphs as well."

1329. On the basis of these authorities the administrators submitted that the position established by the rent cases is threefold. First, prima facie claims under pre-liquidation leases are provable; they are not payable as expenses of the winding-up, the importance of preserving pari passu distribution being emphasised. Second, although rent is not incurred by the liquidator (the obligation existing in the pre-liquidation lease) the ambit of the administration expense is expanded where the liquidator actively retains (as opposed to passively holds) or uses the premises for the purposes of the winding-up. In those circumstances rent accruing during that period of retention or use will be an expense of the winding-up. Third, the rent will not be an expense of the winding up where the retention or use is agreed to or acquiesced in by the landlord so as to secure mutual benefits for both the purposes of the winding-up and the landlord.

1332. The courts may have some hesitation in equating employee entitlements that are clearly intended to have priority with outgoings payable in respect of property. This might be so in light of the treatment of employee entitlements in s.556 of the Corporations Act. However, the rent cases inform the court as to the approach to be applied. They mostly were the subject of extensive consideration in Toshoku. I accept the submissions of the administrators as to the application of the rent cases.

1336. The administrators focussed upon a particular analysis and interpretation of the High Court authority, Bank of Queensland v K.D. Morris.[158] The Administrators contended that the liability to make further contributions was not incurred by the Administrators but was incurred by the company in transactions entered into prior to the commencement of the winding up and existed as a provable contingent liability as at the relevant date.

1339. The High Court addressed the issue of liability arising during an insolvency administration related to obligations incurred before winding-up. The case concerned a claim for priority under s. 292 of the Companies Act 1961 (Qld)[159] in respect of sums payable under certain commercial bills drawn by a liquidator pursuant to a bill facility agreement entered into by the company prior to the winding-up and which was the subject of a further agreement after winding-up.

1342. The facts of the case were summarised by Connolly J at first instance as follows:[160]

"At the time of the presentation of the petition there was in existence what is called a commercial bill (acceptance) facility granted by the plaintiff bank to the defendant with a limit of $1,000,000 for five years. To enable the funds to be raised in the short term money market the bills were limited in term to 190 days to maturity (later 180 days). They were drawn by the defendant on the plaintiff which accepted them and were payable to Tricontinental Corporation Ltd which bought them at a discount for sale in the market. The funds received by the defendant and which it was free to use in its business were the proceeds of the first issues less Tricontinental's discount. At maturity the bank as acceptor paid out the bills. In order that it might be in funds to do so the arrangement between the parties provided that 14 days before the maturity date the defendant should prepare a set of replacement bills, discount them, and pay the discounted proceeds together with at least the short fall resulting from the discounting to the bank. Tricontinental agreed to provide the discount facility for five years. The Bank of course made charges for the acceptance facility and the net result of the arrangement was that the defendant was contingently liable to the plaintiff bank for the sum of $1,000,000 when the term of the facility should come to an end. At that time the bank of course would accept no further bills in replacement and part of the arrangement was an authority given by the defendant to the bank to debit the defendant's account with the bank with any amount the bank might be called upon to pay in connection with the bills together with interest, costs, charges and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [a]t the date of the appointment of the provisional liquidators there were in existence two series of bills for a total of $1,000,000 which were due to mature on 3 February and 6 March 1975 respectively. This posed a problem to the bank of finding $1,000,000 if the company, now in the hands of the provisional liquidators, failed to roll the bills over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [t]he Bank was very much in favour of the bills being rolled over at maturity. It therefore offered to continue the facility and the provisional liquidators for their part were willing to have the line of credit continue. Their reason lay in a belief that the true value of the land was such that when the market recovered it would realize sufficient not only to pay out the bank but to provide a surplus for the unsecured creditors."

1346. Accordingly, the provisional liquidators and then the liquidators "rolled over" the bills, the final set maturing on 27 January and 1 March 1976. Their purpose was to preserve and maximise realisation of the asset. The last set of bills was not replaced and the Bank, after paying out the bills, debited the defendant's account with the sum they had paid out. The authority to do so was an agreement made with the provisional liquidators and the liquidators to the effect that charges on "roll over" would be debited to an overdraft account.

1349. It was contended by the Bank that the company's obligation to pay the $1 million was a cost or expense of the winding up, it being a wholly post-liquidation debt. It was contended that liability arose on the bills. As the bills did not exist at the time of the commencement of the winding-up they were not provable and could only be expenses of the winding-up. The Bank also claimed that expenses in relation to the bills drawn while the company was in liquidation including acceptance fees, rates, charges and interest, were also expenses of the winding-up.

1352. Connolly J said that it was critical in determining whether the sum was to be accorded priority under the relevant section:[161]

"to identify the obligation of the defendant company to the bank under the agreement pursuant to which the latter granted it the bill line acceptance facility".

1356. Connolly J rejected the Bank's contention as to the principal obligations stating:[162]

"In my opinion, from the time of the acceptance of the first set of bills in each series at the latest, the defendant was under a contingent obligation to the bank in the sum of $500,000 which sum was to become due and payable when the bank, at the end of the five year period ceased to accept replacement bills whichever occurred the earlier. It is important that this contingent obligation did not arise on the bills or out of the relationship of drawer and acceptor. It was inherent in the nature of the bill line acceptance facility. It was within the power of the defendant to defer for the full period of five years the time at which the obligation to pay became absolute but only for the period of the facility and, a feature of critical importance, the obligation could in no way be displaced."

1360. His Honour was of the view that the "rolling over" operations, that were part of the bill line facility, could not be regarded in isolation. In his Honour's view:[163]

"The object of the payments, indeed of the roll over operations in their entirety was to ensure the continuance not merely of the relationship of the parties but of the precise obligation."

1364. Connolly J held that the cost of deferring the obligation was a cost or expense of the winding up, saying:[164]

"Outgoings connected with property the possession of which is retained for the purpose of more advantageously winding up the affairs of the company are payable in full: Re National Arms and Ammunition Co (1885) 28 Ch D 474 at 478 per Baggallay LJ; Re Great Eastern Electric Co Ltd [1941] Ch 241; Re S Davis & Co Ltd [1945] Ch 402. A common application of the principle is the rule that where premises continue to be occupied for the purposes of the winding up rent after the commencement of the winding up is recoverable in full. See Re Lundy Granite Co (1871) LR 6 Ch App 462; Re South Kensington Co-operative Stores (1881) 17 Ch D 161; Re ABC Coupler Engineering Co Ltd (No 3) [1970] 1 WLR 702; Re Downer Enterprises Ltd [1974] 1 WLR 1460. It has been applied to the execution by a trustee under a deed of assignment of fresh hire purchase agreements to enable him to retain possession of equipment for the purpose of carrying on the business. See Re Davis (1970) 16 FLR 402. I see no reason why outgoings connected with the continuation of a line of credit should be on a different footing."

1368. Thus, his Honour distinguished between what he described as the contingent obligation itself which had its source in an agreement made by the company prior to the winding up and the costs of deferring that obligation which were incurred by the liquidator. Connolly J's decision was upheld by a majority in the High Court which allowed an appeal from a decision of the Full Court overturning Connolly J's decision: see K.D. Morris & Sons Pty Ltd v Bank of Queensland Ltd.[165]

1371. The majority, Stephen and Wilson JJ (Murphy J upholding the appeal for other reasons) stated at p.173, that it was "useful to view, against the background of s.292(1)(a) the nature of the Company's indebtedness of $1 million owed to the Bank."

1374. Stephen and Wilson JJ said:[166]

"It is true that the Company's present indebtedness to the Bank was immediately attributable to the Company's failure to indemnify the Bank after it had paid, as acceptor, the last series of bills on their maturity dates in 1976 ....But to regard the matter in this light is to treat the Company's liability to the Bank as if it first arose at earliest when the last series of bills was accepted by the Bank. This seems to us to be erroneous. This was no case of the occasional acceptance of bills by the Bank in a number of transactions each one unconnected with the others. It was, rather, a case of acceptances by the Bank pursuant to a contractual obligation originally undertaken by it in 1973. It was essential to the whole concept of the Bank's commercial bill acceptance facility that there should be this continuity of obligation; without it the facility was denied its prime character, that of a means of providing to the Company over a period of years access to funds."

