Attorney-General v Breckler

• 26 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3196/02 - THE APPLICATION OF HIH SUPERANNUATION PTY LIMITED JUDGMENT Introduction 1 The plaintiff is the trustee of the HIH Insurance Group Staff Superannuation Fund (which I shall call "the Fund"). By its amended summons filed on 9 July 2002, the plaintiff seeks the opinion, advice and direction of the court pursuant to s.63 of the Trustee Act 1925 in respect of certain questions set out in a statement of facts filed on 18 June 2002. The main questions are, in essence, whether the plaintiff would be justified in dealing with an apparent actuarial surplus in the Fund in accordance with a plan of distribution set out in a deed dated 18 September 2001 to which further reference will be made in due course. There are subsidiary questions as to replacement of the trustee of the Fund. 2 The matter comes before the court in circumstances where the life of the Fund is limited. The relevant employer companies are in liquidation as a result of orders made by this court. It is expected that the winding up of each will be completed in about three years. Virtually all relevant employees ceased to be employed during 2001. The situation is thus immediately distinguishable from one in which there is a turnover of staff and fund membership as employees come and go in the ordinary course of events, the expectation being that the fund will continue indefinitely for the benefit of the body of employees as constituted from time to time. That commonplace expectation has been displaced in this case. 3 The powers to be exercised by the trustee in distributing the actuarial surplus arise from the trust deed and rules governing the Fund. The trust deed was made on 26 May 1976 upon the establishment of the Fund. The provisions currently in force were adopted on 20 December 1999 when all then subsisting provisions were repealed and replaced by new provisions, that being a process generally recognised as comprehended by a power to amend: cf, Re Adelaide Unley & Mitcham Tramway Co Ltd [1907] SALR 35. 4 The Fund operates on the usual basis involving contributions by employers in respect of their employee Fund members and contributions by those employee members themselves, with all contributions being invested by the trustee. Benefit entitlements vary among members of various classifications but the general scheme is such that, following cessation of employment, a member's own contributions are always paid out together with fund earnings attributable to them, while in certain circumstances (typically, retirement at or after a particular age) there is paid an additional element related to the employer contributions in respect of the member and income attributable to those contributions. The benefit provisions are complex and the general pattern to which I have referred is subject to a number of exceptions and qualifications spelled out in detail in the rules. In particular, some members have only or mainly defined benefits (as distinct from the kind of accumulation benefits involved in the provisions I have briefly outlined), while others have only insured benefits. 5 The benefit provisions to which I have just referred are contained in rules 6 and 7 of the trust deed. Those rules work on the general footing that a particular event related to a particular member triggers a benefit entitlement on the part of the member. Rules 8, 9 and 10 then deal in detail with the general question of payment of benefits by the trustee in satisfaction of that entitlement and a number of matters that may cause the amount of a benefit to be adjusted in a particular case. 6 Of immediate relevance to the present application are rules 8.13 and 18: "8.13 The Principal Employer may direct the Trustee to augment the amount of any benefit of any Member or other beneficiary." "18 If a provision of the Deed or Rules would otherwise be wholly or partly invalid because it: (a) subjects the Trustee to direction by another person; or (b) permits a person to exercise a discretion without the consent of the Trustee, then the Trustee's consent is required for the giving of the direction or the exercise of the discretion." 7 The relevance of the second of these provisions in the present context comes from s.58 of the Superannuation Industry (Supervision) Act 1993 (Cth): "58. Trustee not to be subject to direction (1) Subject to subsection (2), the governing rules of a superannuation entity other than a superannuation fund with fewer than 5 members or an excluded approved deposit fund must not permit the trustee to be subject, in the exercise of any of the trustee's powers under those rules, to direction by any other person.

