In December 1996 the plaintiff, Mr Peter Beck was a member of the Colonial Group Staff Superannuation Fund ("the Colonial Fund"). The first defendant, Colonial Staff Super Pty Limited ("CSS"), was at relevant times the trustee of the Colonial Fund.
That month CSS made an amendment to the trust deed of the Colonial Fund, to delete one of its existing fund rules, clause A11.3, a rule that provided for certain discretionary benefits in the event of a fund contributor's early retirement before age 55 but after a long period of service. Mr Beck contends that CSS's exercise of this power to amend breached CSS's general law duty to act in the best interests of the Colonial Fund's beneficiaries, including himself, and that it contravened the CSS's co-extensive statutory duties under the Superannuation Industry Supervision Act (Cth) 1993 ("the SIS Act"), s 52(2)(c) and the Superannuation Industry (Supervision) Regulations 1994 ("the SIS Regulations").
In December 1996 at the time of these amendments, Mr Beck was an employee of Colonial Limited. Four years later, in 2000, the Commonwealth Bank of Australia ("CBA") acquired all the share capital in Colonial Limited and Mr Beck then became an employee of CBA. Within a further three years, in 2003, the Colonial Fund had been absorbed into the Officer's Superannuation Fund ("OSF"), the superannuation fund for CBA officers.
Mr Beck contends: (1) these amendments deprived him of the right to apply for these discretionary early retirement benefits under the rules of the Colonial Fund or its successor funds, when he left CBA in 2005; and, (2) that both the SIS Act and doctrines of estoppel now prevent CSS, CBA, or any successor Trustee, from acting on the amendments.
Mr Beck's claim is disputed. CSS is in liquidation and did not appear in these proceedings. The second defendant, the Commonwealth Bank Officers Superannuation Corporation Pty Limited ("CBOSC"), the trustee entity for OSF, the ultimate successor fund to the Colonial Fund, and CBA, his former employer, both deny that any estoppels apply or that CSS contravened the SIS Act. The second and third defendants, CBOSC and CBA, are collectively referred to in these reasons as "the CBA parties".
The proceedings were argued on 7 August, 21 August and 22 August 2014. Mr J. Kelly SC, Ms J. Merkel and Mr P. Godkin of counsel appeared for the plaintiff, Mr Beck, instructed by Slater and Gordon, solicitors. Mr J. Nixon and Mr J. Hutton of counsel appeared for the CBA parties, instructed by Jones Day, solicitors.
These reasons first set out the narrative of the Court's findings concerning Mr Beck's employment and superannuation fund arrangements between 1981 and 2005. This narrative of findings does not contain the detailed provisions of the various superannuation deeds that governed his entitlements. Those provisions are reserved for a later section of these reasons, where they can be more readily understood together in context.
[2]
Mr Beck's Employment and Superannuation Arrangements - 1981 to 2005
From South Africa to Australia. Mr Beck was born on 7 February 1954. He is an actuary by profession. He attained his primary professional qualifications in the Republic of South Africa. He ultimately became a fellow of the Institute of Actuaries of Australia, the Institute of Actuaries (UK) and the Society of Actuaries (USA).
In February 1981 Mr Beck commenced employment with the Colonial Mutual Life Assurance Society Limited ("Colonial Mutual") in South Africa performing various roles in its life insurance and pensions businesses. As a term of his employment he commenced contributing to Colonial Mutual's South African superannuation fund ("the South African fund").
In February 1987 Mr Beck migrated with his family from South Africa to Australia, relocating his employment with Colonial Mutual to its Melbourne office, where Mr Beck worked until 2000.
Upon his transfer to Australia, Mr Beck became a member of and contributed to Colonial Mutual's Australian superannuation fund, constituted for the benefit of its Australian employees. His transfer to Colonial Mutual in Australia was on the basis that his existing superannuation arrangements with Colonial Mutual in South Africa would continue.
Achieving this was not without its complications. At the time of his emigration to Australia, Mr Beck agreed with Colonial Mutual that benefits that had accrued on his behalf in the South African fund would be transferred to Colonial Mutual's superannuation fund in Australia, so he would be treated as a contributor with continuous Colonial Mutual service from 1981. But the currency exchange controls then applicable in South Africa prevented this. So the agreed solution was that Colonial Mutual would pay out to Mr Beck his reserve entitlement in the South African superannuation fund and he could in turn pay that amount (devalued to a degree by tax and South African currency exchange control penalties) into the Australian fund. In the end Mr Beck was given the choice of paying the net refund to him from the South African fund into the Australian fund or not making any payment and getting credit for his prior service only from April 1985 rather than 1981. As will be seen from later developments, he seems at emigration to have chosen the latter option.
The Australian Colonial Mutual fund was originally constituted by deed dated 30 June 1978. It was then known as the "Colonial Mutual Australian Administrative Staff Superannuation Fund". It later changed its name to the "Colonial Group Staff Superannuation Fund". For convenience in these reasons this early fund is called "the Old Colonial Fund", as it was reconstituted in 1998 into a fund that ultimately came to be named the "Colonial Group Staff Superannuation Scheme" and which these reasons for convenience call the "the New Colonial Fund". When it is not necessary to distinguish between these two funds in these reasons, they are simply referred to as the "the Colonial Fund". The rules of the Old Colonial Fund were amended from time to time before the New Colonial Fund was created in 1998, including relevantly, by three deeds of principal importance to these proceedings, made respectively in August 1985, July 1996 and December 1996.
Like the South African fund, the Old Colonial Fund in Australia was what is commonly called a "defined benefit" superannuation fund, which guaranteed certain financial outcomes defined according to agreed formulae upon termination of employment and membership.
In the case of the retirement of a member at the agreed retiring age of 62 the contributor was entitled to a retirement pension, calculated by a defined formula on the basis of 1/60th of the contributor's pensionable salary averaged over the last three years of his or her service, for each year of pensionable service from commencement and payable from age 62. The pension was payable for life (or a minimum of 7.5 years) and 60% of the pension would continue to be payable to a contributor's spouse for his or her lifetime after the contributor's death.
But a lump sum or "reserve" was also held in the Colonial Fund in respect of the contributor's prospective pension. This reserve could be calculated by the actuary of the Fund, based on certain assumptions so as to represent an amount that would be sufficient to pay the pension from the contributor's normal retirement age of 62. These general concepts of a pension and an associated reserve are analysed in more detail later in these reasons, after the provisions of the applicable superannuation deed are set out.
The benefit could be attained in a modified form upon the contributor's early retirement. The contributor might attain the age of 55, and retire before the age of 62. The contributor might retire even before the age of 55 after showing loyalty, evidenced by a long period of contributory service. In the former case (retirement between 55 and 62) the contributor could get the benefit of either (i) a deferred pension from age 62, or (ii) an immediate pension calculated on certain assumptions, including converting the reserve held in the fund in respect of the pension into an immediate pension, together with a lump sum equal to the reserve held in the fund in respect of his pension. These benefits are called in these reasons "the 55 to 62 retirement benefit". A generic name is given to the benefit in these reasons because the numbering and names of the clauses containing the benefit alter over the period 1985 to 2005.
But if the contributor retired before the age of 55, the contributor was not entitled to a pension but was entitled to receive a return of contributions, together with a defined return on those contributions ("the pre-55 resignation benefit"). On a pre-55 retirement of the contributor after a long period of service the contributor could call for the trustee of the Fund to exercise a discretion to award the contributor the whole or part of the reserve held in the Fund in respect of this pension. But this was a discretionary benefit, not a presently enforceable entitlement on resignation pre-55. This discretionary payment is called in these reasons a "pre-55 discretionary benefit". The concepts are refined later in these reasons, in the context of the full terms of the superannuation deeds.
Amendments to the Colonial Fund - 1985 to 2000. Two years before Mr Beck arrived in Australia in 1987, a deed dated 28 August 1985 (the August 1985 deed) had amended the rules of the Old Colonial Fund, which at least from 1985 included a rule for a pre-55 resignation benefit (clause 22(a)) and a rule for a pre-55 discretionary benefit (clause 22(b)). It also contained a rule permitting the trustee, CSS, to amend the trust deed without prejudicing members' benefits, an "amendment rule" (clause 32). These clauses will be detailed later in these reasons. But the general effect of these two clauses is relevant to this narrative of findings.
Clause 22 of the August 1985 deed provided for the pre-55 discretionary benefit on retirement for a contributor's long service. It provided that if a contributor had a long period of contributory service then the trustees might "at their absolute discretion and with the approval of the board" pay to the contributor a further sum, not exceeding the contributor's reserve value at the date of the contributor ceasing employment.
Clause 32 of the August 1985 deed protected contributors when the trust deed of the Old Colonial Fund was being amended. Clause 32 gave powers to the trustees to amend, to add or to delete from the provisions of the trust deed provided "no such amendment … shall be made whereby the value of the benefits accrued in respect of any contributor prior to the date of such amendment … is detrimentally affected … without the consent in writing of the contributor concerned" ("the amendment rule").
