Apostolovski v Total Risk Management [2010] NSWSC 1451 | Case summary

2010/61605 MILAN APOSTOLOVSKI v TOTAL RISK MANAGEMENT PTY LTD JUDGMENT 1 Total Risk Management Pty Ltd, the defendant, is the trustee of the BlueScope Steel Superannuation Fund. It provides superannuation benefits to certian employees of BlueScope Steel Limited and its associated companies. 2 In the course of his employment the plaintiff, Milan Apostolovski, suffered an injury to his back on 25 December 1994. He suffered a further injury to his back during the course of his employment on 16 February 2000. His claim upon the Fund for total and permanent disablement benefits was not accepted by Total Risk until 12 November 2010, just days before the trial. 3 The remaining issues are interest and damages. Interest 4 Total Risk submits that interest should run from 10 July 2009, the date on which it made its first decision to deny Mr Apostolovski's claim. Mr Apostolovski submits that interest should run from an earlier date. 5 On 29 November 2005 the Fund was informed that Mr Apostolovski wished to make a claim for total and permanent disability. On 3 February 2006 a representative of the Fund sought a series of documents from him, all of which were supplied under cover of a letter dated 9 March 2006. 6 Later that month, Mr Apostolovski's solicitors were informed that the claim for total and permanent disablement would be determined at the same time as Mr Apostolovski's claim to withdraw the preserved part of his superannuation benefit. 7 On 29 March 2006 a representative of the Fund wrote to Mr Apostolovski's solicitors stating that they had requested information from his employer and upon receipt it would be provided to the Fund's insurer, Comminsure, and then to Total Risk as trustee. The letter acknowledged that Mr Apostolovski was under financial pressure. 8 Mr Apostolovski accepted voluntary redundancy in July 2005 and he received $34,355.48. He had a finance broker acting for him who, in April 2005, had indicated to his mortgagee that he had had serious problems with his wife from whom he was separated and had made arrangements to borrow a small sum from his brother. The broker suggested to the mortgagee that he would receive approximately $200,000 upon retirement and expected a further $195,000 in superannuation that would enable him to pay out the mortgage. 9 While the amount to which the finance broker suggested Mr Apostolovski would be entitled upon redundancy was well overstated, his entitlement from the Fund was well understated. It was $309,600. In combination with the redundancy payment the figure was almost the same as the $395,000 specified by the finance broker. 10 On 7 August 2006 Mr Apostolovski's solicitors wrote to the Fund. They referred to earlier correspondence and suggested that they had waited a significant period of time for a reasonable response from the Fund. They reiterated that their client was under considerable financial pressure from his mortgagee who was to foreclose on his home. The solicitors asked the Fund to consider their client's claims as the matter had dragged on for a very long period of time. 11 On 10 August 2006 the Fund referred the matter to Comminsure, which on 23 October 2006 wrote to the Fund stating that Mr Apostolovski was not covered by it because his injuries pre-dated the commencement of cover for him on 1 July 2005. 12 A representative of the Fund wrote to Mr Apostolovski's solicitors on 7 November 2006 informing them that Comminsure claimed it was not on risk but that AMP Life, the prior insurer, was and it would refer the claim to AMP. It took until 13 November 2006 to do so. 13 It was submitted on Mr Apostolovski's behalf that if the claim had been lodged with AMP when it was lodged with Comminsure, the Fund could have expected to receive a response by 23 October 2006, the end of the period of Comminsure's investigation of the claim. Allowing a reasonable time for the Fund to consider AMP's response, it was submitted that a decision by Total Risk ought to have been made by 18 November 2006 and interest should run from that date. 14 It is impossible to nominate a finite date by which the Fund should have finalised its investigations and obtained Total Risk's decision on the claim. 15 I reject the submission of Total Risk that it was reasonable for the Fund to take until 10 July 2009 to deny Mr Apostolovski's claim for total and permanent disablement and early release of the account balance. Particularly is this so as throughout this period Mr Apostolovski's solicitors and finance broker continued to state that Mr Apostolovski was under extreme financial pressure and was being charged penalty interest rates and a decision should be made on his claim. 16 I think Mr Apostolovski's proposed date from which interest should run is closer to the mark. But on 16 March 2007, AMP maintained that when it ceased to be the insurer Mr Apostolovski was fit for normal duties with restrictions and when he ceased working Comminsure was the insurer. It took the Fund until 3 May 2007 to put the matter back to Comminsure, which accepted that it was on risk on 15 June 2007 but declined Mr Apostolovski's claim on 25 March 2008. 