(2) Subsection (1) does not apply to: (a) a direction given by a court; or (b) a direction given by the Regulator; or (c) a direction given by a beneficiary or a group of beneficiaries that relates to benefits payable to that beneficiary or those beneficiaries, as the case may be; or (d) a direction given by a beneficiary or group of beneficiaries, where the direction is covered by subsection 52(4); or (e) if the entity is an employer-sponsored fund---a direction given by an employer-sponsor, or an associate of an employer-sponsor, in circumstances prescribed by the regulations; or (f) a direction given by the Superannuation Complaints Tribunal; or (g) a direction given by a member (within the meaning of the Superannuation Contributions Tax (members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 ) that is permitted to be given by subsection 15(8A) of that Act. (3) If the governing rules of a superannuation entity are inconsistent with subsection (1), that subsection prevails, and the governing rules are, to the extent of the inconsistency, invalid." 8 On 30 August 2001, HIH Casualty & General Insurance Ltd (which I shall call "C&G"), Mr McGrath and Mr Macintosh (the liquidators of C&G and a number of associated companies) and the plaintiff (as trustee of the Fund) made a deed by which C&G, as "principal employer" directed the plaintiff, as trustee, to increase the benefits of persons defined as "Eligible Members" in the ways set out in the deed. The same deed contained machinery to cause C&G to be replaced by Mr McGrath and Mr Macintosh as the "principal employer". Following that replacement, a further deed was, on 18 September 2001, made between the plaintiff as trustee and Mr McGrath and Mr Macintosh as the principal employer. That deed contained a direction by the principal employer to the trustee in the same terms as in the deed of 30 August 2001. The deed of 18 September 2001 was, in accordance with provisions for its own amendment, amended and supplemented by further deeds made on 10 December 2001 and 5 September 2002. The later deeds varied the principal employer's direction in certain ways. The questions 9 By its amended summons, the plaintiff seeks: "The opinion, advice and direction of the Court pursuant to section 63 of the Trustee Act 1925 (NSW) in respect of the questions set out in the Statement of Facts filed herein." 10 The questions are set out in the statement of facts as follows: "The opinion, advice and direction of the Court is sought on the questions whether the Trustee would be justified in: (a) distributing the Actuarial Surplus (less the AIOI Share) in accordance with the proposed plan for distribution as set out in the 18 September 2001 Deed; (b) alternatively, subject to receiving a direction from the Principal Employer, distributing the Actuarial Surplus (less the AIOI Share and the Claims Deduction) in accordance with the proposed plan for distribution as set out in the 18 September 2001 Deed as modified in accordance with paragraph 86 of the Statement of Facts; (c) dealing with the allocation of Actuarial Surplus for part time Eligible Members by not further adjusting the Actuarial Surplus proposed to be distributed to them to take into account periods of part-time employment not reflected in their 'Salary' (under the Agreement) at the time they left employment with C&G; (d) adopting the concept of 'membership' in the formula for distribution of the Actuarial Surplus for the 5 Executives to exclude any period before 1 June 1989; (e) distributing the AIOI Share in accordance with the proposed plan for distribution in the AIOI Deed; (f) amending the Trust Deed (as amended) to permit the trustee of the Fund to be paid a professional administration fee from the assets of the Fund, including the pension assets. (g) consequent upon the amendment in (f) above, resigning as trustee of the Fund and appointing a professional trustee company, in its place; and (h) amending the trust deed in the manner proposed in clause 1.8 of the 18 September 2001 Deed."

The various references to "the 18 September Deed" (a defined term, for the purposes of the statement of facts) are, in the context, references to the deed of 18 September 2001 between the plaintiff and Mr McGrath and Mr Macintosh, as amended and supplemented by the deeds of 10 December 2001 and 5 September 2002. 11 The matters raised in paragraphs (a) to (h) set out above fall into three classes. Paragraphs (a), (c), (d) and (e) refer to a composite and complete plan for the application of surplus and enhancement of benefits on the footing that it is permissible to include in such a plan persons to whom benefit payments have already been made in consequence of the cessation of employment or some other triggering event in relation to those or other persons. Paragraph (b) entails an alternative to paragraph (a) in the event that it is not permissible to include such persons, while paragraph (h) anticipates a possible need to alter the trust deed to seek to cater for the same eventuality. Paragraphs (f) and (g) deal with a separate aspect concerned with future action to replace the plaintiff as trustee of the Fund.