Both these provisions were in the Old Colonial Fund trust deed when Mr Beck came to Australia and began contributing. The subsequent deletion of the pre-55 discretionary benefit is Mr Beck's central complaint in these proceedings.
The structure of the Old Colonial Fund was affected by two corporate acquisitions involving Colonial Mutual, the first in 1994 and the second in 2000.
In 1994 Colonial Mutual acquired the State Bank of New South Wales. As part of that acquisition, the assets and liabilities of the Old Colonial Fund were transferred to and became part of another superannuation fund, then known as the State Bank Superannuation Benefit Scheme. In 1994 this reconstituted fund was renamed the "Colonial Group Staff Superannuation Scheme". But it was still in substance the Old Colonial Fund.
Whilst these changes were taking place Mr Beck was moving into a new employment role with Colonial Mutual in Melbourne. From 1993 to 1996 he acted as the General Manager of Jacques Martin Investment and Insurance, Colonial Mutual's administrative arm.
In the second half of 1996 the rules of the Old Colonial Fund were revised and amended twice more. On 2 July 1996 the rules were first relevantly amended by deed ("the July 1996 deed") by the trustees of the Old Colonial Fund. Neither Mr Beck nor the CBA parties contend that the July 1996 deed was anything more than a restatement of the existing fund rules, without any relevant intention to change their substance. Although, as will be seen, there were some slight material differences between the benefits available under the August 1985 deed and the July 1996 deed.
The July 1996 deed contained two important provisions of the Old Colonial Fund's rules that feature in the parties' present contest. The July 1996 deed, clause A11.3 largely replicated (although with some differences) the existing clause 22(b) provisions of the August 1985 deed for the pre-55 discretionary benefit). And the July 1996 deed, clause 33.2 largely replicated (although in slightly different words) the existing clause 32 provisions of the August 1985 deed.
In December 1996 the rules of the Old Colonial Fund were amended again. By deed dated 30 December 1996 (the December 1996 deed) CSS made the change that is important to the central contest in these proceedings: it removed Clause A11.3 from the Fund Rules. It is not in issue that Mr Beck was unaware of this change and was not asked to and did not consent to it.
On 19 May 1997 Colonial Mutual was demutualised. It listed on the Australian Stock Exchange under the new name "Colonial Limited". In 1998 Mr Beck was made Group General Manager Strategic Development and Appointed Actuary of Colonial Limited, a role he performed until 2000.
In July 1998 the Old Colonial Fund was reconstituted yet again. Reflecting Colonial Limited's then development from a life insurance and pension provider into a single financial services group after its absorption of the State Bank, its board wanted to merge the different superannuation arrangements for its various parts into a single superannuation fund. By deed dated 31 July 1998 ("the July 1998 deed") the assets CSS held for the benefit of the contributors to the Old Colonial Fund were henceforth held for the benefit of what was by then called the "Colonial Group Staff Superannuation Scheme" (often called in the contemporaneous correspondence "CGSSS" but as earlier indicated, called in these reasons "the New Colonial Fund"). The July 1998 deed did not contain a pre-55 discretionary benefit rule (being clause 22(b) under the August 1985 deed and clause A11.3 under the July 1996 deed). Given the alterations that had already taken place through the December 1996 deed this is not surprising. Mr Beck says, and I accept, that he was not asked to consent to the changes to his situation effected by the July 1998 deed. It was an enterprise-wide change.
Upon the introduction of the New Colonial Fund, Mr Beck was offered the opportunity to transfer from the "Defined Benefits Division", operating in accordance with the rules of the Old Colonial Fund, to what was called the "Accumulation Division" of the New Colonial Fund. This Accumulation Division was not a defined benefit scheme but a scheme in which contributors such as Mr Beck made defined contributions and would have to accept the risk of lower than expected investment returns over time. He did not elect to transfer to the Accumulation Division. Mr Beck was told in a letter dated 18 May 1998 from CSS at the time that the Accumulation Division provided benefits that "were consistent with those now generally offered in the finance industry in particular and industry in general". But Mr Beck's own circumstances and expertise persuaded him to reject this offer. He stayed in the Defined Benefits Division.
One of his reasons for rejection was that he thought that the Transfer Benefit under the 18 May 1998 offer (on transfer from the Defined Benefits Division to the Accumulation Division) would be calculated on the basis of paying out to him the reserve value of his pension under the Old Colonial Fund, something to which he thought by then in a practical sense he was already entitled under the rule for the pre-55 discretionary benefit, because of his already long service with Colonial Mutual (by then 17 years). In other words in his mind he was being offered something to which he was already entitled in exchange for electing to transfer to the Accumulation Division. So he rejected the offer.
As these reasons will later explain his reasoning about this was not correct: before the age of 55 he did not have an entitlement to the reserve value of his pension under the Old Colonial Fund. Instead he had rights to seek that CSS give due consideration to the exercise of a discretion, which if favourable, would give him the benefit of that reserve. But his thought processes during this May 1998 opportunity to elect, leading him to reject the 18 May 1998 offer show his belief about the value to him of the pre-55 discretionary benefit under the Old Colonial Fund, a belief that is entirely consistent with his later conduct when offered employment with CBA.
CBA employs Mr Beck - June 2000. In July 2000 CBA acquired Colonial Limited. As part of the takeover arrangements Mr Beck was offered and accepted employment with CBA in Sydney. Mr Beck initially left his family in Melbourne and commuted to Sydney to discharge his new employment duties with CBA. In the short term his superannuation benefits remained in the New Colonial Fund.
Mr Beck had conversations with CBA executives in June 2000 about his future employment with CBA. The legal effect but not the substance of these conversations is in contest in these proceedings. At the time of the July 2000 takeover Mr Beck says that as part of the discussions leading to his employment with CBA he was encouraged to believe: that if he were to remain in CBA's service then he would receive a pension under clause 16.1 (retirement at 62) or 19(a) (a 55 to 62 retirement benefit) of the rules of the New Colonial Fund on retirement between the ages of 55 and 62; or, that if his employment were terminated for any reason other than his resignation before he reached age 55, he would receive the reserve value held in respect of him in that fund, or any successor fund, without any reduction of superannuation benefits and that this benefit would be paid to him by way of pension or lump sum, at his option.
Mr Beck gives a reliable and realistic account of how CBA offered him a job. On 31 May 2000 Colonial Limited shareholders approved CBA's takeover offer. From then on Mr Beck and other Colonial Limited employees were required to conduct their own individual negotiations with CBA in relation to their future employment.
In anticipation of this development it is significant that Mr Beck corresponded with Colonial Limited to ensure that he would obtain the maximum possible withdrawal benefit from the New Colonial Fund. On Mr Beck's transfer to Australia only one third of his past service in South Africa was being recognised for retirement benefit purposes; he was being treated as having commenced on 1 April 1985, not in 1981. To ensure that he was treated for actuarial purposes as having commenced in the New Colonial Fund on the earlier date of 1 March 1981, Mr Beck negotiated the payment into the New Colonial Fund of an additional $18,304. That amount represented the then (in 2000) equivalent value within the New Colonial Fund as if he had paid his full South African fund withdrawal benefit into the Australian fund in 1987 and maintained the benefit of his full Colonial Mutual employment history back to March 1981, instead of just to April 1985.
The New Colonial Fund agreed to backdate his service to 1981 to include all his South African service with Colonial Mutual. Mr Beck paid an additional $18,304 into the fund. This in turn resulted in a significant increase (by approximately $164,400) in Mr Beck's then expected withdrawal benefits. This episode shows Mr Beck's attention at the time of the CBA takeover to preserving and enhancing the value of his long service status in relation to his withdrawal benefits from the New Colonial Fund.
Before Mr Beck's negotiations with CBA executives took place in June 2000, Mr Peter Smedley, Colonial Limited's CEO, had told Mr Beck and other senior group executive employees of Colonial Limited that some Colonial Limited employees would be offered employment with CBA and some would not. Mr Smedley foreshadowed that Mr David Murray, the CEO of CBA, would individually contact each Colonial Limited employee about any CBA job offer.
Mr David Murray did approach Mr Beck at that time. Speaking personally to Mr Beck at a meeting with senior employees of Colonial Limited, Mr Murray said "we want to offer you a role reporting to a CBA group executive, Mr John Mulcahy. It will not be a CBA group executive position. You should have a conversation with him."
Mr Beck met with Mr Mulcahy. During this meeting Mr Mulcahy outlined to Mr Beck in summary the terms on which CBA would offer him employment. These terms included base pay of $360,000 with an additional short term incentive potential of 50% of base pay. Mr Mulcahy gave Mr Beck a memorandum of the main terms of his proposed employment on 15 June 2000.