17 There was no evidence of the Fund seeking an early decision by Comminsure on the resubmitted claim in light of the financial pressures that burdened Mr Apostolovski. Nor for that matter was there any evidence that the Fund sought an early decision from AMP or from Comminsure when the claim was first submitted to it. 18 It took Comminsure 10 months to reject the claim for the second time. On 3 May 2007 the Fund put the matter back to Comminsure. On 25 March 2008 Comminsure rejected the claim. 19 If instead of accepting Comminsure's first refusal and writing to Mr Apostolovski's solicitors on 7 November 2006, the Fund had analysed the position and told Comminsure it regarded it as on risk, the 10 month period Comminsure took to reject the claim, would most likely have run from 7 November 2006 when the letter was written to, say, 7 September 2007. 20 Conservatively, it is from that date I think interest should run. Damages 21 A trustee's duties under a superannuation deed were limited by McLelland J to those applicable to the exercise by a trustee of discretionary powers in Rapa v Patience, NSWSC, unreported, 4 April 1985. His Honour adopted what had been said by McGarvie J in Karger v Paul [1984] VR 161 about the challenge to a trustee's exercise of discretionary power. 22 In Karger a testatrix left her entire estate to her husband during his lifetime with power in her trustees in their absolute and unfettered discretion, upon the request of the husband, to pay or transfer the whole or part of the capital of the estate to the husband for his own use absolutely. Upon the death of the husband the trustees were to pay the residue to the plaintiff for her own use absolutely. The husband and the testatrix's solicitor were the trustees. The husband made a written request to pay the entire capital of the estate to him and he and his co-trustee acceded to the request. 23 At 164 McGarvie J said that the issues examinable by the court were limited to whether there had been a failure to exercise the discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. In short, the court examines whether the discretion was exercised but does not examine how it was exercised. 24 In Rapa, McLelland J adopted this approach with respect to a claim by an employee for breach of duty by the trustee of a superannuation fund for failing to allow his claim for total and permanent disablement. His Honour said: "The grounds on which the performance by trustees of functions such as these may be successfully challenged are those applicable generally to the exercise by trustees of discretionary powers, helpfully discussed by McGarvie J in Karger v Paul (1984) VR 161. As encapsulated by his Honour in that case there are three such grounds and in some circumstances a fourth. They are, first, that the discretion was not exercised by the trustees in good faith, second, that the discretion was not exercised upon real and genuine consideration (which includes consideration of the wrong question - see Scott on Trusts 3rd ed. Vol. 3, para. 187.3), third, that the discretion was not exercised in accordance with the purposes for which it was conferred and, fourth, where the trustees have disclosed (otherwise than in the course of the proceedings in which the discretion is challenged) the reasons for the exercise of their discretion that those reasons are not sound." 25 As Ormiston JA remarked in Telstra Super Pty Ltd v Flegeltaub [2000] VSCA 180; (2000) 2 VR 276 at 278 [6] it seems to have been assumed since the decision in Rapa that similar restrictions to those discussed in Karger apply to the formation of opinions as to the qualification of a beneficiary for benefit under a superannuation trust deed. 26 Judicial dissatisfaction with such limitations has been expressed from time to time (Vidovic v Email Superannuation Pty Ltd, NSWSC, unreported, 3 March 1995; Flegeltaub at 277 [4], 283 [25] and 284-285 [33]; Jeffrey Guy Baker v Local Government Superannuation Scheme Pty Ltd [2007] NSWSC 1173 at [8]; John Gilberg v Stevedoring Employees Retirement Fund Pty Ltd [2008] NSWSC 1318 at [18]; Kowalski v MMAL Staff Superannuation Fund Pty Ltd (No 3) [2009] FCA 53 at [25]; Tuftevski v Total Risk Management Pty Ltd [2009] NSWSC 315 at [128]). 