The trustee's power to augment benefits 12 The combined effect of rules 8.13 and 18, the principal employer's direction in the deed of 18 September 2001 (as amended) and s.58 of the Superannuation Industry (Supervision) Act 1993 (Cth) is, the plaintiff contends, to put the plaintiff in a position where, if it consents to the giving of the direction, it will be empowered and required to give effect to the direction by increasing the benefits of eligible members in such a way as will implement the scheme of enhancements set out in the direction. 13 That position is said to arise as a result of a series of steps. First, although rule 8.13 purports to do no more than to permit the principal employer to give to the trustee a direction as to the augmentation of benefits, the rule must, it is said, be read as creating a duty of the trustee to comply and a concomitant power of the trustee to do so. Second, rule 8.13, read alone, is accordingly a provision which, as referred to in s.58(1), permits the trustee, in the exercise of its powers under the rules with respect to the payment of benefits, to be subject to direction by the principal employer. Third, however, rule 18 forestalls the conclusion that rule 8.13 is inconsistent with s.58(1) (and therefore invalid by operation of s.58(2)) by specifying that the trustee's consent is required for the giving of the direction - with the result, it is contended, that the trustee is not "subject to" the direction given by the principal employer in the sense referred to in s.58(1). This is apparently because rule 18, in effect, causes the direction to be of no force unless and until the giving of it is consented to by the trustee, whereupon the direction and the consent combine to form a compact between principal employer and trustee which, via the rules, is the source of a power of the trustee to do as the direction contemplates, with the trustee, because of its active consent, not being subject, in the exercise of that power, to any direction that would cause s.51(1) to operate. 14 I initially had reservations about this interpretation. I could not easily identify in the rules the power of the trustee that was relevant to s.58(1) and caused that section to have the potential or prospective operation that brought rule 18 into play. Rule 8.13, as I saw it, neither expressly confers any power on the trustee nor expressly permits (or requires) the trustee to be subject, in the exercise of any power under the rules, to the direction of the principal employer. On reflection, however, I think that this is the interpretation that the provisions should be given, particularly in light of the fact that, as Mr Brereton SC pointed out on behalf of the plaintiff, the court should adopt a "practical and purposive" approach to the construction of superannuation or pension scheme provisions: Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587. The basis of such schemes in a contractual framework involving employer, trustee and employees emphasises the need to construe their provisions in a way that reflects the respective roles of the parties in the employment context: Lock v Westpac Banking Corporation (1991) 25 NSWLR 593. 15 There could presumably have been included in the rules a provision empowering the trustee to augment benefits if the principal employer so requested and the trustee so agreed. That would not have involved conflict with s.58(1) and would have been a direct and straightforward stipulation. Why such an approach was not taken is not clear, but I am nevertheless persuaded that the combined effect of rules 8.13 and 18 and s.58 is the same as that of such a stipulation. In particular, I am persuaded that rule 8.13 is to be read as conferring, by necessary implication, a power for the trustee to obey a direction given by the principal employer as mentioned in that rule. This is because a provision purporting to enable the principal employer to give a direction to the trustee and having no other or further effect leads nowhere. The direction, once launched, is, as it were, left hanging in the air unless it is implied that the recipient trustee may receive and implement it - subject, of course, to the effects that s.58 and rule 18 then produce. 16 In the result, therefore, I am satisfied that the trustee has, in an abstract sense, power to effect the kind of augmentation of benefits in contemplation. There are, however, two further matters requiring attention. The first is the question whether it is permissible under the trust deed and rules to include in the distribution a person in respect of whom there have already been paid out of the Fund all moneys required by the rules to be paid upon and by virtue of cessation of service or some other event identified by the rules as the occasion for payment in respect of the person. The second is as to the appropriateness of the particular scheme of distribution of surplus and enhancement of benefits that is proposed in accordance with the deed of 18 September 2001 (as amended). Parties to the proceedings

17 Before dealing with those questions, I should say something about the way in which the proceedings are constituted and were conducted. It was foreseen by the plaintiff that persons interested in the question of distribution of the actuarial surplus fell into various classes or categories by reason of certain factual matters giving rise to distinctions among them producing potentially divergent interests. On 8 July 2002, I made orders appointing representatives of various classes of members as defendants to the proceedings. The classes were described as:

(a) the class of persons who are, or were as at September 2000, members of the HIH Insurance Group Staff Superannuation Fund ('the Fund') and who were formerly members of the CIC Superannuation Fund ('the CIC Fund') including the pensioners transferred to the Fund in July 1997;

(b) the class of persons who are, or were as at September 2000, defined benefit members of the Fund (whether transferred from the Colonial Group Staff Superannuation Fund ('CML Fund') or otherwise) but excluding former defined benefit members of the CIC Fund;

(c) the class of persons who are, or were as at September 2000, accumulation members of the Fund, including former CML Fund members, former members of the HIH Winterthur Group Staff No 2 Fund, former World Marine Agencies employee members and former members of individual executive superannuation funds (excluding Messrs G Stureststeps, T Casssidy, W Kane, R Eade and R Williams) but excluding former accumulation members of the CIC fund;

(d) the class of persons who were members of the Fund on 13 September 2000, but who have ceased to be members of the Fund pursuant to either clause 4.16(a) or 4.16(b) of the Trust Deed;

(da) the class of persons who were members of the Fund on 13 September 2000 and continue to be members of the Fund; and

(e) Mr G Stureststeps, Mr T Casssidy, Mr W Kane, Mr R Eade and Mr R Williams. 18 Representatives of the classes referred to in paragraphs (a) to (e) were added as defendants. When the plaintiff's application was heard on 19 December 2002, the members in the various classes were referred to accordingly as "Class A members", "Class B members", "Class C members", "Class D members", "Class DA members" and "Class E members". The class A members were represented by the first defendant, the Class B members by the second defendant, the Class C members and the Class DA members by the third defendant, the Class D members by the fourth defendant and the Class E members by the fifth defendant. All defendants retained separate legal representation. Written submissions were filed by all defendants. The first, fourth and fifth defendants were represented before me on 19 December 2002. With the exception of the fifth defendant, no defendant opposed the plan of distribution of surplus set out in the deed of 18 September 2001 (as amended). Submissions in opposition to the proposal were made on behalf of the fifth defendant. I shall come to those submissions presently. May benefits already paid be augmented? 19 I return now to the question whether it is permissible under the rules as they stand to include in the scheme of application of surplus a person to whom all moneys required to be paid upon cessation of that or another person's service or some other identified event in relation to that or another person have already been paid. The answer turns upon the interpretation of rule 8.13 and, in particular, whether a person of the kind I have described (referred to below, for convenience and in a way intended to be neutral so far as the issue at hand is concerned, as a "benefit recipient") is still properly regarded and within the description "any Member or other beneficiary" in rule 8.13. 20 Rule 1.1 says that, unless the contrary intention appears: " 'Member' means: (a) an Employee who has been admitted to membership under rule 4.3 and has not ceased to be a Member under rule 4.16; and (b) Dependants of former Employees who are receiving or are contingently entitled to receive benefits from the Fund. However a Member does not include a Pensioner or a CIC Pensioner."