Between 15 June 2000 and 26 June 2000 Mr Beck attended a number of meetings with senior CBA executives at CBA's head office in Martin Place in Sydney. These meetings principally took place with Mr Mulcahy and a Mr Les Cupper, another CBA senior executive. I accept that during the course of these meetings Mr Beck stated his position to Mr Mulcahy and Mr Cupper thus: "I won't be accepting this offer, as there is insufficient financial incentive to justify disrupting my family by moving from Melbourne to Sydney or even commuting from Melbourne to Sydney."
CBA were keen to secure Mr Beck's services. Mr Mulcahy and Mr Cupper then offered Mr Beck an enhanced short term incentive potential of 70% of base pay.
Mr Beck also declined this offer. He wanted higher base pay. I accept that he pointed out to the CBA executives the importance for him of his retirement benefits. Mr Beck said to Mr Mulcahy and Mr Cupper, "I will only accept the position if you enhance my base remuneration, because what's important to me is my accrued retirement benefits, which only accrue on salary and not on bonuses. I want CBA to confirm that I will continue to receive the superannuation benefits that I would have received had I continued to be an employee of Colonial".
Mr Beck then turned the conversation to focus more upon his pension entitlements. Mr Beck said to the two CBA executives, "I won't come to CBA unless I can protect and enhance my pension that I'm entitled to under my defined benefit pension scheme. I have been a member of that scheme for many years, including my time in South Africa and I have a significant accrued pension in the fund."
According to Mr Beck, and I accept, after Mr Beck said this Mr Mulcahy responded with words of broad assurance; "Whatever your pension rights were under the Colonial Fund, we undertake to protect those going forward."
Mr Beck says, and I accept, that as a result of Mr Mulcahy making this statement, Mr Beck assumed Mr Mulcahy meant that CBA would protect Mr Beck's pension and pay him the reserve that was held on his behalf in the New Colonial Fund. Mr Beck says he also believed as result of this statement that if he were to be employed by CBA and did not thereafter resign his employment with CBA, then he would be paid his pension or the reserve in respect of his pension that had accumulated so far on his behalf during his employment with Colonial and that would continue to accumulate with CBA.
Mr Mulcahy's recollection of these meetings is less detailed. Mr Mulcahy's evidence makes clear that CBA were keen to retain Mr Beck's services at this time. He says CBA had evaluated Mr Beck as a "key keep" and was prepared to work with him and be generous in relation to his employment conditions because of CBA's desire to retain him as an employee. Mr Mulcahy recalls concern within CBA executive ranks at this time that Mr Beck might take a redundancy payment and leave.
Mr Mulcahy said that he recalled saying to Mr Beck words to the effect "you will be better off and certainly no worse off staying with the bank [CBA] than taking your redundancy payment and leaving". Mr Mulcahy said that apart from this statement, he could not specifically recall any conversations that he had with Mr Beck about Mr Beck's future employment with CBA.
Mr Beck read Mr Mulcahy's affidavit in his case. Mr Mulcahy was no longer employed by CBA. The CBA parties elected not to cross-examine either Mr Beck, or Mr Mulcahy about these conversations. I accept Mr Beck's version of them as supplemented by Mr Mulcahy's version, which was generally consistent. It was pointed out to Mr Nixon, counsel for the CBA parties that the decision not to cross-examine made it likely that the Court would infer that Mr Beck actually held the beliefs and made the assumptions that he claimed based upon the representations made by the CBA executives. The CBA parties did not change their election.
These discussions resulted in a written employment agreement between CBA and Mr Beck. The agreement dated 26 June 2000 confirmed Mr Beck's appointment in the senior executive level position of "General Manager, Investment and Insurance Products, AFS". Mr Mulcahy signed the 26 June 2000 employment agreement on behalf of CBA and directed that Mr Beck report to him with effect from 1 July 2000.
Mr Beck's agreed 26 June 2000 remuneration package was on a Total Cost less Incentives less Superannuation Basis (TC-I-S): $500,000 plus performance payment (bonus) potential up to a maximum of 50% of TC - I - S ($250,000). Thus, his total remuneration was said to be $750,000 per annum, reviewable annually from 1 July 2001.
The 26 June 2000 employment agreement dealt with a number of other subjects, including performance benchmarks, executive options, a special gross payment of $660,000 to be made in three instalments over three years, and transition arrangements in respect of Mr Beck's current Colonial Limited bonus arrangements, together with detailed provisions in respect of long service leave, retrenchment and applicable professional standards. The agreement also covered the subject of superannuation: "Your existing superannuation arrangements will continue to apply. Superannuation "salary" will be $400,000 or 80% of TC-I-S", that is Total Cost less Incentives less Superannuation, or "TC-I-S".
After accepting employment with CBA, Mr Beck worked in the role of General Manager Insurance and Investments from 2000 to 2001. During this period CBA began integrating Colonial Limited's various businesses into its operations.
The Becks Move to Sydney - July 2001. The first 18 months of his employment with CBA were very difficult for Mr Beck and his family. Once Mr Beck accepted employment with CBA he was required to attend the office in Sydney within days. His wife, Mrs Ann Beck remained in Melbourne with their three children. She had her own professional career commitments in Melbourne and their children were in school and university there. During the next 18 months she and her husband lived in different cities, sharing the commuting on weekends between Sydney and Melbourne. To add to their uncertainty, Mrs Beck's continuing employment in Melbourne meant that neither of them knew exactly how long this arrangement would last. For the first nine months, CBA paid for the Becks' Sydney accommodation and for their travel expenses between Melbourne and Sydney. For the remaining 9 months Mr and Mrs Beck paid for the commuting and the Sydney accommodation costs.
CBA seemed keen to persuade Mr and Mrs Beck to come permanently to Sydney. So in mid-2001 the bank arranged to fly Mrs Beck up to Sydney for a dinner at Aria Restaurant, near the Sydney Opera House. Mrs Beck had not met either Mr Mulcahy or Mr Cupper before this dinner. There were six people present. Mrs Beck was seated at the dinner between Mr Mulcahy and Mr Cupper and Mr Beck between Mr Cupper's and Mr Mulcahy's respective partners.
Mrs Beck has a recollection of her conversation with either Mr Mulcahy or Mr Cupper at this dinner, although she cannot remember with which executive she spoke. One of them said to her, "When does your contract finish and how long will you and the children stay in Melbourne?" She responded saying "I recently signed a contract for a year but since the project is running late, I've just been asked to sign another one." Then either Mr Mulcahy or Mr Cupper said to her, "When will you and the family move to Sydney? It doesn't show commitment to the bank, if you [and Mr Beck] are living apart."
Mrs Beck got the message. CBA wanted the Becks to move to Sydney, so that CBA would know that it had a committed employee. Mrs Beck spoke to her husband straight after the dinner. Interpreting the message given, she conveyed to him the substance of what had been said to her. She said to him, referring to the words of Mr Mulcahy or Mr Cupper, "They are putting pressure on me and the children to move to Sydney, as they say that staying in Melbourne does not show commitment to the bank. It's not good for your career." His recollection of this post-dinner conversation with his wife is to similar effect.
The very next day Mr and Mrs Beck decided that they would move to Sydney. They made considerable personal and financial sacrifice to do so. I infer this dinner conversation had a similar powerful effect on them both. As a result of the decision Mrs Beck decided not to extend her employment contract in Melbourne. The Beck family prepared to sell their house in Melbourne, which they achieved by September 2001. Although the family did not finally move to Sydney until January 2002, after their daughter had finished her year 12 studies.
Mrs Beck says, and I accept, that it was clear to her from her conversation with Mr Mulcahy or Mr Cupper that CBA appeared to have in mind for Mr Beck a long-term career plan and a long-term commitment to the bank. She interpreted what had been said to her, not unreasonably, as meaning that her husband would preserve and enhance his pension by his continued employment with CBA. And I infer from the nature of their rapid joint decision making after this conversation, that these were shared views. I accept Mr Beck's evidence that one of the factors that featured in his and his wife's discussions about their move to Sydney was that despite the inconvenience of the move, it would ultimately be a worthwhile decision, because Mr Beck's pension would continue to accrue and be enhanced by additional years of contributory service, something which would not be possible should Mr Beck take another position rather than move to Sydney.
The personal and financial effects of relocating from Melbourne to Sydney were considerable for the Beck family. Mrs Beck took time off from work to resettle the children, who had to move to a new social environment, to new educational institutions and who were distressed by the move. To help the family to adjust to these changes Mrs Beck did not seek new employment in Sydney for about another 18 months. Mrs Beck was being paid $100,000 per annum in Melbourne. Terminating her employment there caused her a loss of income.
CommInsure MD to Termination - 2002 to 2005. CBA gave Mr Beck further duties in 2002, appointing him as the managing director of its insurance arm, CommInsure. Mr Beck served in this role from 2002 until 2005.
On 3 October 2003 the assets and liabilities of the New Colonial Fund, including the reserves held in respect of Mr Beck were transferred to the "Commonwealth Bank Officers Superannuation Fund", the fund of which the second defendant, CBOSC is the trustee (and which fund is called "the OSF" in these reasons). At the same time Mr Beck's superannuation benefits were transferred to the OSF.