27 In Finch v Telstra Super Pty Ltd [2010] HCA 36; (2010) 84 ALJR 726 the High Court recently held that a decision that a person was entitled to payment out of a superannuation fund for total and permanent invalidity was not a discretionary decision in the sense used in Karger. A decision whether a member of such a fund was unlikely ever to engage in gainful work was an ingredient in the performance of a trust duty. As the court said at 740 [66]: "It is extremely important to the beneficiaries of superannuation trusts that where they are entitled to benefits, those benefits be paid. Here, for example, the applicant was claiming a Total and Permanent Invalidity benefit to support himself for the rest of his life. His claim depended on the formation of an opinion by the Trustee about the likelihood that he would ever engage in "gainful Work": that was not a mere discretionary decision. In the Deed there was a power to take into account "information, evidence and advice the Trustee may consider relevant", and that power was coupled with a duty to do so. It would be bizarre if knowingly to exclude relevant information from consideration were not a breach of duty. And failure to seek relevant information in order to resolve conflicting bodies of material, as here, is also a breach of duty. The Scheme is a strict trust. A beneficiary is entitled as of right to a benefit provided the beneficiary satisfies any necessary condition of the benefit." 28 Here the fault was not to fail to take relevant information into account: it was to fail to act with reasonable dispatch. But, in my view, that also is a breach of fiduciary duty by Total Risk as trustee of the Fund. 29 In Finch there was no discussion of an award of damages against the trustee. But a trustee must bring to his or her office the same degree of care, skill and diligence as an ordinary prudent person would exercise in performing the duties of a trustee and to fail or exercise that degree of care, skill and diligence constitutes a breach of fiduciary duty. 30 In Government Employees Superannuation Board v Martin (1997) 19 WAR 224 at 273 Ipp J said as much: "It was the duty of the Board to preserve the trust property (the fund) and observe the terms of the trust. In managing the fund, the Board was required to exercise the same diligence and prudence as an ordinary prudent man of business would exercise in conducting that business if it were his own: see Austin v Austin (1906) 3 CLR 516; Fouche v Superannuation Fund Board (1952) 88 CLR 609 at 641. The duty so imposed is an equitable one: see Permanent Building Society v Wheeler (1994) 11 WAR 187 at 237." 31 In Austin the High Court held that it was the duty of a trustee, in managing the trust affairs, to take those precautions which an ordinary man of business would take in managing similar affairs of his own. In Fouche at 641 the Court said that the duty of a trustee of a superannuation fund was a duty of reasonable care - care which an ordinary prudent man of business would take. 32 In my view, by at least 7 September 2007 Total Risk as trustee, through its servants or agents managing the Fund, had failed to exercise that degree of care, skill and diligence that an ordinary prudent person would exercise in the circumstances. 33 On 7 November 2006 those persons administering the Fund on behalf of Total Risk were obligated to examine Comminsure's claim that it was not liable with reasonable dispatch rather than accepting it at face value and sending the claim to AMP with the consequent delay of 10 weeks. And this during a period in which Mr Apostolovski, his solicitors and his finance broker kept writing to Total Risk stating that Mr Apostolovski was in desperate need of moneys properly due to him from the Fund to pay out his mortgage as he was destitute. They wrote in this vein on 24 March 2006, 7 August 2006, 12 June 2007, 26 July 2007, 2 January 2008, 18 January 2008 and 4 February 2008. 34 There is no evidence of any pressure placed by the Fund on Comminsure or AMP to reach a decision. Nor was there any evidence explaining the gross delay of the Fund to allow Mr Apostolovski's claim after 7 September 2007. Nor was the court invited to draw any inference explaining the delay. 35 It was not until 12 November 2010 that Total Risk determined to allow Mr Apostolovski's claim. On the evidence before the court that was grossly in excess of the period any ordinary prudent man of business would take to come to the decision that Mr Apostolovski was entitled to a permanent disablement benefit out of the Fund. 36 And in the period from 24 March 2008 to 12 November 2010 Mr Apostolovski, his solicitors and his finance broker continued to write to the Fund emphasising his urgent need of the moneys for he was in desperate straits. They wrote on 8 April 2008, 10 April 2008, 18 April 2008, 25 April 2008, twice on 2 June 2008, twice on 20 June 2008, 22 July 2008, 31 July 2008, 23 September 2008, 22 October 2008, 28 October 2008, 9 December 2008, 6 July 2009, 24 August 2009 and 1 September 2009. 37 On 15 July 2009 Mr Apostolovski's solicitors were informed that Total Risk had declined his claim for total and permanent disablement and the early release of his account balance. On 24 August 2009 the solicitors requested Total Risk to review its decision. On 17 September 2009 the solicitors were informed Total Risk had again declined the claim. On 22 September 2009 Mr Apostolovski's solicitors again requested reconsideration. On 14 October 2009 Total Risk confirmed that Mr Apostolovski was uninsured for total permanent disability. There was a request for release of the funds on 21 October 2009 and on 9 November 2009. On 23 February 2010 Mr Apostolovski's solicitors were informed the claim had been declined again. On 10 March 2010 these proceedings were commenced. 