1378. Stephen and Wilson JJ held that pursuant to the agreement between the parties, the Bank was obliged "to accept the Company's initial bills up to a maximum of $1 million and to go on accepting new replacement bills as existing bills matured and were retired." Their Honours said, further, that:[167]

"Once it availed itself of the facility the Company also became subject to a continuing obligation. That obligation was to put the Bank in funds in respect of the Bank's payment of bills on their maturity. ... It was not a contingent liability but an existing liability, which required the making of a series of payments at particular dates, dictated by the cycle of 180 days fixed by the bills. Once the facility was availed of by the Company it was inevitable that, either at the end of its 5 year term or upon the sooner ending of the facility, the Company would become presently indebted to the Bank in respect of the latter's payment of bills on maturity...".

1382. Stephen and Wilson JJ stated that the situation may have been different if the Bank had been only a casual acceptor of the Company's bills as there would have been no prior continuing liability. As to the agreement reached by the liquidators with the Bank concerning debiting the company's account with the shortfall between the face value of the bills and their discounted proceeds:[168]

"That new agreement differed from the agreement of 1973 only in that, realistically, it no longer required the Company to make good out of its own funds the shortfall between face value of bills and their discounted proceeds; instead the Bank would, in effect, provide overdraft accommodation in respect of that shortfall. ... The new agreement did no more than provide a means of prolonging the already established cyclical character of the liability of the Company to the Bank on new terms which took account of the now insolvent nature of the Company."

1386. As to whether the rolling over of the bills involved incurring a new liability of $1 million to the Bank, Stephen and Wilson JJ stated that regard must be had to the substance rather than the form of the transaction and, paying regard to the substance, viewed the matters as "an entire transaction, involving a liability incurred in 1973 and subsisting thereafter":[169]

"... just as the interests of creditors generally require that no one creditor of an insolvent company be improperly preferred over others, so too they require that a liquidator, if he is to undertake the proper realization of available assets, should be able to incur liabilities in respect of his costs and expenses in the knowledge that those liabilities will have priority over all other calls on the assets available to unsecured creditors. Moreover, each can involve pre-liquidation indebtedness of the company which, after liquidation, becomes the subject of some post-liquidation dealing said to affect unsecured creditors generally: running accounts and financing arrangements like that here in question provide instances. In each the question will be whether a particular post-liquidation dealing, as, for instance, a payment claimed to be a preference or the incurring of a liability said to be a cost or expense of the winding up, is to be treated as a distinct transaction or is, rather, to be characterized by reference to one entire transaction having its origin before commencement of winding up and of which the payment or liability incurred is but a part."

1390. Their Honours concluded that the actions of the liquidator involved no undertaking of an obligation in the amount of $1 million so as to become a cost or expense of the winding up. They held (as Connolly J had held) that the liability of the company to the bank for this face value of the bills which became absolute early in 1976 was the very liability which had been contemplated from the inception of the arrangement. Stephen and Wilson JJ characterised the liability as a present liability payable in future rather than as a contingent liability.

1393. Aickin J, with whom Mason J agreed, delivered a dissenting judgment. Their Honours reached a different conclusion because Aickin J rejected the argument that the liability arose under the pre-liquidation agreement and not by reason simply of the acceptance and ultimate payment by the Bank of the last two series of bills. Aickin J analysed the authorities on the nature of liability under bills of exchange in careful detail[170] and concluded:[171]

"Those authorities seem to me to be quite inconsistent with the proposition the obligation of the company to the bank did not arise on the bills or out of the relationship of drawer and acceptor, but out of the nature of a bill line acceptance facility. The obligation arose from the drawing and accepting of the bills."

1397. Aickin J appeared to conclude that no liability arose prior to the winding-up and that the only liability which existed was the liability on the bills drawn by the liquidator during winding-up. Furthermore, His Honour was of the view that the original agreement between the Bank and the Company came to an end and was superceded by the substituted agreement (concerning debiting the "roll over" expenses) entered into by the provisional liquidators and the liquidators after the commencement of the winding up. In the circumstances, Aickin J considered that if a contingent liability did arise under an agreement between the Bank and the Company, it arose out of the substituted agreement rather than the original agreement.[172]

1400. The administrators submitted that despite the difference in the findings between the majority and the minority, based on an analysis of the particular legal obligation in question, the principles upon which both the majority and minority proceeded K.D. Morris were the same: it is necessary to determine the source of the liability or obligation in order to determine whether it should be accorded priority; it is necessary to determine as a matter of substance whether the claimed debt was incurred by the insolvency administrator in the course of and for the purposes of the administration or whether it was an obligation incurred prior to winding-up as a result of transactions entered into then, even if events during winding-up cause a particular liability to become payable.

1403. The trustee emphasised that in K.D. Morris at first instance before Connolly J it was not contended by the bank that the Lundy Granite Co principles applied to cause the $1,000,000 liability to be an expense of the liquidation presumably because the claim of the bank was for a post liquidation expense under a post liquidation agreement. Hence, it was submitted on behalf of the trustee that the bank in K.D. Morris made no claim based on the Lundy Granite Co principles.

1406. The findings of Connolly J as to the fees and charges in rolling over the bills were described by Aickin J:[173]

"Connolly J. held that what he called the costs of delaying the obligation were a cost or expense of the winding up comparable with, for example, the payment of rent of premises occupied for the purpose of winding up a business after the commencement of winding up. On this basis he treated the costs of the rolling over of each set of bills as costs and expenses bona fide incurred by the liquidators. In this respect I think he was right as the cases reviewed by Burbury C.J. in Re Davis; Ex parte Hammond[174] clearly show."

1410. The trustee submitted that the reference by Aickin J at 193 to the payment of rent for premises occupied for the purpose of winding up a business is a reference to the Lundy Granite Co principles, as is the reference to Burbury CJ in the Supreme Court of Tasmania in Re Davis; Ex parte Hammond.[175]

1413. Ultimately, it seems that the judgments in K.D. Morris are of limited assistance. On close analysis the authority appears to be one without a ratio decidendi.[176] The outcome of the judgments in K.D. Morris is that there is a result that does not appear to be based upon a particular proposition adopted by a majority although there did not appear to be disagreement as to the applicable principles. However, the judgment of Stephen and Wilson JJ has informed authorities thereafter.

1417. In Crest Insurance Company of Australia v Rosser[177] Cohen J considered an application for directions by a provisional liquidator concerning liabilities which had arisen when the provisional liquidator cancelled insurance policies issued by the insurance company in provisional liquidation. The subject insurance policies included a right of cancellation upon 30 days notice. The application addressed two issues. The first was that an insurance claim became payable during the notice period and it was suggested that the amount of that claim was an expense of the administration. The second was that an entitlement to refund of the premium arose consequent upon the cancellation and that was also said to be an expense of the winding-up. Under the provisions then applicable the first issue concerned whether by exercising the power under the contracts of insurance to cancel the policies, the liquidator had in fact been carrying on business. Cohen J held that the liquidator had not.

1420. Cohen J then went on to address the question of whether in any event the expense could be relevantly said to have been incurred by the provisional liquidator. Relying upon K.D. Morris v Bank of Queensland he held that it had not. His Honour said:[178]

"...I do not regard the right of return of the premium as being an expense incurred in the carrying on of business. It is a right given by the contract upon the insurer cancelling the policy. Any payment due is the result, not of the continuance of the business, but of its termination. Whether it is categorized as damages or a liquidated debt arising out of the contract of insurance, it could not have arisen out of the continued conduct of the company's business by the provisional liquidator. If the company had gone into liquidation then the policy holders would be entitled to prove for the contingent debt arising from the cancellation of the policies. That would have to be quantified. It would include the amount recoverable for refund of premiums and also the amount of any claim which arose out of the occurrence of a risk after the winding-up. The debt would still be contingent, but the value of the contingency would be ascertained by the subsequent events... In the present case there has been no liquidation terminating the policies but an act of the provisional liquidator. On the same principles, however, the loss, whether a part of the premium or the amount of the claim, arises from the contract entered into by the company before the appointment. It does not come about from any act of the provisional liquidator."

1424. His Honour then referred to K.D. Morris and observed:

"Four of the members of the court were equally divided as to the effect of the transactions, but that division came about from the application of the facts to the principles involved rather than from disagreement as to those principles."

"Here the question is whether the act of the provisional liquidator in giving notice of cancellation of the policies was one which is independent of the company's rights and obligations or is part of one transaction commencing with the entry into the policies by the company. Further did the right to a return of premium and the right to be paid a claim arising out of a subsequent event arise solely from that act of the provisional liquidator, or were they contemplated by the terms and conditions of the policies. The claim for indemnity seems clearly to depend on the terms of the policy... The right to a return of premiums also arises under those terms...The provisional liquidator acted as contemplated in the contract by exercising the right to give notice of cancellation but it was the previously agreed conditions which gave the rights, such as they were, to claim a return of part of the premium paid. I do not regard that act as a distinct and separate transaction but rather as one of the incidents of the existing contract of insurance."