Although the OSF had received all the assets of the New Colonial Fund, Mr Beck believed that nothing had otherwise changed and that all his rights to either his pension or the reserve in respect of his pension would be preserved. He was aware in general terms of the protection offered by superannuation law that his rights must be protected unless he were to give permission for their variation. This was a change for all New Colonial Fund members. It is not in dispute that Mr Beck's permission for the change was not obtained.
This transfer to the OSF did not diminish the benefits already available to Mr Beck under the New Colonial Fund. As Mr Beck assumed, the SIS Regulations, reg 6.29 prevents a trustee of a superannuation fund from transferring the benefits of a member from one fund to another without the consent of the member, unless the successor fund confers equivalent benefits on the member.
Mr Beck does not contend that there was any breach of that duty on transfer by either CSS as trustee for the Colonial Fund or CBOSC as trustee for the OSF. Rather the breach complained of in these proceedings relates back to the December 1996 amendment to the New Colonial Fund, when the trustee, CSS sought to delete clause A11.3.
On 13 August 2004 Mr Stuart Grimshaw, the Group Executive, Investment and Insurance Services for CBA told Mr Beck that CBA intended to replace him as CEO of CommInsure with another officer, a Mr Simon Swanson, an executive from New Zealand. Mr Beck's response to this was to say, "Does this mean I can retire early?" Mr Grimshaw responded, "I'll support it." The reason Mr Grimshaw gave for this change, as recorded in Mr Beck's 18 August 2004 email back to Mr Mr Grimshaw, setting out his understanding of the conversation of 13 August, seems to have been that "Simon wants to return to Australia".
For the rest of 2004 Mr Beck engaged in discussions with senior CBA executives about his possible retirement.
Mr Beck's 18 August 2004 email to Mr Grimshaw shows that Mr Beck was asked at the meeting with Mr Grimshaw to consider what other Australian roles he might be interested in, including serving on some bank boards, so that CBA did not lose the benefit of his experience. It was made clear to Mr Beck that he would not be given his normal long service incentive plan allocation for 2004, unless an alternative role was found for him. It was also made clear that any alternative role would be at his current level as he had been "boxed" at that level and that he was unlikely to be promoted further. Mr Beck expressed an interest in pursuing board opportunities. Mr Beck reminded CBA that he had joined Colonial in January 1981. He said "after nearly 24 years of service I'm disappointed that I'm unlikely to be able to continue until at least early retirement. I will be 51 in February 2005 and as such will be four years from an early retirement benefit in the pension fund. I have long service leave, accrued annual leave and a period of notice to serve and if you include the annual leave I was instructed to cash in, I will be just short of an early retirement option. I respectfully ask you to consider an early retirement benefit for me in case other roles are not available, which seems quite likely."
Mr Beck sought to have a pension paid to him on the basis of his early retirement. He corresponded further with Mr Grimshaw and Ms Cathy Doyle about this possibility during September 2004. Both of these officers had been supportive of Mr Beck's early retirement request. But in an email dated 30 September 2004 Ms Doyle informed Mr Beck that the early retirement request had been considered and "the outcome is no". She wrote in her email "it will not be supported due to op risk and total $$..." Presumably the decision-makers thought that an aspect of the proposal was too risky and that the payout figure was too high. Ms Doyle offered to get a more detailed response to Mr Beck on the issue.
On 7 October 2004 Mr Grimshaw told Mr Beck "You will be aware that both Cathy [Ms Doyle] and I support the early retirement option and the determination was made whilst I have been on leave, which is why I asked Cathy to deal with it in my absence." Mr Grimshaw indicated that "we will still continue looking for other opportunities within the bank".
On 12 November 2004 Mr Beck attended another meeting with Mr Grimshaw and Ms Doyle to discuss the effect of his termination and to consider options to defer the termination or redundancy date by accessing his accrued leave. The subject of superannuation benefits was also discussed. Mr Beck requested that CBA write to the trustee of OSF, CBOSC, requesting a deferred pension. According to Mr Beck's file note of the meeting, CBA's response was "the Commonwealth Bank's approach is that superannuation benefits apply in terms of normal arrangements for the exit situation and the division that the person is a member of." CBA was apparently declining to write to CBOSC in the manner requested. Perhaps expressing his own personal interpretation of this somewhat opaque response, Mr Beck has written against this part of his file note in his own handwriting "No".
On 4 January 2005 Mr Grimshaw on behalf of CBA gave Mr Beck written notice that CBA no longer had a role for him in CommInsure's business. The letter identified that a suitable permanent placement had not yet been found for Mr Beck and he was encouraged to apply for other suitable positions within the bank. Mr Grimshaw told him that at the end of the "redeployment period", if he had not been appointed to a permanent position, the bank would unfortunately have to proceed with his retrenchment effective from 11 February 2005, "Your retrenchment would occur on 11 February 2005 as agreed."
Mr Beck advanced a number of possible options with CBA to try to avoid a loss of pension, if he were retrenched before age 55. He would turn 51 in February 2005. These options essentially involved trying to extend his service to age 55. He corresponded with Mr Grimshaw and Mr Cupper between November 2004 and April 2005 to request CBA to consider ways to secure his pension. He requested the use of leave without pay to take his service to the age of 55 (which age he would attain in February 2009), so that he could then be paid either his accrued pension and/or the reserve. Utilising the device of leave without pay, the possible options Mr Beck canvassed with CBA were: (1) allowing him to continue in the OSF until age 55 even though his service had ceased, as a "paid-up" member; (2) granting him a career break up to age 55 on unpaid and paid leave, with the option to contribute to and continue to accrue his pension; or (3) granting him a career break up to age 55 on unpaid and paid leave, without the option to contribute and where his pension would not further accrue during this period.
Mr Beck summarised his position on these various options in an email of 24 January 2005 to Mr Cupper. He set out the two broad ways that he could receive an early (that is before age 55) retirement pension. The first involved the various options already canvassed, to extend his actual employment to age 55 to then access the 55-62 retirement benefit. The second involved accessing the reserve value of his pension using what he then thought was still a discretion available to CBOSC as the trustee of a successor fund to the Colonial Fund, the pre-55 discretionary benefit. Ultimately both of these pathways were rejected. Mr Beck's email was as follows:
"Thank you for meeting with me on 7 January 2005. I appreciate the time and effort you are taking to understand my situation. I would like to cover three areas in this letter.
(a) The two ways of granting me an early retirement pension,
(b) Why this does not create any precedents that do not already exist and
(c) The reasons why an early retirement pension is appropriate in my situation rather than a resignation benefit.
I believe the circumstances leading up to my termination is relevant to my situation.
I was employed by CBA about 4 1/2 years ago at the time of the Colonial takeover. I moved my family from Melbourne to Sydney about 3 years ago after being pressurised by you and John Mulcahy to make a long-term commitment to CBA.
I sold two properties in Melbourne and purchased and renovated a home in Sydney. I got my eldest son to transfer from Melbourne to Sydney University midway through his degree, persuaded my daughter to go to Sydney University instead of Melbourne and got my youngest son to start at a new school in year 11. My wife had to give up work to make this commitment. I did all of this on the expectation of continuous employment with CBA at least to early retirement.
The performance of my business unit has exceeded expectation with a scorecard of over 70% and my personal Gallup score reflecting my own leadership ability is one of the highest in CBA at 4.5 out of 5. There is no reason why I should not continue in my existing role. Despite the fact that CBA regards my role as redundant, I do not share this view.
I am disappointed that I have not been given the option of continuing to retirement and I have not resigned. I have made myself available for alternative roles and have not been offered any positions.
There are two ways of granting me an early retirement pension
1) CBA allows me to continue employment to age 55
CBA can continue my employment for 4 years to age 55 within company policy. This would be partly on a paid basis and partly on an unpaid basis. I am entitled to take annual leave and long service leave. It is stated company policy to grant up to 3 years as a career break and 12 months of unpaid leave after 4 years of service. It was also company policy when I joined CBA to allow long service leave to be taken on half pay for double the period.
My retrenchment benefit is over 64 weeks including a 6 months notice period. This could be paid as a lump sum or preferably used for a period of paid leave. Either way I continue in employment to age 55 and get paid 2 years remuneration.
I believe that it would be unreasonable and unconscionable to withhold consent to unpaid leave or to paid leave in lieu of a retrenchment benefit in my situation.
2) The Trustees exercise appropriate discretion
The rules of the fund define "Resignation", "Retrenchment" and "Retire". I believe in my situation I will Retire from the super fund as the definition of Resignation and Retrenchment do not apply.
The Colonial defined benefit super fund has a major discontinuity between the resignation benefit and the early retirement benefit at age 55 for those with long periods of service. The impact for me is a pension around $50 000 pa versus $150 000 pa. The old rules of the fund contemplate this discontinuity and incorporated a special provision for benefits to be individually calculated by the Actuary based upon reserves at the discretion of the Trustees. The current rules continue to provide for Trustee discretion.