The expressions "Pensioner" and "CIC Pensioner" are defined in such a way as to extend to a person for the time being receiving a certain kind of pension from the Fund. 21 Rule 4.16 (referred to in paragraph (a) of the definition of "Member") is as follows: "A person ceases to be a Member when: (a) all benefits which are or may be payable in respect of the Member have been paid; or (b) a transfer is made under rule 3.3 or 4.10 in satisfaction of all the Member's entitlement to benefits; or (c) all the Member's entitlement to benefits is terminated; or (d) the person becomes a Pensioner."

There is no definition of "benefits". 22 Several conclusions may be stated with respect to the meaning of "Member". First, neither a "Pensioner" nor a "CIC Pensioner" is a "Member". Second, the status of "Member" can, at inception, attach only to persons who are "Employees" or "Dependants of former Employees". Third, persons who become "Members" by virtue of being "Dependants" referred to in paragraph (b) of the definition of "Member" remain "Members" while receiving or contingently entitled to receive "benefits from the Fund". Fourth, a person who becomes a "Member" by virtue of being an "Employee" and being admitted to membership under rule 4.3 (see paragraph (a) of the definition of "Member") ceases to be a "Member" upon the happening of one of the events specified in rule 4.16. Three of those events - those mentioned in paragraphs (a), (b) and (c) - are constituted by the happening of certain things in relation to "benefits" of or referable to the Member. Two of the three involve cessation (in one case by satisfaction and in the other by termination) of the "entitlement to benefits" and the third involves payment in full of "all benefits which are or may be payable in respect of the Member". 23 Inherent in the definition of "Member", therefore, is the concept that the particular person has an entitlement to "benefits". As I have said, the term "benefits" is not defined; nor is it explained. Numerous provisions work on the basis that the money payable out of the Fund pursuant to the rules and in consequence of a person's cessation of service, disability or death is a "benefit". There can be no doubt that "benefits" in the several paragraphs of rule 4.16 extends to "benefits" in that sense, so that if all such moneys are paid or dealt with in accordance with rule 3.3 or rule 4.10 or the entitlement to receive moneys is terminated under the rules, the person concerned no longer has any "benefit" or any entitlement to or expectation of "benefits" in that sense. There is a question, however, whether a person's "benefits" has some wider meaning comprehending something beyond the payment of money out of the Fund in respect of the person in consequence of cessation of service and analogous events. 24 Reference was made on behalf of the plaintiff to various cases in which the word "benefits" had been considered in instruments regulating superannuation schemes, in particular, Wilson v Metro Goldwyn Mayer (1980) 18 NSWLR 730 and BHLSPD Pty Ltd v Brashs Pty Ltd [2001] VSC 512. The first of these cases involved the phrase "any benefit secured by contributions made on behalf of any member"; the second the phrase "benefits secured to a member by the contributions paid by him and by the Company in respect of him". In each instance, the decision was that advantages and potential future advantages for which the superannuation instrument made provision in favour of members as a general body were "benefits" in the relevant sense and that the term was not confined to the moneys ultimately to be paid out of the relevant fund to or on account of the member. 25 It may be that a broad meaning such as this is intended where the reference is to benefits "secured to" members by contributions. The words "secured to" are apt to refer to everything advantageous that comes home to a member, either immediately or by way of potentiality, by virtue of the making of contributions. But the references to "benefits" in rule 4.16 in this case are, it seems to me, references to the narrower concept referring to moneys paid out of the Fund by way of benefits in consequence of cessation of service or some other triggering event in relation to a Member. This follows, I think, from the reference in rule 4.16(a) to "benefits which are or may be payable in respect of the Member" and, so far as rule 4.16(b) is concerned, from the references in rules 3.3 and 4.10 to benefits "in respect of Service" up to a particular day, "Service" being a central component in the determination of the quantum of "benefits" in the form of money paid out of the Fund in the way I have mentioned. 26 It seems to me that once the sum to be paid out of the Fund to or in respect of a person in consequence of the person's cessation of employment, disability or death has been paid, the person ceases to be a "Member"; and likewise when a sum is paid out of the Fund in respect of a person as contemplated by rule 3.3 or rule 4.10 so as to produce the result that, upon the person's subsequent cessation of employment or other triggering event, nothing more is to be paid out of the Fund, the person ceases to be a "Member". On this basis, a person I have called a "benefit recipient" is probably not within the contemplation of the part of rule 8.13 that refers to augmenting of "any benefit of any Member". It remains to consider whether such a "benefit recipient" is within the part of the rule referring to augmenting "any benefit of any … other beneficiary". 