1432. The question of when a "debt" is "incurred" has been considered in the context of the insolvent trading provisions of the companies ` legislation. In Hawkins & Ors v Bank of China,[180] the New South Wales Court of Appeal, constituted by Gleeson CJ, Kirby P and Sheller JA, considered the question of when a debt is incurred under a guarantee for the purposes of s.556 of the Companies (New South Wales) Code which concerned the liability of directors and officers for insolvent trading.

"The identification of the time when the debt was incurred is central to the operation of s. 556, because that is the time by reference to which the relevant expectations as to the company's financial capacity are to be judged."

"... the operation of s.556 may be clear enough in cases, where the incurring of a debt is the result of a single act. Thus, for example, if a company borrows money there may be little difficulty about deciding when the resulting debt was incurred. On the other hand, debts often come into existence as a consequence of events that occur over a period of time, during which the financial position of the company in question may undergo significant change. Decided cases in relation to the section show that courts have, on occasion, had difficulty with the question of the time when a debt has been incurred: eg, Russell Halpern Nominees Pty Ltd v Martin [1987] WAR 150; John Graham Reprographics Pty Ltd v Steffens (1987) 12 ACLR 779; 5 ACLC 904; Hussein v Good (1990) 1 ACSR 710; 8 ACLC 390. Where a debt results from a guarantee, the sequence of events is commonly as follows. At the time of the execution of the guarantee, the guarantor undertakes a contingent liability. The contingencies normally include, although they are not necessarily limited to, default on the part of the principal debtor, and the making of demand upon the surety by the creditor. ... Subsequently, events may occur by reason of which the contingent liability matures into a presently payable debt."

1441. Gleeson CJ[183] (with whom Kirby and Sheller JA agreed in this respect) held that the words "incurs" and "debt":

"... are not words of precise and inflexible denotation. Where they appear in s. 556 they are to be applied in a practical and commonsense fashion, consistent with the context and with the statutory purposes. ... ... `incurs' takes its meaning from its context and is apt to describe, in an appropriate case, the undertaking of an engagement to pay a sum of money at a future time, even if the engagement is conditional and the amount involved uncertain. Once it is accepted that "debt" may include a contingent debt then there is no obstacle to the conclusion that, in the present context, a debt may be taken to have been incurred when a company entered a contract by which it subjected itself to a conditional but unavoidable obligation to pay a sum of money at a future time."

1445. In Standard Chartered Bank of Australia Ltd v Antico[184] Hodgson J considered a claim of insolvent trading against directors which raised the issue considered in K.D. Morris concerning liability under bills of exchange and bill facility agreements. Hodgson J appeared to follow the approach of Stephen J to the effect that the liability was incurred under the agreement and not, in the relevant sense, each time a replacement bill was drawn. His Honour and Wilson J held :[185]

"In my opinion, a company incurs a debt when, by its choice, it does or omits something which, as a matter of substance and commercial reality, renders it liable for a debt for which it otherwise would not have been liable. This formulation has three aspects which could cause difficulty in particular cases: first, as to whether the company has a choice whether to do (or omit) the act or not; secondly, as to whether it is the act or omission, or something else, which renders the company liable for the debt; and thirdly, as to whether the company would otherwise (in any event) have been liable for the debt."

1449. Referring to Hawkins v Bank of China Hodgson J said:[186]

"In relation to the question raised by Sheller J A (at 578) as to whether there would be a debt incurred by a company giving a guarantee, where there was at the time no quantification of the debt, this would appear to focus on the second of my questions, whether it is the act or omission of the company, or something else which, as a matter of substance and commercial reality, renders the company liable. In my opinion, at least so long as the nature and extent of the debt as ultimately quantified is broadly within what was or would have been reasonably contemplated at the time the company gave the guarantee, it is the giving of the guarantee and not anything else which in substance renders the company liable; so that the company does, by giving the guarantee, incur that debt."

1453. Referring to K.D. Morris, his Honour said:[187]

"It does seem to me, with respect, that the result of the case as decided by the majority was correct."

1457. The issue as to the proper characterisation of the liabilities for which priority is contended here is very similar to the issue that arose in Whitton v ACN 003 266 886 Pty Ltd (Controller Appointed) (In Liq).[188] Whitton concerned the liability of a receiver for debts incurred under s. 419(1) of the Corporations Law. The debts were redundancy and long service leave entitlements. Section 419(1) provided that a receiver is "liable for debts incurred...in the course of the receivership...for services rendered, goods purchased or property hired, leased, used or occupied." The receiver carried on a business for a time and then terminated employees. The act of termination precipitated liability for the redundancy and long service leave entitlements. The issue before Bryson J was whether those liabilities were incurred by the receiver in the relevant sense.

1460. After referring to the judgment of Gleeson CJ in Hawkins v Bank of China, Bryson J held:[189]

"In s419(1) it is not sufficient to support a conclusion that an agent incurred a debt in the course of the receivership that the debt became due for payment while he was a receiver, nor is it necessarily sufficient that some of the acts or events constituting entitlement to the debt, whether or not they were the final precipitating acts or events, were acts of or were caused by the receiver. For both long service leave liabilities and redundancy liabilities, the company was, by 8 March 1995, in a position where, with the exception of relatively rare events which the company did not control such as misconduct of employees, it was inevitable that a liability would fall in at some time with the maturity of a chain of events which had already been in course for a period of some years, and in view of the company's financial difficulty that could well happen soon. Liability for long service leave would fall in with the grant of leave or termination of employment, and liability for redundancy payment could be expected to fall in ordinary circumstances, on the termination of employment; and while the exact times at which these events would happen were to a considerable extent under the influence of whoever was in control of the company's affairs, it was fair certainty that they would fall in at some time, and quite likely that that would be soon if the company could not avoid default. They would fall in if the company closed down or sold its business, but if the company did not close down or sell its business, it could be expected with a high probability that they would fall in at some time. Mr Whitton was in control as agent for the mortgagee for the last fifty days before the termination of employment, and the sale of the company's business by him as agent for mortgagee was itself the result of a chain of events which were largely the acts of others, including the original financing, granting the mortgage and the circumstances which led to default. Although the final and precipitating events were his acts as agent for the mortgagee, it should not, in my finding, be found that the long service leave liabilities and redundancy liabilities were incurred by him. Mr Whitton took a relatively small part in the whole array of acts and conduct which brought about their payability, and, with fair certainty, the company was committed to their becoming payable at some time whether or not Mr Whitton had ever been appointed or had ever done anything."

1464. In the passage cited reference is made to the fact that "by 8 March 1995" the company was in a position where, with the exception of rare events, it was a fair certainty that the liabilities concerned would fall in at some time and it was quite likely that that would be soon. The date 8 March 1995 was the date of the appointment of the receiver.

1467. In Bell v Amberday Pty Ltd,[190] Austin J, in an application by notice of motion for leave, nunc pro tunc, to commence and maintain proceedings against a liquidator of the company in respect of moneys said to be due and owing by the liquidator for goods sold and delivered to him during the period of the liquidation of the company, considered whether the debt said to be owing was incurred by the liquidator for the purposes of s. 556 of the Corporations Law.

1470. His Honour, having earlier found that the liquidator had contracted only as agent for the company and not in his personal capacity held:[191]

"I have no difficulty in concluding that Baiada's debt was an expense properly incurred by the liquidator in carrying on the company's business for the purposes of s 556(1)(a) of the Corporations Law, even though the debt was incurred by him as agent for the company in liquidation rather than as principal: cf Pace v Antlers, at FCR 502-3; ACSR 506-7. The subsection specifically extends to expenses incurred in carrying on the company's business, and it would be unduly restrictive to confine it to business expenses for which the liquidator undertakes personal liability. The words "incurred by a relevant authority" are capable of applying where the relevant authority incurs the expense as agent, and I see no reason for adopting any other constructions."

1474. By contrast, in In the matter of Pasminco Ltd[192] Goldberg J, in considering whether certain legal costs related to injury claims might be entitled to priority under sections 556(1)(f) or s.556(1)(a), held in the context of an administration that the costs could not fall within any of the priority provisions of s.556(1) unless it could also be said that they fell within the provision governing administrators' liabilities for debts in s.443A that is, debts for which the administrator is personally liable. The particular application was an application by a liquidator for directions. It seems Goldberg J was not prepared to decide in the absence of a consideration of the facts of each particular incident whether the obligations fell within s.443A. It would appear that the decision in Pasminco turned on the discrete facts of the case. Further, it seems that if the position of Goldberg J is correct then in the circumstances of an administration s.556(1)(a) has no operation independent of s.556(1)(c).