There have been precedents of members receiving their reserve values before age 55. For example Graham Rogers received a reserve value when he left Colonial before age 55. All members were offered reserve values or accrued benefits when the company tried to convert members from defined benefits to defined contributions. At the time my accrued benefits were 2.5 times the resignation benefit.
The Colonial defined benefit scheme is the scheme with this discontinuity problem and the special provision to avoid inequities. The precedent already exists in this fund and so exercising discretion creates no new precedents. The other defined benefit divisions (Division B and D) both allow for special benefits to be paid on retrenchment and for those benefits to be deferred to early retirement and paid as a pension.
I believe that if this special provision is not used by the Trustees to provide an early retirement pension, then my interests as a beneficiary under the scheme may not have been dealt with properly and with good faith.
I look forward to your response."
CBA first declined to accept the first pathway Mr Beck had suggested of extending his service to age 55. CBA thought this was too artificial. Its response to Mr Beck's 24 January 2005 email came on 8 February 2005, when Mr Grimshaw wrote to Mr Beck in the following terms:
"In your email of 24 January 2005 you requested various confirmations and a response to your request for a period of leave until 11 February 2009. On the same day you wrote to Les Cupper, Group Executive People Services, requesting that the Bank and its Superannuation Trustees exercise discretion to enable you to receive an early retirement pension on 11 February 2009.
I have considered your requests, discussed them with Les Cupper, and respond as follows.
You will finish in your current roles as Managing Director, Responsible Officer and Principal Executive Officer of Colonial Mutual Life Assurance Limited, Commonwealth Insurance Holdings Limited, Commonwealth Insurance Limited and Colonial Protection Limited, effective 11 February 2005.
I would like to make it clear that the Bank has not made the position you currently occupy redundant. The Bank has exercised its right under your employment contract with the Bank to terminate your services and will meet its contractual obligations.
Peter, you will recall our discussions in August 2004 concerning your future employment and the prospect of termination. I agreed to give you a sufficient time, until the end of the year, to canvass [sic] alternative roles within the Bank. You subsequently asked for an extension to February 2005 to which I agreed. As I informed you in my letter of 4 January 2005, your termination is scheduled to take effect on 11 February 2005 as no suitable alternative role is available for you in the Bank, having regard to your skills and experience. However, the Bank is prepared to agree to your request to take annual leave or long service leave, or a combination of both, from 11 February 2005 to 1 July 2005.
During this period of leave you would remain an employee of the Bank and the terms of your current employment contract would continue to apply.
If you decide to take leave until 1 July 2005, your termination would take effect on that day, or earlier by agreement. Should a suitable alternative position in the Bank become available during your period of leave the prospect of continuing in the Bank will be discussed with you. I have given consideration to your request to continue as an employee of the Bank until 11 February 2009. Your proposal involves converting your termination payments into paid leave and taking a further period of unpaid leave so as to qualify for an early retirement pension when you turn 55 in February 2009. At the same time as being an employee of the Bank during this period you propose to be in alternative employment with another employer. Your proposal is totally unacceptable as it exposes the Bank to being party to a contrived employment arrangement for the purpose of obtaining a more favourable pension than otherwise would have been available. The Bank does not agree with your claim that the OSF could discriminate against you if you are terminated before age 55.
Could you please advise whether you intend to take leave until 1 July 2005
and, if so, the type of leave so that it can be recorded, or if not so that termination payments and associated documentation can be prepared."
Mr Beck had requested to take annual leave/long service leave from 11 February 2005 to 11 July 2005. CBA agreed to this much.
Mr Cupper also replied to Mr Beck's email of 8 February 2005. He vigorously disputed that either he or Mr Mulcahy had applied any pressure to Mr Beck to make a long term commitment to CBA. Despite this, he was not called to give evidence for CBA, which took a position far closer to Mr Beck's account. Mr Cupper said the following:
"I have given your email of 24 January 2005 serious consideration.
You are clearly disappointed that the Bank has exercised its right to terminate your services under your employment contract with the Bank. However, I totally reject your claim that you were pressured by myself and John Mulcahy to make a long term commitment to CBA following the Colonial acquisition. Your Colonial employment arrangements gave you the option to leave as a consequence of the merger and receive a two year payout. We preferred that you stayed on and as part of our discussions we agreed with you to compensate you $660,000.00 for forgoing the benefit you would have received if you had exercised your contractual right. Peter, you must have given the matter long and hard consideration, backed yourself to succeed in CBA, and decided to join the Bank. The movement of your family to Sydney followed as a consequence of this decision. The Bank provided you with generous relocation assistance. No discussion occurred between us on your expectation to continue working with the Bank until age 55 and no undertakings were given to this effect."
Mr Beck took issue with CBA's opinion about his first pathway to an early retirement pension and rejected CBA's characterisation of his idea as "contrived". He replied on 11 February as follows:
"Thank you for your email of 8 Feb 2005.
As requested I will resign as Managing Director, Responsible Officer and Principal Executive Officer of Colonial Mutual Life Assurance Limited, Commonwealth Insurance Holdings Limited, Commonwealth Insurance Limited and Colonial Protection Limited, effective 11 February 2005.
My notes of our meeting in August 2004 records that you requested me to continue in my current role until early 2005 when Simon Swanson would become available. I suggested 11 February 2005 as a termination date to give Simon a one month handover period and so that performance reviews could be completed based upon year end results which would only be available towards the end of January 2005. In my view I have therefore remained in employment to cover a business need.
Your rejection of my request to continue employment until age 55 seems to be based on what you consider to be my proposal "to be in alternative employment with another employer". To clarify my request, therefore, would CBA consider allowing me to continue in employment until age 55 partly on a paid and partly on an unpaid basis if I did not take up alternate employment with another employer.
I am not, as you suggested, trying to contrive an employment arrangement. I
am simply trying to understand what my options are, Thank you for allowing me to take leave until at least 1 July 2005. I will apply for this on a monthly basis until I understand my options in respect of continuing employment and the super fund.
I look forward to your response."
But so far the bank had only dealt with Mr Beck's first suggested pathway. The second pathway was still to be considered. Mr Beck wrote to Mr Gerard Parlevliet, the Secretary of CBOSC on 11 February 2005, submitting that it was "unfair and unequitable that he should be treated as though he had resigned and not retired. He pointed out that when the Fund was set up, retirement benefits were only clearly defined for people over 55 and that he was being forced to be assessed as a resignation. He again pointed out that if he were allowed to continue his membership of the Fund for a further four years, on top of his actual service of 24 years, he would then be entitled to a pension of 37 per cent of pensionable salary from age 55.
But he then turned to his second pathway. He submitted to Mr Parlevliet that if the OSF trustee exercised its discretion under clause 22(b) that he would get roughly that 37 per cent and that "this would be fair", and that is what CBOSC should do. He said in contrast that his pre-55 resignation benefit "could only be used to purchase an equivalent pension of about 12.5 per cent of pensionable salary, which was, as he explained, "what someone with less than ten years of service would get". Moreover, he pointed out that pre-55 resignation benefit could only be taken as a lump sum whereas a pre-55 discretionary benefit "has the choice of a lump sum or an annual pension". Finally he said that if CBOSC did not consider and grant him the pre-55 discretionary benefit then CBA would be making a profit; "Unless CBA intends to make a profit in the fund at my expense, I believe there is no reason for them to not agree to this".
Mr Beck was still proceeding upon the assumption that an equivalent of clause 22(b) in the August 1985 deed was available to him.
CBOSC considered Mr Beck's request for an exercise of discretion to pay him a clause A11.3 benefit based upon the value of his reserve. But as Mr Parlevliet recorded in a file note of 6 May, and a letter to Mr Beck of 11 May, CBOSC decided to reject Mr Beck's request. In his letter of 11 May Mr Parlevliet corrected Mr Beck's misunderstanding about clause 22(b) as follows:
"We advise that this rule does not exist in the OSF having been removed from the CGSSF Trust Deed by way of a Deed Amendment effective 1 January 1997. We also note that the terms of Rule 22(b) did not provide the Trustee with an absolute discretion to adjust the member's benefit as any decision to pay an additional amount required the consent of the Employer".
Mr Parlevliet then re-iterated that upon ceasing employment with the bank prior to reaching the age of 55 Mr Beck would be entitled to a leaving service benefit as currently defined in the OSF, clause CH13 - leaving service benefit.
The relevant part of Mr Parlevliet's internal file note of 6 May was the following:
"2.16 As indicated earlier in this paper, the motive for Mr Beck's approach to the Trustee is that the Leaving Service Benefit payable to him is below the value of the pension that would be payable to him at age 55. By way of comparison, his leaving service benefit is $1,316,027 whilst his projected pension at age 55 would have been $147,194 pa (around $2,362,000 in lump sum terms)
2.17 Whilst we can understand Mr Beck's position, the Trustee can only act in accordance with the Trust Deed and Rules (OSF Rules). In terms of the OSF Rules, there is no discretion available to the Trustee to agree to his request."