27 The first thing to be said in relation to that issue is that "beneficiary" obviously refers to some class of persons larger than "Members". This is the force of the word "other" in the phrase "any Member or other beneficiary". According to the ordinary meaning of words, "beneficiary" thus must include "Member" in this particular case but clearly covers something more as well. An obvious additional category of persons within the "beneficiary" concept is that consisting of "Pensioners" and "CIC Pensioners", they being persons to whom the rules require payments to be made out of the Fund. But does "beneficiary" extend also to what I have called a "benefit recipient", that is, a person to whom all payments in consequence of cessation of service or some other triggering event specified in the rules have been made so as to exhaust what might be termed the normal benefit expectations of the person? 28 The term "beneficiary" has no fixed meaning. This is shown by the observations of Dixon CJ and Williams J in their joint judgment in Crooks National Stores Pty Ltd v Collier (1957) 97 CLR 581 where differences between the terms and scope of English and Victorian landlord and tenant legislation was seen as making applicable to the latter a meaning of "beneficiary under the trust" different from that given to the expression by the English Court of Appeal when called upon to construe and apply the former. Nor, of course, is the term "beneficiary" confined in ordinary parlance to someone regarded by equity as a cestui que trust. The word "beneficiary" has meanings outside the narrow confines of principles of equity concerned with trusts and trustees. 29 In the present case, the word "beneficiary" is used in relation to a superannuation fund created and maintained to benefit a body of employees existing from time to time. The fund has a continuing existence of unspecified duration. Indeed, like all such schemes established for the benefit of employees of a corporation, it is put by s.1346 of the Corporations Act 2001 (Cth) beyond the operation of the rule against perpetuities. In general concept, the Fund consists mainly of moneys contributed by employees, moneys contributed by employers and the return on investments. Employees, or their estates or dependants, receive benefits according to various circumstances related to cessation of employment. No such person can point to particular moneys as being held upon trust for him or her. Leaving aside any impact of statute, the most anyone has by way of legal claim, pending crystallisation of an entitlement to receive benefits, is a claim to have the Fund properly administered in accordance with the rules and other applicable provisions. The extent of any individual's benefits depends entirely on the provisions of the rules and may bear no direct or clear relationship to the individual's contributions or those made by his or her employers that are referable to him or her. Each individual, by contributions, obtains a right in relation to the Fund as a whole, being a right the quantum of which is measured according to the rules. The right does not inhere in the Fund in the form of an interest in any separately identifiable property. 30 A person to whom, in consequence of cessation of employment or some other specified event in relation to that or some other person, a sum is paid out of the Fund under the rules in that event thereby receives a benefit out of the fund and may be said to have become a "beneficiary" according to one of the meanings of that term in the 1993 edition of The Shorter Oxford English Dictionary: "A person who receives or is entitled to receive a favour or benefit, esp. under a trust or will or life insurance policy" [emphasis added] 31 In the whole of the context, I do not consider "beneficiary" to be confined to a person who stands to receive something in the future if and when events crystallising some entitlement come to pass. Given the ongoing nature of the fund and the way in which persons participate, I consider it correct to regard as a "beneficiary" someone who has received a benefit payment. Such a person's realisation of fruits of participation in the form of what the rules clearly label "benefit" should be regarded as causing the person to become a "beneficiary", that is, someone who has derived a benefit from the Fund. By receiving a realised benefit, the person is to be regarded as a "beneficiary", even though he or she may also have been a "beneficiary" beforehand by reason of the entitlements or expectations that existed under the rules and in relation to the Fund before receipt of the realised benefit. Cessation of employment or some other defined event is the occasion for receipt of the realised benefit, but there is not, as I see it, anything in the rules compelling the conclusion that the receipt puts an end to the recipient's status as a beneficiary, assuming that that status existed at an earlier stage. 32 A particular example confirming this meaning of "beneficiary" is found in the rules concerning benefits in consequence of a Member's death. In such a case, the relevant benefit is payable to such of the Member's "Dependants" and the legal personal representative as the trustee decides. If there is no "Dependant" or legal personal representative, the benefit may be paid to "any other person", provided superannuation legislation so permits. "Dependant" includes, in relation to a Member, any person who, in the trustee's belief, was dependent on the Member. Clearly, it is not possible to say at any time before a relevant determination is made by the trustee that a particular person will receive anything under these provisions as a result of the death of a member. It is only upon that determination being made as part of the process for payment of the benefit in consequence of the Member's death that a particular person is shown to be one who will receive a benefit. And that process, in my view, causes such a person to become a beneficiary. 