38 It is not as though Total Risk lacked the capacity to obtain timely determinations. On 26 July 2010 a different claims assessor, Tower, was asked to make an urgent independent claims assessment. This it did in 14 days. 39 Total Risk had a duty to act with due diligence. It failed to do so. Mr Apostolovski is entitled to equitable compensation. 40 Mr Apostolovski also lays his claim to damages in terms of the Superannuation Industry (Supervision) Act 1993 (Cth). Section 52(1) provides that if the governing rules of a superannuation entity do not contain covenants to the effect of those set out in subsection (2) those governing rules are taken to contain covenants to that effect. Relevant to the instant circumstances is s 52(2)(b) which is as follows: "(2) The covenants referred to in subsection (1) are the following covenants by each trustee of the entity: (a) …. (b) to exercise, in relation to all matters affecting the entity, the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide." 41 The Superannuation Industry (Supervision) Act, s 55(1) provides that a person must not contravene a covenant contained, or taken to be contained, in the governing rules of a superannuation entity. Section 55(3) is in the following terms: "A person who suffers loss or damage as a result of conduct of another person that was engaged in in contravention of subsection (1) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention." 42 The Superannuation Industry (Supervision) Act, s 55(5) provides that it is a defence to an action for loss or damage as a result of the making of an investment if the defendant establishes that the investment was made in accordance with an investment strategy. Section 55(6) provides that it is a defence to an action for loss or damage suffered by a person as a result of the management of any reserves if the defendant establishes that the management was in accordance with a covenant. 43 It was submitted that these provisions required the Superannuation Industry (Supervision) Act, s 55(3) to be given a limited operation with respect to investment or management of reserves. 44 I reject that submission. The Superannuation Industry (Supervision) Act, s 52(2)(f) imported into the governing rules of a superannuation entity a covenant to formulate an investment strategy. Section 52(2)(g) imported a covenant to formulate and give effect to a strategy for the prudential management of reserves. These covenants are addressed in the defences in s 55(5) and s 55(6). 45 On the other hand the covenant imported under the Superannuation Industry (Supervision) Act, s 52(2)(b) is in general terms unqualified by s 52(2)(f) or s 52(2)(g). If loss or damage is suffered as a result of a breach of any of these covenants, s 55(3) comes into play. It is subject to the defences in s 55(5) and s 55(6) if the breached covenant is that in s 52(2)(f) or s 52(2)(g). But those defences do not apply if the covenant in s 52(2)(b) is breached and there is no justification for reading s 55(3) down. 46 The Superannuation Industry (Supervision) Act, s 52(2)(b) imports the equitable fiduciary duty of a trustee. I doubt that the reference to the person for whom the trustee feels morally bound to provide adds any stringency to the trustee's obligation, at least in the circumstances of this case. The degree of care, skill and diligence that an ordinary prudent man of business would take in managing similar affairs of his own is likely to be no different from the degree of care, skill and diligence an ordinary prudent person would take in dealing with the property of a person to whom the prudent man felt morally bound to provide. 47 For the reasons set out above Total Risk failed to exercise the degree of diligence that a prudent person would exercise in dealing with the property of another for whom the person felt morally bound to provide in terms of the Superannuation Industry (Supervision) Act, s 52(2)(b). 48 In final address counsel for Total Risk sought relief under the Superannuation Industry (Supervision) Act, s 310(1). It is in the following terms: "If, in a civil proceeding against a superannuation official for official misconduct in a capacity as such a person, it appears to the court that the official is or may be liable in respect of the official misconduct, the court may, if subsection (2) is satisfied, relieve the official either wholly or partly from the liability, on such terms as the court thinks fit." 49 The term "superannuation official" is defined in the Superannuation Industry (Supervision) Act, s 310(5) as a trustee of a superannuation entity; or an officer of a corporate trustee of a superannuation entity; or an auditor of a superannuation entity; or an actuary of a superannuation entity. 