On 11 July 2005, at the conclusion of his leave period, Mr Beck's employment ended. Mr Beck did not resign from his employment with CBA. His employment was terminated. CBA did not suggest at any time in these proceedings that Mr Beck's employment had been terminated for cause.
As at the date of his termination Mr Beck was being paid a salary of $500,000 per annum (producing a pensionable salary of 80% of this, namely $400,000). Throughout his employment with Colonial Mutual and CBA Mr Beck had always been a member of and contributor to the Colonial Fund and the OSF.
On his July termination Mr Beck was entitled to be paid a lump sum of $1,397,008, representing the amount of the leaving service benefit payable to him to that date under clause CH13.1 of the OSF rules. He was not paid a pension and he left this sum in the Fund pending the outcome of these proceedings. Through his counsel he made an open offer to the Court on the first day of the hearing: that this sum in the OSF could be retained and applied by the CBOSC if the CBOSC were minded to exercise a discretion to grant him a pre-55 discretionary benefit out of the OSF in the form of a pension.
After the termination of Mr Beck's employment in July 2005 he corresponded further with CBOSC and with the Superannuation Complaints Tribunal concerning his superannuation entitlements. The evidence of that correspondence through to early 2006 shows Mr Beck seeking further information from CBOSC about how the pre-55 discretionary benefit rule was deleted from the Old Colonial Fund and whether he suffered any disadvantage as a result of the transfer of his benefits from the New Colonial Fund to the OSF. The detail of this correspondence need not be considered in these reasons.
It is now useful to look at the terms of the various deeds and the rules for the Colonial Fund and for the OSF as they stood from time to time.
[3]
The Old and New Colonial Funds and the OSF - deeds from 1985 to 2003
Some general provisions and relevant rules of the Colonial Fund and its successor fund, the OSF, must now be examined through its five main relevant changes: August 1985, July 1996, December 1996, July 1998 and finally the OSF in 2003. The 1996 changes are of most significance.
The Old Colonial Fund's June 1978 deed need not be considered as the August 1985 deed had superceded it by the time Mr Beck arrived in Australia in early 1987.
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The August 1985 Deed
The August 1985 deed substantially amended the rules governing the Old Colonial Fund, and provided the predecessor provision which became clause A11.3 of the July 1996 deed.
A number of defined terms of the August 1985 deed appear in its relevant terms. "Board" or "Directors" were defined as the Board of Directors of Colonial Mutual. A "Contributor" means a member of an Employer's staff admitted as a contributor to the Fund. "Contributory Service" means service in the employment of an Employer, during which an employee has contributed to the Fund and includes any additional period in which the Trustees, as defined, at the request of the Board, deem in special circumstances to be Contributory Service for the purpose of the Rules". The expression "Employer" means Colonial Mutual or any associated company of Colonial Mutual. "Pensioner" means a person who receives a pension under the rules after retirement. And "Retiring Age" in the August 1985 deed means a contributor's 62nd birthday.
The August 1985 deed structures pension and other benefits that are retained in substance throughout future amendments to the rules of the Colonial Fund. Under the August 1985 deed the Fund was vested in Trustees (clauses 2 and 3). The August 1985 deed provided: the Trustees with general powers of investment and for their management of the affairs of the Fund (clauses 4-12); and for regular periodic actuarial investigation and valuation of the Fund (clause 13). Each Contributor was required to contribute to the Fund at a rate of 5 per cent of salary, and upon the actuary's advice, together with such further annual additional sums as were required to ensure the "financial soundness of the Fund", with information about these further sums to be advised to the Board of Colonial Mutual (clause 15(a)), which could resolve to increase the percentage rate for contributions.
The August 1985 deed provides for the following benefit structure: a pension upon retirement at the Retiring Age, calculated as a proportion of the annual salary of the Contributor on retirement in an amount equal to the Contributor's years of service, divided by 60 (clause 16); a benefit to the spouse of a Pensioner who has retired at the Retiring Age (clause 17); death benefits upon the death of a Contributor, while in the service of the Employer (clause 18); a pension for a Contributor who retires from employment before the Retiring Age of 62 but after the age of 55, according to a formula that discounts the pension payable from that which would otherwise be payable at the Retirement Age (clause 19); and, provision for lump sum and pension payments upon permanent and total disablement (clause 20).
In addition to these defined benefits, clause 22 of the August 1985 deed included the predecessors of clauses A11.1, A11.2 and A11.3 in the July 1996 deed, which provided for benefits where no benefit was otherwise payable under clauses 16, 18, 19 or 20 of the August 1985 deed. Clause 22, entitled "Withdrawal", made benefits payable to a contributor who ceased relevant employment and resigned from the Fund before the age of 55. This comprised two kinds of benefits called in these reasons the pre-55 retirement benefits: (1) an automatic benefit payable (under clause 22(a)) as of right, the pre-55 resignation benefit; and (2) a discretionary benefit payable to the Contributor (under clause 22(b)) in circumstances where the Contributor had rendered long service (clause 22(b)), the pre-55 discretionary benefit. Clause 22(a) was the predecessor of clauses A11.1 and A11.2. Clause 22(b) was the predecessor of clause A11.3.
In his January 2005 correspondence with CBA Mr Beck explained the policy reasons behind the additional discretionary benefit conferred by clause 22(b). Given his expertise the Court accepts this explanation. The pre-55 resignation benefit available under clause 22(a) is significantly lower in monetary value than the pension entitlements that would arise under clause 19(a) upon "early" retirement at age 55 (called "early" retirement in this context because it is retirement before the Colonial Fund's contemplated standard retiring age of 62). Mr Beck estimated for example that in January 2005 a retiring age pension at age 55 (payable under clause 19(a)) for someone such as himself, could be worth as much as $150,000 per annum, as distinct from the pre-55 resignation benefit of about $50,000 that would be payable as of right under clause 22(a). He explains that the pre-55 discretionary benefit in clause 22(b) was inserted to smooth out the effect of this potentially substantial financial discontinuity between the operation of clauses 19(a) at age 55 and clause 22(a) pre 55. Thus the rules provided for an additional bridging benefit to be individually calculated by the actuary for the Contributor caught in this financial gap, based upon the available reserves held for that Contributor. The same policy idea is inherent in the successor pre-55 discretionary benefit provision, clause A11.3 of the July 1996 deed.
Clause 22(a) provides for the Trustees to pay to the Contributor a pre-55 resignation benefit calculated as follows:
(a) 5% of final salary (called the "basic sum") for each year of contribution (effectively a refund of contributions made), and
(b) where contributions exceed 5 years, a further 5% for each year of contribution in excess of 5 years.
In contrast to the clause 22(b) payments shortly to be considered, the text of clause 22(a) shows these are payments made as of right to the Contributor, who retires before the retiring age of 55:
"22. If a Contributor ceases employment with an Employer in circumstances where no benefit is payable pursuant to Rule 16, 18, 19 or 20-
(a) the Trustees shall pay to the Contributor out of the Fund-
(i) a sum equal to five per centum of a basic sum (as determined hereinafter) for each year he contributed to the Fund or the Old Fund, and a proportionate amount for any part of such year, but excluding any period in respect of which a benefit has already been paid. […]
(ii) […]; and
(iii) where the Contributor has contributed to the Fund for not less than 5 years - a further additional sum equal to five per centum of the total sum payable pursuant to the last two preceding sub-paragraphs for each year in excess of five during which he contributed to the Fund or the Old Fund but excluding any period in respect of which a benefit has been paid."
After the August 1985 deed clause 22(b) of the Old Colonial Fund, provided for the discretionary payment upon retirement of a Contributor after long service but before age 55 (the pre-55 discretionary benefit), as follows:
"in exceptional circumstances, and usually only if such Contributor has had a long period of Contributory Service, the Trustees may, without being obliged so to do and at their absolute discretion and with the approval of the Board, pay to such Contributor out of the Fund a further sum of such amount as will increase the total payment to such Contributor to an amount not exceeding the reserve value, as determined by the Trustees after considering the advice of the Actuary, held in the Fund in respect of such Contributor at the date of his ceasing to be employed by his Employer Provided that in Lieu of paying the additional or further sum aforesaid the Trustees may apply such sum or sums to provide the Contributor with an annuity of such amount as the Trustees deem to be appropriate after considering the advice of the Actuary, commencing at the age of sixty-two years or such other age as the Trustees may decide upon, in which case, if requested by the Contributor, the Trustees should they in their discretion decide so to do may apply any other sum payable pursuant to this Rule in like manner."
Clause 22(b) gives the Trustees a discretion to "pay to [a qualifying] Contributor out of the Fund" "to an amount not exceeding the reserve value … held in the fund in respect of such Contributor". The provision envisages a possible future discretionary payment being limited by an amount identified as the "reserve value" that is "held" in the Fund "in respect of such Contributor", concepts that seem to imply a relationship between a part of the Fund and a Contributor. But that "reserve value" part of the Fund so related to the Contributor cannot be paid before the age of 55 without the exercise of the Trustee's clause 22(b) discretion. As will be seen, the "reserve value" part of the fund so held for each Contributor, is reserved so as to provide for the pensions of the various kinds that may become payable to the Contributor under Rules 16, 18, 19 or 20.