33 The other aspect of rule 8.13 to be mentioned is the words "augment the amount of any benefit". The thing that can be "augmented" under this provision is an "amount". It must follow that the power conferred by the rule extends to a "benefit" that has reached the stage of being quantified as an "amount". It thus refers to the amount that the rules make payable as benefit in consequence of a particular cessation of employment or other triggering event. It must follow that augmentation can occur only after relevant events have caused the amount of a benefit to be quantified. Such events have, by definition, occurred in every case where a benefit has already been paid to a person who, on the analysis made earlier, thereby becomes a "beneficiary". Furthermore, there is nothing (such as the words "amount payable as benefit to any Member or other beneficiary") to suggest that the only augmentation in contemplation is one that increases a sum otherwise payable that has not yet been paid. The words "the amount of any benefit of any Member or other beneficiary" are wide enough to allow augmentation, by further payment, of something already paid, as well as augmentation of something to be paid in the future. 34 Having regard to the meanings to be given, in context, to "beneficiary", "benefit" and "augment", I am satisfied that rule 8.13 allows not only increase, as and when paid, of sums to be paid as benefits in the future in respect of cessation of employment and other triggering events but also retrospective increase, by way of payment supplement, in benefits already paid to persons; and this is so whether or not those persons are or were "Members": if they are or were not "Members", the payments to them are sufficient to bring them within the "other beneficiary" specification, whether or not other circumstances also do so. On this basis, the question described at paragraph 19 above is answered in the affirmative. 35 This has two consequences in relation to matters raised in paragraphs (a) to (h) of the statement of facts set out at paragraph 10 above. First, the alternative course envisaged by paragraph (b) need not be pursued, that being an alternative that becomes relevant only if the primary approach envisaged by paragraphs (a), (c), (d) and (e) is precluded by reason of inability to include persons to whom benefits have already been paid. Second, there is no need for action to alter the rules in an attempt to confer any specific power to augment the benefits of persons to whom benefits have already been paid, being action of the kind envisaged by paragraph (h) of the statement of facts by way of amendment as envisaged by clause 1.8 of the 18 September 2001 deed. The particular application of surplus 36 I proceed now to the central matter to be considered, namely, the appropriateness of the particular scheme of application of surplus and enhancement of benefits that is proposed in accordance with the deed of 18 September 2001 (as amended). 37 The first point to be made here is that, with one exception (the fifth defendant, who is the representative of the Class E members), none of the defendants objects in any way to what is proposed and all (with the same exception) are content to see the scheme of application of surplus and augmentation of benefits implemented as the trustee proposes. The court is therefore in a position where it knows that a representative of each of five out of the six classes of interested persons previously identified has, with professional assistance, considered the scheme from the perspective of the interests of the class concerned and finds it so far acceptable as to raise no objection. The situation just described has arisen in circumstances where the trustee took careful steps to inform Fund members of the nature and scope of the proposed scheme of application of surplus. Every member was also given an estimate of the likely impact of the scheme on his or her own position. Except for Class E members, there was no adverse response. 38 It is also relevant to record that the trustee has developed the proposed scheme in consultation with actuarial advisers who have no reason to advocate anything other than the welfare of the beneficiaries in general and the respective classes of them. It is significant that Mr Carroll, the Fund's actuary, states in his affidavit sworn on 17 June 2002 the opinion that the proposed basis for dealing with the actuarial surplus now before the court "is a fair and equitable basis of dealing with the actuarial surplus as between all the persons who were members and pensioners of the HIH Fund as at 13 September 2000 or have since become members"; that is to say, the persons contemplated by the proposed basis. I emphasise, in Mr Carroll's statement, the word "all". The same conclusion is stated in the affidavit of Mr McAliece also sworn on 17 June 2002. He is a partner of KPMG who was appointed as an employer-appointed director of the plaintiff in August 2001. A similar favourable conclusion is stated by Mr Rook, the other director of the plaintiff who has been in office since 1998, in his affidavit of the same date. 39 The affidavits to which I have referred, together with those of Mr Kelly, the secretary of the plaintiff, detail the steps that were taken over a relatively long period in developing the scheme of surplus distribution and benefit enhancement. It is fair to say that the matter was approached in a methodical, considered and principled way calculated to produce a fully considered and researched outcome after taking into account a wide range of pertinent considerations. The outcome, as I have said, finds favour (in the form of lack of opposition either by particular