50 The basis for granting relief is set out in the Superannuation Industry (Supervision) Act, s 310(2) as the appearance to the court that the official has acted honestly and having regard to all the circumstances of the case, including those connected with the official's appointment, he or she ought fairly to be excused for the official misconduct. 51 In my view relief is not available under this provision to Total Risk as it is a corporate trustee. The wording of the provisions is suggestive of a limitation to individuals. In the Superannuation Industry (Supervision) Act, s 310(1) reference is made to a "person". The reference in s 310(2)(b) is to "he or she". It is not to "he, she or it". And reference to an officer of a corporate trustee in paragraph (b) of the definition of a "superannuation official" in s 310(5) suggests that the reference to a trustee of a superannuation entity in paragraph (a) of that definition is limited to an individual because a corporate trustee's officers are separately catered for. 52 An entitlement to relief under this provision was not pleaded and, in any event, it would not apply, in my view, to a case of gross lack of diligence such as is here present. 53 In the period prior to accepting voluntary redundancy the account with the mortgagee was constantly in default. It was submitted that if Mr Apostolovski had managed his financial position properly he would have been able to use the redundancy pay out to service his mortgage. 54 But at that time he had difficulties with his wife. He separated from her and paid her $40,000. Had he received his total permanent disablement benefit within a reasonable time of making his claim he could have cleared the mortgage. 55 In any event, the portion of the equitable compensation or the loss or damage under the Superannuation Industry (Supervision) Act, s 55(3) relevant to this issue is computed on the basis of subtracting from the final payout figure the amount owing when the decision ought to have been made on the claim on 7 September 2007. To the extent to which that figure is augmented by earlier defaults, the equitable compensation or loss or damage is so much the less. 56 Mr Apostolovski is entitled to recover his loss or damage from Total Risk under the Superannuation Industry (Supervision) Act, s 55(3). 57 It was submitted that only half should be awarded to Mr Apostolovski. Upon his father's death he became a tenant in common with his mother of the mortgaged property. It was submitted that the discharge of the mortgage was a matter in which he was only partially responsible. But his mother did not work and was incapable of working and he was the only source of payment in reduction of the mortgage. I reject the submission that he should be compensated only to the extent of 50% of the losses sustained by him by the failure of Total Risk to pay out his claim with due dispatch. 58 The balance of the account with the mortgagee on 11 September 2007, the closest time to 7 September 2007, was $165,970.08. As at the day before the hearing it stood at $249,636.27. The difference was $83,666.19. 59 Between 11 September 2007 and the day before the hearing Mr Apostolovski made payments under the mortgage of $52,307.04. If he had received his payout from Total Risk on 7 September 2007 he would not have had to make these payments. 60 A memorandum of fees to Mr Apostolovski from his solicitors was tendered. Objection was taken that the solicitors were unable to enforce any payment in terms of the tax invoice until such time as they had been assessed. It was submitted that the professional fee of $44,000 including GST was just an ambit claim. I rejected the objection. The tax invoice totalled $68,250 and is some indication of the loss sustained by Mr Apostolovski in fighting his entitlement against Total Risk. 61 The total of these three elements is $204,223.23 which I propose to discount but modestly because of the gross delay by Total Risk in honouring Mr Apostolovski's claim. I will award $200,000 as equitable compensation or damages. 62 An interest calculation from 18 November 2006 to 16 November 2010 on the payout figure of $309,600 totalled $114,946.41. From that is to be deducted the first two items from 18 November 2006 to 31 December 2006 and from 1 January 2007 to 31 December 2007 of $3,638.86 and $31,734 respectively. What is to be added is interest at 10.25% for the 115 days from 7 September 2007 to 31 December 2007, an amount of $9,998.38. 63 The result is an entitlement to interest up to 16 November 2010 of $89,571.93. Mr Apostolovski is entitled to that amount together with interest to judgment. He is entitled to equitable compensation or damages of $200,000 and he is entitled to an order for costs in his favour. 64 I direct the parties to bring in short minutes of order reflecting these reasons. *****************************

Apostolovski v Total Risk Management

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