The Old Colonial Fund after the August 1985 deed could be amended. Clause 32 of the August 1985 deed provided a mechanism for the amendment of the rules of the Fund, in a form which protected the value of benefits accrued in respect of a member, as follows:
"The Trustees with the consent of the Board may at any time and from time to time by resolution amend add to or delete from all or any of the provisions of the Trust Deed or the Rules (including the provisions of this Rule) in such manner as they in their absolute discretion think fit Provided That no such amendment addition or deletion shall be made whereby the value of the benefits accrued in respect of any Contributor prior to the date of such amendment addition or deletion is detrimentally affected without the consent in writing of the Contributor concerned (for the purposes of this proviso the value of the benefits accrued shall be such amount as the Trustees, after considering the advice of the Actuary, determine has accrued) Provided Further That any amendment addition or deletion which the Trustees consider necessary or desirable for better securing relief in respect of the income or profits of the Fund from taxation or relief from taxation or duties in respect of benefits paid or payable in respect of the Trust Deed or for ensuring that the Trust Deed as amended added to or deleted from conforms to any present or future State or Commonwealth laws governing or regulating the operation or maintenance of superannuation or pension funds shall not be deemed detrimentally to affect the value of the benefits accrued in respect of any Contributor prior to the date of such amendment addition or deletion and may be given effect without such consent."
Clause 32 was used to amend the Old Colonial Fund in the July 1996 deed, which in turn introduced a successor amendment provision, clause 33.1, 33.2 and 33.3. Clause 32's prohibition on amendments that detrimentally affected the "value of the benefits accrued in respect of any Contributor" prior to the amendment, was a formula that survived and continued through the future amendments of the July 1996 deed and the December 1996 deed using almost identical words.
[5]
The July 1996 deed
The July 1996 deed is divided into three parts: Division 1, containing provisions relating to the conduct and general administration of the Fund itself; Division 2, containing rules governing eligibility for, contributions to and membership of the Fund, and Division 3, containing rules governing the payment of pensions and other benefits from the Fund. Clause A11 in Division 3 contained the equivalent of clause 22 of the August 1985 deed.
Division 1 of the July 1996 deed contains definitions that are utilised throughout all its Divisions. Many of those definitions were similar to those in the August 1985 deed and need not be repeated. But some are of special significance in the construction of clause A11.1. "Actuary" was defined as a person appointed pursuant to clause 31.1. A "Leaving Service Benefit" was defined as "a benefit payable on the cessation of employment under Rule A11". The July 1996 deed was executed by seven trustees. But the definition of "Trustees" contemplated that a company could be appointed as a sole trustee (clause 4.3) as was by then required by the SIS Act. And CSS was appointed the Trustee before the December 1996 deed.
By the time of the July 1996 deed, the Commonwealth Parliament had in 1993 passed the SIS Act, which was included within the definition of "Relevant Requirements" in the July 1996 deed. The "Relevant Requirements" were defined as follows:
"'Relevant Requirements' means the standards, covenants or other requirements set out in:
(a) the Superannuation Industry (Supervision) Act 1993; and
(b) the Income Tax Assessment Act 1936; and
(c) the Superannuation Entities Taxation Act 1987; and
(d) the Superannuation (Resolution of Complaints) Act 1993; and
(e) any regulations made under any of those Acts; and
(f) any other law which the Trustees and the Company agree is a Relevant Requirement for the purposes of the Deed."
Division 1's interpretation provision (clause 1(b)) provided that references to statutes should be read as including amendments to or re-enactments of legislation and included delegated legislation. The parties used a version of the SIS Act and Regulations as at 11 December 1996, just before the making of the December 1996 amendments.
After its amendment through the July 1996 deed, Division 1 of the Old Colonial Fund contained relevant general administration provisions, that among other things required a broad scope to the Trustees' discretionary powers, as follows:
"5.1 Subject to the Relevant Requirements the Trustees shall have the complete management and control of all proceedings, matters and things in connection with the Fund and may do such acts and things as the Trustees consider necessary, desirable or expedient for the proper administration, maintenance and preservation of the Fund or in order to comply with or satisfy any Relevant Requirements.
5.2 The Trustees may delegate any power, duty or discretion to any person upon such terms and conditions (including remuneration) as they think fit. The Trustees may revoke any such delegation and may exercise any such power, duty or discretion themselves concurrently with or to the permanent or temporary exclusion of a delegate.
5.3. The Trustees and Employers are completely unrestricted in the exercise of their powers and discretions under the Deed and, subject to the Relevant Requirements, are not bound to give to any person any reason or explanation for the exercise, non-exercise or partial exercise of any such power or discretion."
Division 1 (clause 15, "Alternative Form of Benefit") allowed a beneficiary to elect to take a benefit, with the Trustee's and Colonial Mutual's consent, in a form or in circumstances different to those specified in the deed.
Division 1 of the Old Colonial Fund after the July 1996 deed also provided for the appointment of an Actuary for the Fund (clause 31). The Actuary was empowered to make actuarial investigations of the Fund, and held ancillary powers to seek information from Members, as defined, and then to report to the Trustees:
"31. APPOINTMENT OF ACTUARY
31.1 The Trustees shall with the consent of the Company appoint an Actuary to provide actuarial services to the Fund. The Actuary shall meet the Relevant Requirements.
31.2 The Trustees shall cause the Actuary to make an actuarial investigation of the Fund at intervals of not more than 3 years or at such lesser intervals as the Trustees may require, and the Trustees, each Employer and each Member shall supply the Actuary with all such information as the Actuary may require. The Actuary shall furnish to the Trustees and the Company a report in writing on the investigation within the time stipulated in the Relevant Requirements. The Actuary's report shall address the matters stipulated by the Relevant Requirements, including recommendations on the level of contributions to be made by Employers.
31.3 The Trustees shall obtain certificates from the Actuary on the matters and at the times stipulated by the Relevant Requirements."
Division 1 also provided for the Trustees to deal with any surplus disclosed by an actuarial investigation, in a way that must benefit Members (clause 32):
"32. SURPLUS
32.1 The Trustee may, with the approval of the Company, deal with any surplus disclosed by any actuarial investigation referred to in Clause 31.2 in any one or more of the following ways:
(a) by increasing any benefits payable out of the Fund or paying new benefits from the Fund;
(b) by reducing any contributions payable to the Fund.
32.2 Subject to Clause 32.1, no contribution or any part of a contribution under the Deed shall in any circumstances whatever revert to or become charged in favour of an Employer."
The Actuary's role was a periodic one to be performed at minimum intervals. The Actuary could also be called upon to give advice to the Trustees from time to time under powers conferred under specific provisions of the July 1996 deed. Such specific provisions for the Actuary's opinion occur in clauses 33.1, 10, and A11.3, which are considered immediately below.
The July 1996 deed also provided in Division 1, the Division concerned with the Fund's general administration, the Trustees with a power of amendment (clause 33) in slightly different terms to the August 1985 deed:
"33 AMENDMENT
33.1 Subject to Clause 33.2, and to the Relevant Requirements, the Trustees may, with the consent of the Company, by supplemental deed or resolution, amend, add to, delete or replace (together 'amend') all or any of the provisions of the Deed including this Clause with effect from such date (whether before, on or after the date on which the supplemental deed is executed or the making of such resolution) as may be specified in that deed or that resolution. In the absence of express specification, the date of the execution of the deed or the making of the resolution shall be deemed to be specified. Each such amendment is binding on each Employer, each Member and any other person claiming under or bound by the Deed. Any amendment made by resolution shall be confirmed by supplemental deed as soon as practicable after it has been made.
33.2 Subject to Clause 33.3, no amendment shall be made whereby the value of the benefits accrued in respect of any Member prior to the effective date of the amendment is detrimentally affected without the written consent of that Member (the value of the benefits accrued being such amount as the Trustees, after considering the advice of the Actuary, determine has accrued).
33.3 Any amendment which the Trustees consider necessary or desirable for better securing taxation concessions or for ensuring conformity to the Relevant Requirements or any other present or future State or Commonwealth laws governing or regulating the operation or maintenance of superannuation funds shall be deemed not detrimentally to affect the value of the benefits accrued in respect of any Member prior to the effective date of such amendment, and may be given effect without the consent of that Member."
Division 1 of the July 1996 deed also creates an overriding provision (clause 35) that ensures that parts of the rules of the Colonial Fund that would otherwise be invalid as subjecting the Trustees to direction by another, should be construed as requiring the Trustees' consent for the giving of the direction.