individuals or by the representatives made parties to these proceedings) among all relevant classes of persons except the Class E members. It is to their objection that I now turn. 40 I refer to the "objection", in the singular, of the Class E members because there is only one aspect of the proposed scheme from which they dissent. In relation to paragraph (d) of the questions as formulated in the statement of facts (that is, the question whether the trustee is justified in adopting a "membership" period, for the purposes of the scheme, that excludes, in relation to the Class E members, any period before 1 June 1989), the Class E members say that a negative answer should be given. It is their contention that the participation of Class E members should, like the participation of other beneficiaries, be on the basis of the whole of the relevant person's period of service as a member, rather than being counted only from a fixed date after commencement of such service. 41 The five Class E members are the remaining members of a group of senior executives for whom special superannuation arrangements were made. At some point before 1988, a separate superannuation fund was established for each of the senior executives in that group. In 1989, an amount held in each such separate superannuation fund was transferred to either a Colonial Mutual deferred annuity or a Macquarie personal approved deposit fund for the benefit of the particular executive. This occurred in the course of a restructure of superannuation arrangements which also saw a new senior executive superannuation fund established in respect of each relevant person in place of the fund the subject of the transfer to the Colonial Mutual or Macquarie superannuation investment. As part of the same restructure, the trustee believes, a balance held in each old individual fund over and above the particular individual's statutory reasonable benefits limit for superannuation purposes was, in each case (except the case of Mr R Williams, being one of the five Class E members), forfeited to C&G by agreement, with C&G making in return a cash payment to the individual concerned. Both these circumstances - that is, the transfer to the Colonial Mutual or Macquarie superannuation investment for the individual's benefit and the effective "cashing out" of the fund benefit over and above the reasonable benefit limit - cause the trustee to be of the view that service of each of the five persons concerned up to and including 1988 was adequately catered for, from a superannuation perspective, by the restructure arrangements of 1988 so that no further recognition of that service is warranted in the scheme currently proposed. 42 The Class E members do not dispute these facts. Their complaint is, in essence, that they were led to think that the scheme presently proposed would apply to them by reference to the whole of their Fund membership service, so that the trustee's decision to limit participation by reference to post-1988 service only is discriminatory, unjust and inequitable and will be made without any rational basis. 43 Having stated the respective positions in relation to treatment of the Class E members, I should proceed to explain the task facing the court. This is not the occasion for adjudication of such disputes as may exist between the trustee and the Class E members. The court is asked by the trustee for its opinion, advice and direction on the matters in paragraphs (a) to (h) of the extract from the statement of facts set out above. The matters in paragraphs (a) to (e) are all elements of the overall plan of distribution of surplus and enhancement of benefits proposed to be achieved and effectuated by the exercise of the trustee's powers to which reference has already been made. 44 The basis on which exercise of a power or discretion by a trustee may be called in question was referred to by McGarvie J in Karger v Paul [1984] VR 161 in a passage approved by McLelland J in Rapa v Patience (unreported, NSWSC, 14 April 1985). There are three - sometimes four - such grounds: first, that the discretion was not exercised in good faith; secondly, that it was not exercised upon real and genuine consideration (which includes consideration of the wrong question); thirdly, that it was not exercised for the purpose for which it was given; and, fourthly (and where the trustee has given reasons), that the stated reasons are not sound. 45 More recently, in Attorney-General v Breckler (1999) 197 CLR 83, Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ have expressly approved the following statement of principle which originated in submissions made in Clerical Administrative and Related Employees Superannuation Pty Ltd v Bishop (unreported, FCA (Northrop J), 31 July 1997) and was adopted both by the trial judge and by the Full Federal Court on appeal (Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd (1997) 7 FCR 469): "Where a trustee exercises a discretion, it may be impugned on a number of different bases such as that it was exercised in bad faith, arbitrarily, capriciously ( Re Pauling's Settlement Trusts [1964] Ch 303 at p333), wantonly, irresponsibly ( Lutheran Church of Australia South Australian District Incorporated v Farmers' Co-Operative Executor and Trustees Ltd (1970) 121 CLR 628 at p639), mischievously or irrelevantly to any sensible expectation of the settlor ( Re Manisty's Settlement [1974] Ch 17), or without giving a real and genuine consideration to the exercise of the discretion ( Karger v Paul [1984] VR 161, which includes a survey of the authorities). The exercise of a discretion by trustees cannot of course be impugned upon the basis that their decision was unfair or unreasonable (see Dundee General Hospital's Board of Management v Walker [1952] 1 All ER 896) or unwise ( Gisborne v Gisborne (1877) 2 AC 300 at p307). Where a discretion is expressed to be absolute it may be that bad faith needs to be shown ( Gisborne v Gisborne supra at p305). The soundness of the exercise of a discretion can be examined where reasons have been given, but the test is not fairness or reasonableness (see Re Londonderry's Settlement [1965] Ch 918 at p928-929; Karger v Paul at p165-166." 