1478. The administrators relied also on a category of cases that might be termed the contingent obligation cases. They referred to Community Development v Engwirda[193] where the nature of a contingent debt was described in the following terms:

"...there must be an existing obligation and that out of that obligation a liability on the part of the company to pay a sum of money will arise in a future event, whether it be an event that must happen or only an event that may happen ... The event or events may not happen ... it is ... nothing to the point that the event may be complex ..."

1482. The facts in Community Development v Engwirda concerned the liability of a building owner under a building contract. The issue was whether the liability was a contingent obligation upon the signing of the contract. The High Court held:

"...the building owner is bound from the time the contract is made to pay money to the builder upon a contingency; and that in my opinion makes the builder a contingent creditor of the owner."[194]

1486. The administrators referred also to FCT v Gosstray, where Tadgell J held:[195]

"The notion that a contingent debt must be founded on an existing obligation is strengthened when it is realised that a monetary claim for it, if made the subject of a proof, is to be stated as on the date of the bankruptcy: Ellis & Co's Trustee v Dixon-Johnson [1924] 1 Ch 342, at p.357, per P.O. Lawrence J. If when the proof is lodged the contingency has not happened, the amount of the claim must be estimated as accurately as possible: ibid; and see s.82(4) of the Bankruptcy Act 1966. If the value of the claim cannot be fairly estimated s.82(6) provides that the debt or liability should be deemed not to be provable. Of course, it is open to the court to assess the value of a claim at nil: Re Trepca Mines Ltc [1960] 1 WLR 1273 at p.1280; [1960] 3 All ER 304n. If, however, a claim were made not founded on an obligation of the bankrupt existing at the date of bankruptcy which could ripen into a debt upon a contingency, the proper conclusion, in my view, would be not that the provable claim should be assessed at nil but that there was no claim on the bankrupt estate at all."

1490. More recently, a question of whether a claim is a "contingent" debtor claim within s.553 of the Corporations Law was considered by the New South Wales Court of Appeal in Fisher v Madden.[196] There the court was concerned with whether a claim for redundancy payments before the Industrial Relations Commission by an employee of a company in receivership was a liability entitled to priority. The New South Wales Court of Appeal held it was not. Meagher JA, after citing FCT v Gosstray considered the at the subject claim was not accurately described as "contingent" because it was no more than a bear right to make a claim without knowledge of success or not, the amount or any terms or conditions.[197] Sheller JA, with whom Beazley JA agreed, after considering Re William Hockley Limited[198] and Community Development Pty Ltd v Engwirda Construction Co[199] held[200] that the subject company was under no existing obligation to pay money by way of a retrenchment payment to the employee immediately or on a future event, rather, the employee only had a right to take proceedings.

1493. It seems that most assistance in consideration of contingent liabilities is found in the opinion of Lord Hoffmann in In re Toshoku Finance UK plc.[201] In the crux of the opinion of Lord Hoffmann he said:[202]

"Thus debts arising out of pre liquidation contracts such as leases, whether they accrue before or after the liquidation, can and prima facie should be proved in the liquidation. In this respect they are crucially different from normal liquidation expenses which are incurred after the liquidation date and cannot be proved for. In the Lundy Granite Co case LR 6 Ch App 462 the court was therefore exercising the discretion conferred by section 87 of the 1862 Act to decide that, contrary to the normal pari passu rule, a creditor who had a debt which was capable of proof at the date of liquidation should be paid in priority to other creditors. What was the justification for the exercise of such a discretion?"

1497. His Lordship also considered the judgment in In re Oak Pits Colliery Co,[203] In re ABC Coupler and Engineering Co Limited (No. 3),[204] and then his Lordship stated the principle in the following terms:[205]

"The principle evolved from Exhall Coal Mining Co Ltd De GJ & S 377 and Lundy Granite Co LR 6 Ch App 462 is thus one which permits, on equitable grounds, the concept of a liability incurred as an expense of the liquidation to be expanded to include liabilities incurred before the liquidation in respect of property afterwards retained by the liquidator for the benefit of the insolvent estate. Although it was originally based upon a statutory discretion to allow a distress or execution against the company's assets, the courts quickly recognised that its effect could be to promote a creditor from merely having a claim in the liquidation to having a prior right to payment in full. As in the case of other equitable doctrines, the discretion hardened into principle. By the end of the 19th century, the scope of the Lundy Granite Co principle was well settled. It was not, however, a general test for deciding what counted as an expense of the liquidation. Expenses incurred after the liquidation date need no further equitable reason why they should be paid. Of course it will generally be true that such expenses will have been incurred by the liquidator for the purposes of the liquidation. It is not the business of the liquidator to incur expenses for any other purpose. But this is not at all the same thing as saying that the expenses will necessarily be for the benefit of estate. They may simply be liabilities which, as liquidator, he has to pay. For example, there will be the fees payable to fund the Insolvency Service, ranjing as paragraph (c) in rule 4.218(I), where the benefit to the estate may seem somewhat remote. There would be little point in a statute which specifically imposed liabilities upon a company in liquidation if they were payable only in the rare case in which it emerged with all other creditors having been paid. The difference between the treatment of pre-liquidation debts under the Lundy Granite Co principle and the treatment of post-liquidation liabilities emerges clearly from the 19th century cases on rates. In In re Watson Kipling & Co (1883) 23 Ch D 500, which concerned an assessment for rates made after the liquidation upon property occupied by the company, Kay J rejected the submission of counsel for the rating authority, at p 506, that `where a liability is incurred during the winding up, that liability ought to be paid in full, and therefore these rates ought to be paid in full because they were made during the winding up'."

1501. In Toshoku their Lordships Lord Woolf CJ, Lord Hutton and Lord Rodger of Earlsferry agreed with the reasons of Lord Hoffmann. Lord Hobhouse of Woodborough concurred with the order their Lordships proposed. Two principles emerge from Toshoku. First, a liability that is not provable in the winding up and is imposed on a company in liquidation is an expense of the winding up; it may be an expense of getting in or realising the company's assets or it may be a "necessary disbursement" of the liquidator. Secondly, a liability that is provable in the liquidation is not an expense of the winding up unless it falls within the Lundy Granite principle. In light of the history of the amendments made to s.556(1) it is unlikely that the liabilities with the sub-section are any broader than those under the equivalent English legislation.

1504. Returning to the essential question as to priority,[206] it was submitted for the trustee that if I accepted the interpretation of K.D. Morris urged by the administrators I am required to determine the source of the liability or obligation in order to determine whether it should be accorded priority. It was submitted that the source of the liability is FSC 5. It was also submitted that I must determine whether the claimed debt was incurred by the administrators in the course of and for the purposes of the administration whether it was an obligation incurred prior to the winding up as a result of transactions entered into. The trustee urged that the contributions for Group 3 as recited in FSC 5 arose from the decision of the administrators not to discontinue the plan, the retrenchment they affected after determining to continue the plan and the ability of the actuary to issue FSC 4 and later FSC 5 and, also, the absence of any objection to FSC 4.

1507. Indeed, both the trustee and the third defendant submitted that on the facts of the present case, the proposition that the liability incurred by the administrators to pay superannuation contributions pursuant to FSC4 and FSC5 may be supported on the basis that it is a liability incurred pursuant to an obligation first arising after the relevant date. For this purpose the FSC is the source of the obligation to make the superannuation contributions. The FSC operating at the date of winding up imposed no obligation to pay Group 3 contributions. An obligation of a contingent kind first arose to pay a Group 3 contribution upon the issue of FSC4. A liability to pay such a contribution was first incurred when the certificate was issued only because retrenchments of the kind referred to had already occurred. Accordingly, the liability is one which falls within the first of the two meanings of "incurred".

1510. Reliance was placed by the trustee and the representative defendants upon the acknowledgment by the administrators that the recurrent Group 1 contributions, that is, the nine per cent contributions, fall within s.556(1)(a). The obligation to pay the nine per cent contribution is properly categorised as a recurrent outgoing analogous with rent. I accept the submission by the administrators that this provides the proper foundation and explanation for the acknowledgment by the administrators that the nine per cent contribution falls within paragraph (a).

1513. Consideration of all the circumstances, both before and after 12 September 2001, causes me to be satisfied that the liability to make further contributions, under the trust deed and the legislative regime and, also, under contract, were incurred by Ansett in transactions entered into before that date. Analysis of the authorities, particularly, Crest Insurance, Hawkins and Standard Chartered assist me in forming this view. As at 12 September 2001 there was an existing obligation and from such obligation arose a liability to pay an amount that would arise upon a future event. The authorities, Community Development v Engwirda and Federal Commissioner of Taxation v Gosstray support that view.

1516. In adopting these views I am satisfied that the obligations were incurred by Ansett pursuant to the superannuation legislative regime. The obligation existed pursuant to SIS Regulation 9.08 of the subject funding and solvency certificate from 1994 when the Ground Staff Plan became a regulated superannuation fund. It would appear that from that time the quantification of the obligation was contingent upon the funding and solvency certificates that were issued. Likewise, the obligations under the trust deed existed since July 1994 being the date when clause 4(4) came into effect. So far as obligations arose under individual employment contracts they existed in each and every case as at 12 September 2001 although the obligations had arisen and accumulated over a number of years beforehand. Nonetheless, the obligation was contingent in the sense that liability to pay would arise in the event that the funds were insufficient to meet a defined benefit. It follows, therefore, that I accept the submissions of the administrators as supported by the ACTU that the liability contended for by the trustee and the representative defendants was not "incurred by" the administrators in the course of conducting the administration, rather, the liability already existed by that time. Further, the obligation was and remains a provable contingent debt upon the application of the principles espoused in the authorities. One further observation is called for. It might be said that the acts of the administrators precipitated the quantification of the liability, or, at least, the occasion of a quantified sum falling due. In my view, such approach is flawed as the acts of the administrators constituted the culmination or maturation of obligations created or undertaken prior to administration.

1519. A remaining matter was the submission by the trustee that the contributions under FSC 5 relating to membership Group 3 are expenses imposed by statute and, therefore, entitled to priority. The reference is to the obligations arising by virtue of Regulation 9.08 of the SIS Regulations. I was referred to a number of authorities[207] and, in particular, In re Toshoku Finance.[208] Each of the authorities, including Toshoku, turned upon the particular nature of the statutory obligation. For example, in Toshoku, the subject legislation provided that the company was chargeable and that the liquidator was the chargeable person. By contrast, the SIS Legislation does not contain an equivalent provision. Further, as considered in Re Mesco Properties Limited the further contributions incurred under FSC 5, for the reasons already stated, did not and will not assist the administrators in carrying on the business or preserving the assets of the company. In any event, the obligation to make further contribution arising from FSC 5 is not in the nature of a licence fee as arose in some of the authorities but more appropriately categorised as a capital contribution to the fund.

1522. There was some discussion during submissions as to the assistance provided by Toshoku. It was submitted for the trustee that the contribution liability should be treated as an expense of the administration because it is a statutory liability under the superannuation legislative regime and thereby equivalent to a tax. However, Toshoku decided that because certain liabilities, including certain taxes, rates and statutory charges were liabilities that were imposed upon the liquidator after the liquidation commenced, the liquidator was required to pay those taxes, rates and charges and they were, therefore, "necessary disbursements".

1525. Finally, the administrators contended that if the liability is incurred by the administrators and not Ansett before the commencement of the administration then the liability is not to be afforded priority under s.556(1)(a) or (dd) as the plan was continued for the mutual benefit of the trustees and the members of the plan as well as for the convenience of the winding up. In light of my findings it is not necessary to consider the matter of mutual benefit.

1529. This proceeding is in the nature of the trustee seeking advice from the court as to the construction of the trust deed and the associated issues.[209]

1532. In summary, therefore, I make the following core findings.

1. Pursuant to the trust deed, members of the plan who have been made redundant by the administrators since 12 September 2001 are entitled to retrenchment benefits under Rule 1.13.

2. Pursuant to the superannuation statutory regime and the Trust Deed, Ansett is obliged to make contributions in accordance with the Funding and Solvency Certificate known as "FSC 5".

3. The said obligation arises, also, from the contract of employment between Ansett and its employees who were members of the Ground Staff Plan.

4. The Funding and Solvency Certificate known as FSC 5 is valid and a shortfall has arisen that is required to be met pursuant to the obligations upon Ansett.

5. The obligation does not attract priority under s.556(1) of the Corporations Act 2001 and constitutes a debt provable in the administration of Ansett.

1540. I direct the trustee to prepare answers to the questions asked in the proceeding as informed by these reasons.

I refer to the appointment of Mark Korda and myself as Administrators of Ansett Australia Ltd (Administrators Appointed) on 17th September 2001.

As Administrators of the Ansett group, it is our job to maximise the chances of the Ansett business remaining in existence. If that is not possible, it is our job to maximise the return to the company's creditors. Subject to the rights of any secured creditors, employees are the largest and highest ranked creditor group of Ansett.

It is also in the interests of all creditors, including Ansett employees, to establish a commercially viable new Ansett business. However, the on-going business will be very different to that which operated before 14th September 2001. Its services will be reduced, and less employees will be required for operations.

We are also aware, and regret, that uncertainty about the future of Ansett has caused and continues to cause employees and their families hardship and concern. There are now some Ansett employees who have indicated a preference to exit Ansett and access part of their entitlements as soon as possible.

We are therefore providing you and other employees the opportunity to apply for redundancy.

We have consulted with the ACTU and unions on applications for redundancy and we have their support for implementing this process. The following table gives you an indication of the steps and estimated timeframes for the application process:

Employees to apply for redundancy by submitting the

Ansett to advise employees whether applications have

been accepted or rejected via letter, including calculation

If application is accepted, employees to return company

Payment of pay in lieu of notice by the Administrators (4-

provisions (not the Administrators) comprising unpaid

wages, z-days, TIL, annual leave, long service leave, any

pay in lieu of notice in excess of 4-5 weeks and up to 8

6. Payment by the Administrators of final settlement of

Outstanding entitlements (the difference between the 8

When considering whether to apply for redundancy, it is important to keep a number of things in mind:

a) Early access to part of the entitlements by Ansett employees will be limited to the following:

* The Administrators will provide payment in lieu of notice as soon as possible. For most employees this will be equivalent to `4 weeks pay. Employees over 45 years of age and with more than 5 years of service will receive 5 weeks

pay in lieu of notice. Managers who are entitled to receive more than 4 or 5 weeks pay in lieu of notice will receive an additional payment from the Federal Government's Special Employee Entitlement Scheme for Ansett Group Employees (SEESA);

* The Federal Government's SEESA scheme will provide employees with:

i. All unpaid wages, including z-days and time-in-lieu;

iii. All unpaid long service on a pro-rata basis after 12 months service;

iv. All entitlements for pay in lieu of notice not already paid by the administrator; and

v. Unpaid redundancy up to the community standard of 8 weeks as a portion of the Ansett redundancy entitlement.

b) Upon the recapitalisation of Ansett or future realisation of Ansett assets and pursuant to a DOCA or the declaration of a dividend, any additional entitlements such as redundancy pay in excess of 8 weeks may be paid by the Administrator. More details concerning redundancy entitlements are included in the Redundancy Schedule attachment. Of course, the employee entitlements must be paid prior to any distributions to ordinary unsecured creditors pursuant to a DOCA or by dividend.

c) If you decide to apply for redundancy and your application is accepted, you will receive a letter and an estimation of entitlements by Friday 9th November. It is assumed that your redundancy will be actioned as soon as possible.

d) Given Ansett's services will be smaller and require less employees, we hope that most applications for redundancy will be approved. However, the operational needs of the new business also need to be considered so there will be some instances where applications for redundancy may not be granted. In this way, the company can retain employees with the skills and experience to develop a safe and viable airline.

e) There will also be some areas of the old Ansett business which may close. Therefore, employees in these areas may not be required and unfortunately

some employees will be made redundant regardless of whether they have submitted an application for redundancy. We expect that these decisions will be made shortly. We regret the hardship that this may cause.

f) It is not possible now to provide you with an estimate of entitlements for the purpose of considering whether to apply for redundancy. However, a schedule of packages is attached which may give some guidance as to your likely severance package. You can also access a calculator on the website or call the staff enquiry hotline for further assistance.

g) Your benefits under the relevant superannuation scheme are separate to these proposed arrangements. If your application for redundancy is accepted, your fund will supply you with details of your superannuation entitlements.