46 If the tests emerging from Karger v Paul and the statement approved by members of the High Court in Attorney-General v Breckler are applied, it seems to me to follow quite clearly that, in relation to not only the scheme of surplus distribution and benefit augmentation generally but also the particular aspect with which the Class E members take issue, the trustee proposes to proceed in a way that does not allow the exercise of the particular power to be called in question. There is no suggestion or even hint of lack of good faith on the trustee's part. The evidence shows very clearly that the trustee has turned its mind diligently and thoughtfully to the relevant considerations and has both taken and acted in accordance with independent legal and actuarial advice; also that the power to augment benefits is proposed to be exercised for the purpose for which it is conferred. This is so not only in relation to the proposed scheme as a whole but also in relation to the particular aspect involving the Class E members. The proposed approach to that aspect has a rational factual basis. It proceeds by reference to considerations that are relevant and on the basis of reasoning that is so cogent as to be fairly and reasonably open. All these matters are shown by the several affidavits on which the plaintiff relies and to which I have referred, together with the related reports and other exhibits. 47 I therefore conclude that a positive answer should be given in relation to the matters raised in paragraphs (a), (c), (d) and (e) of the questions in the statement of facts both generally and as they affect the Class E members. Remaining matters 48 It remains to consider the essentially procedural aspects raised by paragraphs (f) and (g) of the questions in the statement of facts. These paragraphs are concerned with a proposal for the plaintiff to relinquish the office of trustee in favour of a "professional trustee", at the same time altering the rules to enable the payment of remuneration out of the fund to such a new trustee. 49 The facts and circumstances underlying that proposal are sufficiently stated in the affidavits of Mr McAliece and Mr Rook, the directors of the plaintiff. Neither of them is remunerated for his services as a director of the plaintiff. Each is unwilling to remain in office, particularly in the light of inability to obtain professional indemnity insurance for either the plaintiff or its directors despite efforts referred to in the affidavits. There has been no such insurance in place since 30 June 2001. In addition, Mr Rook (the designated employee director) is no longer employed within the C&G group and has other duties that make it impracticable for him to continue. Nor are there other employees from whose ranks a successor as employee director can be drawn. Mr McAliece has no ongoing connection with the C&G group, being a partner of KPMG appointed since the commencement of the winding up of the C&G companies to satisfy the requirement for an employer appointed director under superannuation law. 50 In the particular circumstances in which the Fund is now placed, that is, where the membership is virtually static and the Fund has a short life expectancy, with the ordinary interplays between employer and employees no longer operative in any meaningful way so that the Fund is somewhat more akin to an investment fund, the particular difficulties in maintaining the plaintiff as a viable trustee need to be recognised and accommodated. The case for appointing a "professional trustee" in its place is, to my mind, sufficiently made out to cause it to be a course that upon which the plaintiff, as trustee, could determine to embark consistently with the tests emerging from Karger v Paul and Attorney-General v Breckler to which reference has already been made. Conclusion 51 In light of all the matters to which I have referred, it is appropriate that the questions (a) to (h) on which the plaintiff seeks the opinion, advice and direction of the court should be answered by saying that the plaintiff would be justified in proceeding in the manner specified in paragraphs (a), (c), (d), (e), (f) and (g) of the statement of facts (and also set out in paragraph 10 of these reasons), subject, in relation to all matters, to due compliance with all applicable requirements of the Superannuation Industry (Supervision) Act 1993 (Cth), regulations thereunder and other Commonwealth provisions regulating superannuation. 52 It is appropriate to add such a qualification or proviso because some of the relevant matters appear to have implications under the Commonwealth legislative provisions (an obvious example being the possible change of trustee) and it is important to ensure that the opinion, advice and direction of the court be so framed as to require due compliance so that there will be certainty that those implications will be considered and the legislative requirements will be observed in relation to particular steps as they are formulated in detail. 53 The desirable course in relation to the precise formulation of the opinion, advice and direction under s.63 of the Trustee Act is that the plaintiff should bring in short minutes giving effect to these reasons. **********

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