Attached to this letter is a form that you may submit to apply for redundancy. If you are interested, you should return this form as soon as possible and by no later than Friday 26"' October, 2001 in one of the following ways:

* HR Shared Services at PO Box 362F Melbourne 3000 VIC;

* HR Shared Services by fax to (03) 9623 2520 or (03) 9623 3987;

* placed in the box located in the foyer of Ansett, 501 Swanston St, Melbourne.

Further information is available on the our website at www.ansett.com.au or through the Staff Enquiry Hotline on 1800 151 604.

Thank you for your patience and support. The employees contribution and commitment to Ansett is extraordinary and has played a key role in enabling us to "kickstart" flying operations and pursue Ansett Mark II.

Ansett Australia Limited (Administrators Appointed)

If your application for redundancy is approved, you will be eligible for the following entitlements:

Payment in Lieu of Notice to be paid by the Administrator

The notice period paid will be 4 weeks. Those over 45 years of age with more than 5 years continuous service will receive 5 weeks. ManagersWll receive the balance of any pay in lieu of notice under the Federal Government SEESA scheme.

Leave payments are based on entitlements at exit date, and do not accrue during the stand down period.

Annual Leave: Outstanding leave entitlements will be paid at base rate of pay plus loading or loading equivalent as applicable. For managers, leave is paid at the Fixed Annual Reward (FAR). Long Service: Accrues at a rate of 1.3 weeks per year and will be paid at the base rate for a pro-rata amount for service in excess of 12 months.

Unpaid wages, Outstanding hours accrued will be paid to employees at

The portion available under the Federal Government SEESA scheme will up to 8 weeks as a portion of your entitlements under the available Ansett packages. Travel benefits will not be offered. Total severance payments due may be calculated in line with the following:

Award employees are covered by the Business Recovery Package (BRP) or the Previous BRP / CR Package. Packages are pro-rated to years and months of service and capped at $175,000.

2 weeks base pay per year up to 5 years, then 4 weeks base

2 weeks base pay per year up to 5 years, then 4 weeks base

pay per year for 5-15 years, then 6 weeks base pay per year

3 weeks base pay per year for first 5 years, then 4 weeks base

10% of final average salary (last 12 months) for each year to

18% of final average salary (last 12 months) for each year to

The greater of the BRP and Previous BRP / CR packages will be your severance entitlement. Any amount in excess of 8 weeks as paid out by the SEESA scheme will be paid pursuant to a DOCA or as a dividend and in priority to all ordinary unsecured creditors.

Management staff are covered by the current company policy as issued in September 2000. The policy includes any payment in lieu of notice and is payable on base salary plus car allowance. Managers without a copy of this policy may ring the staff enquiry hotline for further information regarding severance payments.

Any amount in excess of your notice period and up to 8 weeks -averance will be paid pursuant to a DOCA or as a dividend and in priority to all ordinary unsecured creditors.

Please return this form to Ansett Australia HR Shared Services at PO Box 362F Melbourne 3000 VIC or Fax (03) 9623 2520 or (03) 9623 3987, or by placing in the box located in the foyer of Ansett, 501 Swanston St, Melbourne by Friday 26th October, 2001.

Last Name: ________________________________________________________________

Given Names: ______________________________________________________________

Employee Number: __________________________________________________________

Home Address: _____________________________________________________________

_____________________________________________________________

Phone: ____________________________________________________________________

Personal email: _____________________________________________________________

Division: ___________________________________________________________________

Department: ________________________________________________________________

Location: ___________________________________________________________________

Position / Job: _______________________________________________________________

By completing and placing my signature on this Application Form, I confirm that I have received and understood the letter dated 17th October, 2001 and I understand among other things the following:

* Completion of this application form does not mean that I will automatically be exiting from Ansett*. I understand that this will be decided by the Ansett Administrators.

* Completion of this application form means that if I am accepted for a redundancy I will be exiting from Ansett*.

Signature: ___________________________ Date: _____________________

*Ansett being Ansett Australia Limited (Administrators Appointed) and all related companies under Administration."

As Administrators of the Ansett group, it is our job to maximise the chances of the Ansett business remaining in existence. If that is not possible, it is our job to maximise the return to the company's creditors.

It is also in the interests of all creditors, including Ansett employees, to establish a commercially viable new Ansett business. However, the on-going business will be very different to that which operated before 14 `h September 2001. Its services will be reduced, and less employees will be required for operations.

I regret to advise that following the collapse of Ansett your position no longer remains open. Accordingly, your employment will conclude, by reason of redundancy, effective «SevDate».

After the appointment of the initial Administrators on 12 September 2001, your employment with Ansett continued, although in accordance with orders inserted into the applicable certified agreement by Australian Industrial Relations Commission, since midnight on 14 September 2001 you may have been stood down. During that time, the Administrators have assessed the Ansett business and its viability as an ongoing operation. I confirm that during this period:

2 The Administrators did not adopt your contract of employment and/or personal liability in relation to your employment prior to the Administrators' appointment.

Immediate Part Payment by Administrators and SEESA

Subject to the rights of any secured creditors, employees are the largest and highest ranked creditor group of Ansett. Early access to part of the entitlements by Ansett employees will be limited to the following:

* The Administrators will provide payment in lieu of notice as soon as possible. For most employees this will be equivalent to 4 weeks pay. Employees over 45 years of age and with more than 5 years of service will receive 5 weeks pay in lieu of notice. Managers who are entitled to receive more than 4 or 5 weeks pay in lieu of notice will receive an additional payment from the Federal Government's Special Employee Entitlement Scheme for Ansett Group Employees (SEESA);

* The Federal Government's SEESA will provide employees with:

i. All unpaid wages, including z-days and time-in-lieu;

iii. All unpaid long service on a pro-rata basis after 12 months service;

iv. All entitlements for pay in lieu of notice not already paid by the administrator; and

v. Unpaid redundancy up to the community standard of 8 weeks as a portion of the Ansett redundancy entitlement.

Upon the recapitalisation of Ansett or future realisation of Ansett assets and pursuant to a Deed of Company Arrangement (DOCA) or the declaration of a dividend, any additional entitlements such as redundancy pay in excess of 8 weeks may be paid by the Administrator. More details concerning your redundancy entitlements are included in the Redundancy Estimate Schedule attachment. I stress the employee entitlements must be paid prior to any distributions to ordinary unsecured creditors pursuant to a DOCA or by dividend.

Your benefits under the relevant superannuation scheme are separate to these proposed arrangements and your fund will supply you with details of your superannuation entitlements.

Unfortunately, given the restructured nature of Ansett's operations, the Administrators are unable to provide the travel benefits to which employees dismissed by reason of redundancy are otherwise entitled to receive. Outplacement benefits previously made available are also unable to be provided.

A schedule estimating your entitlements is enclosed. It is my intention that pay in lieu of notice will be deposited into your designated bank account as soon as possible. Payment of your Federal Government SEESA entitlement will then follow to your designated bank account. In respect of any additional redundancy pay, you will be notified by the Administrators in due course whether such payment is available and if so, arrangements for its payment. Payment will depend on the outcome of the Administration and as a creditor you will receive notice of the outcome.

In order for your payment in lieu of notice to be made, I require you to complete the enclosed Redundancy Exit Checklist and to return it, along with any relevant Ansett property in your possession.

Further information or calculation can be obtained from the Staff Enquiry Hotline on 1800 151 604 or the Ansett website at www.ansett.com.au/staff.

Finally, it is with great regret that your former position could not remain. On behalf of Ansett, I wish to thank you for your service and your support and cooperation during very difficult times. I also wish you future success.

Ansett Australia Limited (Administrators Appointed)

[1] See especially ss.7, 9 and 22.

[2] See Re Ansett Australia Limited and Ors v Mentha and Anor (2002) 48 ACSR 389.

[4] See also Re Ansett Limited and Ors v Mentha and Anor [2001] FCA 1439; (2001) 39 ACSR 355.

[5] The form of letter appears at Annexure A to these reasons.

[6] [2002] FCA 90; (2002) 40 ACSR 433

[8] which had succeeded the Conciliation and Arbitration Commission.

[9] See the explanatory memorandum to the Occupational Superannuation Standards Bill 1987 and the second reading speech to the Bill, Hansard, Senate, 6 Oct 1987, p.728ff.

[10] See Hansard 2 April 1992 at 1763-1765.

[11] See second reading speech, Hansard (House of Representatives), 2 April 1992, p.1763.

[13] It is to be noted that subsequent amending legislation, the Occupational Superannuation Standards Regulations Application Act 1992, was enacted to overcome apparent legal difficulties in relation to OSSA and the regulations thereunder.

[14] See definition of "superannuation fund conditions" and ss. 5 and 7 of the Occupational Superannuation Standards Act 1987 ("OSS Act") is now known as the Superannuation (Self Managed Superannuation Funds) Taxation Act 1987. Despite their repeal, ss.5 & 7 of the OSS Act still apply by virtue of s.16(3)(a)&(b) of the Occupational Standards Amendment Act 1993. The Regulations under OSS Act are still in operation.

[15] See explanatory statement to Statutory Rules 1994 No. 57, Superannuation Industry (Supervision) Regulations, p.42ff.

[16] Constituted by the Superannuation Guarantee Charge Act and the Superannuation Guarantee (Administration) Act.

[18] As approved by the High Court in Attorney-General (Cth) v Breckler (1999) 197 CLR 83

[19] The Flight Attendants Benefits Plan and the Engineers Superannuation Plan.

[21] On 5 December 1990, 9 October 1992, 25 July 1994, 27 October 1994, 25 July 1995, 23 May 1995, 21 May 1996 and 30 April 2002.

[24] (1999) 197 CLR 87 at 111

[26] 5% Member contribution and 9% Employer contribution.

[27] The higher rate of contribution is sought in the Funding and Solvency Certificate by virtue of the provisions of Guidance Note 461 issued by the Institute of Actuaries of Australia. See paras 68-70 of affidavit of Paul Daniel Francis sworn 9 May 2002. The Guidance Note applies to the preparation of Funding and Solvency Certificates. Clause 1.4.4 of the Guidance Note provides:

"1.4.4 Other than `Best Estimate Minimum Contributions'

The actuary may, after discussion with the employers, specify rates in the certificate which are in excess of those likely to be required (on a `best estimates' basis) to provide coverage only of funded MRBs.

This may be appropriate for example where the employer is prepared to contribute at the rate specified by the actuary in the regular actuarial review of the fund to provide full benefits, rather than just minimum requisite benefits, thus obviating the cost of a separate projection of funded MRB coverage only.

The certificate should state that this approach has been adopted."

[28] Pursuant to the provisions of the Conciliation and Arbitration Act 1904, the Industrial Relations Act 1998 and the Work Place Relations Act 1996.

[30] See Annexure A to these reasons which is a proforma letter.

[31] See Annexure B to these reasons which is a proforma notice.

[35] Retrenchment Benefits are referred to at page 9 of the Booklet with a variation applicable to pre-1 January 1987 members referred to in the Appendix to the Booklet.

[37] Investigations provided as at 1 July 1990, 1 July 1992, 1 July 1994, 1 July 1996, 1 July 1998 and 1 July 2000.

[38] Certificates were provided effective as at 1 July 1994 (dated 22 June 1995), 1 July 1998 (dated 30 June 1998), 1 July 2001 (dated 29 May 2001), 23 October 2001 dated January 2002 [FSC 4] and 24 April 2002 (dated same date) [FSC 5].

[39] For the periods 1 July 1992 to 30 June 1995, 1 July 1997 to 30 June 2002 (dated 14 August 1998).

[42] Question recited in paragraph 1 of the plaintiffs' third originating motion filed 25 July 2002 ("the originating motion").

[43] The question is recited in paragraph 4 of the originating motion.

[44] Question recited in paragraph 7 of the originating motion.

[45] Question recited in paragraph 8 of the originating motion.

[46] Declarations sought in paragraph 12 of the originating motion.

[47] Questions recited in paragraph 13 of the originating motion.

[48] Declarations recited in paragraph 14 of the originating motion.

[49] [1990] 1 WLR 1587, 1610-1611.

[50] [1987] 1 WLR 495, 505.

[51] (Unreported), 26 March 1986; Court of Appeal (Civil Division) Transcript No. 286 of 1986

[52] The Times, 18 August 1989; Court of Appeal (Civil Division) Transcript No. 817 of 1989

[54] See also, Imperial Group Pension Trust Limited v Imperial Tobacco Limited [1991] 1 WLR 589, 597; and Lock v Westpac Banking Corporation (1991) 25 NSWLR 593, 601-603.

[55] Unreported judgement dated 20 May 2002, at pp.10-12

[56] (1991) 1 WLR 589, 591.

[57] See also, Re Courage Group Pension Schemes (1987) 1 WLR 495; Mettoy Pension Trustees Limited v Evans, ibid; McDonald v Horn (1995) 1 All ER 960; Seisert v Pensions Ombudsman (1997) 4 All ER 947; National Grid Co plc v Mayes [2001] UKHL 20; (2001) 2 All ER 417.

[58] See clause 2(1), 20(2), Rules 1.1 (the definition of "Retrenchment"), 1.2(2), 1.3(3), 1.3(3A), 1.3(4), 1.4(4A), 1.4(5)(a), 1.12(3) and Rules 1.12, 1.13 and 1.15(3) in relation to "Final Average Salary".

[59] To terminate, reduce or suspend contributions.

[60] See McPhail & Ors v Doulton & Ors [1970] UKHL 1; [1971] AC 424, 455-457.

[61] (1991) 25 NSWLR 593.

[63] (1880) 15 Ch. D. 228 at 332, Sir George Jessel M.R.

[64] [1990] 1 WLR 1587

[68] The appeal in Mettoy was compromised on terms that the debenture holders should be paid in full and the balance of the surplus should be distributed to the beneficiaries (see British Coal Corp v British Coal Staff Superannuation Scheme Trustees Ltd [1995] 1 All ER 912 at 924) The debenture holders were secured creditors of the employer company, thus the settlement involved a distribution of assets between the beneficiaries and the employer company.

[69] [1999] 3 VR 642

[72] Lloyds Bank Pension Trust v Lloyds Bank [1996] PLR 263, at paras 23 and 24

[73] ITN v Ward & Ors [1997] PLR 131 at para 23, per Laddie J.

[75] Lansing Linde Ltd v Alber [2000] PLR 58, at para 222 per Rimmer J

[76] (1990) 1 WLR 1587

[78] [1982] HCA 24; (1982) 149 CLR 337.

[79] [2002] HCA 5; (2002) 76 ALJR 436.

[80] See generally Hawkins v CBA (1996) 66 IR 322 at pp 333, 334, 340; 70 IR 213

[81] See "Equity and its Relevance to Superannuation Today" at pp 1.5-1.6, a paper published by the Leo Cussen Institute as part of a series "Trusteeship Issues Under a Magnifying Glass", February 1992. See also Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587; Imperial Group Pension v Imperial Tobacco [1991] 2 All ER 597; Lock v Westpac Banking Corporation (1991) 25 NSWLR 593.

[82] [1990] 1 WLR 1587

[83] [1987] 1 WLR 495 at p.505

[84] (1991) 25 NSWLR 593 at p.602

[85] (1997) 147 ALR 243 at p.256

[86] The third defendant relied upon the principle stated in Con-Stan Industries P/L v Norwich Winterthur Insurance [1986] HCA 14; (1986) 160 CLR 226, 244 and also cited Eslea Holdings v Butts (1986) 6 NSWLR 175, 188; Caboche & Bond v Ramsay (1993) 119 ALR 215, 238-239 and other authorities.

[87] The Trustee postulated a series of questions: (a) Does it have a power to make further contributions; (b) Is that power exercisable by the Administrators?; (c) Can the Court compel any such power under (a) or (b) to be exercised?; (d) Can the Court compel the power to be exercised in a particular way?' (e) Can the Court exercise such a power itself?; (f) If the answer to (c) and (d) is yes, an order compelling the exercise of such power so as adequately to fund the payment of benefit entitlements under the said Plans, as required; (g) If the answer to (e) is yes, an order exercising the power so as adequately to fund the payment of benefit entitlements under the said Plans, as required.

[91] An exploration of the development of the approach towards priorities is found in In Re Toshoku Finance UK plc [2002] UKHL 6; (2002) 1 WLR 671, 674-677.

[92] The application and development of the rules is considered in detail in In Re Toshoku Finance UK plc, ibid at 674.

[93] Previously priority was prescribed under s.556(1) of the Corporations Act 1989. Section 556(1)(a) of the Corporations Act 1989 re-enacted s.441(1)(a) of the Companies Act 1981.

[95] In Discussion Paper No. 32 (para. 469)

[98] [1933] HCA 2; (1933) 48 CLR 171.

[100] (1871) LR 6 Ch App 462

[101] [2002] UKHL 6; [2002] 1 WLR 671

[102] (1997) 24 ACSR 144

[106] See McPherson, B., Law of Company Liquidation (4th ed, 1999) at pp 236-238.

[107] See: Re Office-Co Furniture Pty Ltd [2000] 2 Qd R 49 per de Jersey CJ at 51-52.

[108] An important expression in paragraph (a) is the use of the words "incurred by a relevant authority". Under s.556(2) the term "relevant authority" is defined. The definition ensures that in paragraph (a) the subject expenses are those incurred by the company through a variety of agents: see Bell v Amberday (2001) 19 ACLC 1439. Unlike other provisions in the Corporations Act109 paragraph (a) does not impose or require any personal liability by the relevant authority.

[110] [2001] NSWSC 997; [2001] 39 ACSR 645, 650

[111] There are additional powers in the Corporations Act, in particular, Divisions D4-8 of Part 5.3A.

[113] [1904] VicLawRp 99; (1904) 29 VLR 719

[115] [1992] FCA 420; (1992) 8 ACSR 444

[116] Picarda, The Law Relating to Receivers, Managers and Administrators, 2nd ed., 1990, pp.115 and 245.

[117] O'Donovan, Company Receivers and Managers, 2nd ed., para 11.10.

[118] Blanchard, The Law of Company Receiverships in Australia and New Zealand, 1982, para 1101.

[120] See Re Beddoe [1893] 1 Ch 547, 562; and RWG Management Limited v Commissioner for Corporate Affairs (1985) VR 358, 396 as cited in Re Just Juice, ibid at 455.

[122] In Re Trent & Humber Ship-Building Company (1869) LR 8 Eq 94 (successful claimant's costs of action issued by liquidator after winding up); Madrid Bank v Pelly (1869) 7 Eq 442 (costs of successful defendant in action instituted by liquidator); In Re Dominion of Canada Plumbago Company (1884) 27 Ch D 33 (costs of successful defendant in action commenced by liquidator/costs of liquidator's solicitor); Re London Metallurgical Co**.** (1895) 1 Ch 758 (costs of successful claimant against a liquidator); In re Pacific Coast Syndicate Ltd [1913] 2 Ch 26 (costs of successful defendant in action commenced by liquidator); Jeffcott Holdings Ltd (In liq) v Young (1995) 16 ACSR 33 (costs of successful defendant in action instituted by liquidator).

See Re Universal Distributing Co Limited (in liq) [1933] HCA 2; (1933) 48 CLR 171; also, see Ford, Austin and Ramsay, Ford's Principles of Corporations Law, (loose leaf service), para 27,480, p.28,429.

[123] (2001) 37 ACSR 152

[125] [2002] UKHL 6; [2002] 1 WLR 671

[127] See Re Universal Distributing Co Limited (in liq) [1933] HCA 2; (1933) 48 CLR 171; also, see Ford, Austin and Ramsay, Ford's Principles of Corporations Law, (loose leaf service), para 27,480, p.28,429.

[128] See Re Oygevault International B.V. (1994) 14 ACSR 245.

[129] Bell v Amberday Pty Ltd (2001) 39 ACSR 25.

[130] See In Re Beni-Felkai Mining Co Limited [1934] Ch D 406, 419 per Maugham J.

[132] See Explanatory Memorandum to the Corporate Law Reform Bill 1992, para 909.

[135] [1980] HCA 20; (1980) 146 CLR 165.

[136] The relevant decisions include In re Progress Assurance Company (1870) LR 9 Eq 370 (rent accrued since winding up, possession for joint benefit of lessor of company); In re Lundy Granite Company (1871) LR 6 Ch App 462 (rent accrued since winding up - possession retained by company (not lessee) for purposes of winding up); In re Bridgewater Engineering Company (1879) 12 Ch D 181 (rent accrued since winding up - possession retained for joint benefit of landlord company); In re Oak Pits Colliery Company (1882) 21 Ch D 322 (rent accrued since winding up - possession not for benefit of company); In re South Kensington Co-Operative Stores (1881) 17 Ch D 161 (rent accrued since winding-up - business carried on in premises for the purposes of winding up); In re Lancashire Cotton Spinning Company (1887) 35 Ch D 656 (rent accrued since winding up - occupation for joint benefit of company and mortgagees); Shackleton & Co v Chorlton & Sons [1895] 1 Ch 378 (rent accrued after winding up - premises occupied for purposes of winding up); In re ABC Coupler & Engineering Co Ltd (No. 3) [1979] 1 WLR 702 (rent accrued after winding up - lease retained for benefit of winding up); In re Downer Enterprises Ltd [1974] 1 WLR 1460 (rent accrued since winding up - premises retained for purposes of winding up.

[137] (1871) LR 6 Ch App 642.

[138] In re Lundy Granite is summarised comprehensively in In re Toshoku Finance UK plc [2002] UKHL 6; (2002) 1 WLR 671, 678 - 679.

[140] [1979] 1 WLR 702

[141] (1882) 21 Ch D 322 at 329

[142] Section 163 of the Corporations Act 1862 provided "any ... distress or execution put in force against the estate or effects of the company after the commencement of the winding up shall be void to all intents" and s. 87 provided that after a winding up order, no "suit action or other proceeding" should be proceeded with or commenced against a company without leave of the court.

[143] It appears that there is no relevant distinction between the principles applicable to a landlord's right to distrain and a landlord's right to receive payment of the rent in full. In re Downer Enterprises Ltd [1974] 1 WLR 1460 at 1466.

[145] (1871) 6 Ch App 462

[146] In re A.B.C. Coupler & Engineering Co Ltd (No. 3) [1970] 1 WLR 702 at 709; In Re Downer Enterprises Ltd [1974] 1 WLR 1460, Pennycuick V-C said at 1466:

"I confess that I am not entirely happy at the expression `motivation'. That seems to make the right of a landlord dependent on the subjective processes in the mind of a liquidator. However, the difficulty is perhaps not a very real one in most ordinary cases and there is nothing extraordinary about the case before me because the landlord's motivation will be found or will be inferred from what they in fact did."

[147] (1882) 21 Ch D 322

[148] (1887) 35 Ch D 656

[149] (1882) 21 Ch D 322 at 330-331.

[151] See also Lindley LJ at 665 and Bowen LJ at 667.

[155] [2002] UKHL 6; [2002] 1 WLR 671

[158] [1980] HCA 20; (1980) 146 CLR 165

[159] Which was in the same terms as s. 556(1)(a) of the Corporations Act 2001.

[160] (1978) 3 ACLR 870, at 872-3

[161] (1978) 3 ACLR 870 at 874

[165] [1980] HCA 20; (1980) 146 CLR 165

[174] (1970) 16 FLR 402

[176] Stephen and Wilson JJ formed a majority with Murphy J who agreed with the disposition of the appeal but for different reasons and Aickin and Mason JJ dissented.

[177] (1985) 10 ACLR 109

[180] (1992) 26 NSWLR 526

[184] [1995] NSWSC 31; (1995) 38 NSWLR 290

[188] (1996) 42 NSWLR 123

[190] (2001) 39 ACSR 25

[192] [2002] FCA 231; (2002) 41 ACSR 256

[193] [1969] HCA 47; (1969) 120 CLR 455, at 459

[195] [1986] VicRp 84; [1986] VR 876, at 878-879

[196] [2002] NSWCA 28; (2002) 41 ACSR 1

[199] [1969] HCA 47; (1969) 120 CLR 455 at 459 and 462

[201] [2002] UKHL 6; [2002] 1 WLR 671

[203] (1882) 21 Ch D 322

[204] [1970] 1 WLR 702

[206] Set out at para 280 of these reasons.

[207] See Re Beni-Felki Mining Co (1934) Ch 406; In re Mesco Properties Limited (1979) 1 WLR 558; (1980) 1 WLR 96; In re National Arms and Ammunition Co (1885) 28 Ch D 474; In re Blazer Fire Lighter Limited (1895) 1 Ch 402; In re Mineral Resources Limited (1999) 1 All ER 746.

[208] [2002] UKHL 6; (2002) 1 WLR 671

[209] See In re Atkinson [1971] VicRp 73; [1971] VR 612, 615; Re Walker (1901) 1 SR(NSW) Eq 237; and, also, In re Toshoku Finance UK plc, ibid; Stevens and Ors v Bell and Ors, ibid; s.36, Supreme Court Act 1986 (Vic); Rules of Supreme Court 1986, Chapter I, rule 54.02, 54.03.