Division 2 of the July 1996 deed provides for eligibility for membership (clause 1), accession to and ceasing of membership (clause 3), and Members' contributions (clause 6). But it also provides for the growth and recording Members' entitlements. The Trustees are required under clause 7 "Accumulation Accounts" to record for each Member, in what is called an "Accumulation Account", that Member's contribution adjusted for various matters, including "amounts credited or debited from time to time to the Account being allocations of earnings at the appropriate fund crediting rate" (clause 7.2(d)) and "any other amounts determined by the Trustees having regard to the provisions of the Deed" (clause 7.2(f)). Clause 7 provides for the creation of something like a fund ledger for each Member, as follows:
"7. ACCUMULATION ACCOUNTS
7.1 The Trustees shall record for a Member:
(a) in a Voluntary Contribution Account, additional Member and Employer Contributions paid under Rule A1.1(b), A1.2 or A1.6 or otherwise; and
(b) in a Transfer Account, amounts transferred to the Fund in respect of a Member which the Trustees decide to credit to this Account.
7.2 The Trustees must also record in the relevant Accumulation Account:
(a) insurance premiums (if any) which the Trustees decide to debit to the Account:
(b) amounts debited (if any) to the Account for Tax;
(c) amounts paid as benefits or transferred to an Approved Benefit Arrangement from the Account;
(d) amounts credited or debited from time to time to the Account, being allocations of earnings at the appropriate Fund Crediting Rate;
(e) such part (if any) of the costs and expenses incurred in the management and administration of the Fund as the Trustees consider appropriate to debit to the Account under Rule 8.4; and
(f) any other amounts determined by the Trustees having regard to the provisions of the Deed."
The "Fund Crediting Rate" is defined in Division 1, clause 12 as an amount determined by the Trustees on the advice of the Actuary and taking into account the earnings of the Fund and other matters, having regard to which "the Trustees shall decide whether a Fund Crediting Rate is to be applied to Accumulation Accounts" (Division 1, clauses 12.1, 12.2 and 12.3). Thus under Division 2, clause 7 on the advice of the Actuary, the Trustees could allocate earnings at the appropriate Fund Crediting Rate to all, or classes of, Members' Accumulation Accounts. An "Approved Benefit Arrangement" is defined under the July 1996 deed as a fund or benefit arrangement other than the Fund and may for example include another superannuation fund to which payment may be made from the Fund or from which payment may be made into the Fund, without causing the Fund to be in breach of or fail to comply with the Relevant Requirements. And a "Transfer Account" is an account created under that name in accordance with Division 2, clause 7.
The Division 1 crediting of Members' Accumulation Accounts was supplemented in Division 2 with a provision for the augmentation of benefits "for any Member or other beneficiary under the Deed". This "Augmentation Rule" (clause 10) operates for particular Members rather than for broad classes of Members, as follows:
"10. AUGMENTATION OF BENEFITS
10.1 At the direction of the Company and subject to Clause 35 and Rule 10.2, the Trustees shall augment the amount of any benefit entitlement of any Member or other beneficiary under the Deed or rescind or discontinue all or any part of such augmentation (as the case may be) as they consider appropriate. However, before augmenting any such entitlement, the Trustees may require an undertaking from an Employer to contribute to the Fund such additional amounts or rates of contribution (if any) as the Trustees shall determine after seeking the advice of the Actuary.
10.2 If any undertaking required by the Trustees under Rule 10.1 is not given by an Employer or if an Employer does not fulfil the conditions of any such undertaking given by it, the Trustees may refuse to proceed with or discontinue the augmentation to which the undertaking relates."
In Division 3, entitled "The Rules - Part 2", the July 1996 deed provided the precise rules for calculating the benefits which would in certain circumstances become payable to the Member from the Fund. Division 3 reproduced the substance of the range of benefits that had been provided for in clauses 16 to 19 of the August 1985 deed.
Clause A3.1 in Division 3 of the July 1996 deed provided for at 55 retirement benefits, called "Early Retirement Benefits", which were payable upon retirement before the "Entitlement Age" but after the attaining of the age of 55. This was a near-equivalent to the August 1985 deed, clause 19:
"A3 EARLY RETIREMENT BENEFITS
A3.1 If a Member ceases employment with an Employer before his or her Entitlement Age but after attaining age 55 and in circumstances where no benefit is payable under Rule A6 or A7, there shall be payable out of the Fund an annual pension equivalent to the pension calculated under Rule A2.1 but based on Annual Salary at the date of ceasing employment and Membership of the Fund up to the date of ceasing employment (subject to a maximum of 40 years) multiplied by the following adjustment factors based on the Member's age at the date of ceasing employment (with a pro rata adjustment factor applying if the Member does not cease employment on a birthday):
Age at Retirement Adjustment Factor
55 0.79
56 0.82
57 0.85
58 0.88
59 0.91
60 0.94
61 0.97
62 1.00
[6]
A3.2 In addition to the retirement pension referred to in Rule A3.1, there shall be payable to or in respect of the Member a lump sum equal to the balance in the Member's Accumulation Accounts."
Division 3 of the July 1996 deed also provided for what it described as "Leaving Service Benefits", equivalent to the pre-55 retirement benefits of clause 22(a) and (b) of the August 1985 deed that had been described under the marginal heading "Withdrawal". These Leaving Service Benefits first provide (in A11.1 and A11.2) for a pre-55 resignation benefit, a resignation benefit payable as of right and calculated on the basis of a defined "Basic Amount", in a structure close to that used in clause 22(a) of the August 1985 deed, as follows:
"A11. LEAVING SERVICE BENEFITS
A11.1 If a Member ceases employment with an Employer and a benefit is not payable under any other provision of the Deed or the Rules, there shall be payable from the Fund an amount equal to the sum of the following Parts:
Part A: an amount equal to 5% of the Member's Basic Amount for each year of Membership of the Fund and a proportionate amount for any part of such a year during which he or she contributed at the rate of 5% of Salary plus 3% of the Member's Basic Amount for each year of Membership of the Fund and a proportionate amount for any part of such a year during which he or she contributed at the rate of 3% of Salary,
Part B: an additional amount equal to 8% of the Part A benefit for each year of Membership of the Fund subject to a minimum Part B benefit of 40% of the Part A benefit. However, in the determination of a Part B benefit the maximum number of years of Membership of the Fund which shall be counted shall be 40 for Members who joined the Fund prior to 1 February 1995 and 30 for Members who joined the Fund on or after that date, and
Part C: an amount equal to the balance in the Member's Accumulation Accounts.
A11.2 The Basic Amount in respect of a Member for the purpose of this Rule A11 shall be determined as follows:
(a) Where the Member was employed by an Employer for 12 months or longer, the Basic Amount shall be the annualised averaged Salary payable to the Member within the period of 12 months immediately preceding the date on which he or she ceased to be so employed; and
(b) Where the Member was employed by an Employer for less than 12 months, the Basic Amount shall be the annualised averaged Salary which would have been payable to the Member had he or she been employed for 12 months calculated on the assumption that the Member's Salary continued unaltered for the balance of the 12 month period."
Also clause A11.3 of the July 1996 deed provides under the same general heading "Leaving Service Benefits" for the payment to the Member of a pre-55 discretionary benefit that is similar to the provisions of clause 22(b) of the August 1985 deed, as follows:
"A11.3 In exceptional circumstances and usually only if the Member has had a long period of Service, the Trustees may with the approval of the Company pay to or in respect of the Member referred to in Rule 11.1 a further sum of such amount as will increase the total payment to or in in respect of such Member to an amount not exceeding the reserve value as determined by the Trustees after considering the advice of the Actuary held in the Fund in respect of such Member as at the date the Member ceases employment with the Employer."
Clause 21(b) in the August 1985 deed actually was slightly different from the new clause A11.3. The old clause 21(b) included a provision that allowed the Trustees to pay any increased benefit towards providing the member with an annuity. The July 1996 deed removed that power from clause A11.3. That removal between August 1985 and July 1996 is not the subject of any separate specific complaint in these proceedings. But such a complaint would be muted to a degree, because Division 1, clause 15 introduced into the July 1996 deed gives the Trustees a broad power to substitute an annuity for a lump sum payment. Although their exercise of this power is subject to Colonial Mutual's consent, which was not a feature of clause 22(b). Mr Beck's present claim is confined to the December 1996 deed's removal of clause A11.3, conferring discretion to pay a lump sum capped at the amount of the reserve value in respect of the Member but subject nevertheless to the operation of clause 15.
This was how the terms of the Old Colonial Fund relevantly stood at the time of the December 1996 deed.
[7]
The December 1996 deed
CSS became the trustee of the Old Colonial Fund between the July 1996 deed and the December 1996 deed. Under the power conferred by the July 1996 deed, clause 33, as the new Trustee CSS was responsible for the amendments of the December 1996 deed.
The December 1996 deed involved a restructure of and redefinition of the benefits formerly available under the July 1996 deed, Division 3. The December 1996 deed expressed no change to Divisions 1 or 2 of the Old Colonial Fund as they had stood after the July 1996 deed. The December 1996 deed only altered Division 3. The December 1996 deed reproduced the structure of Division 3 of the July 1996 deed, so that terms in one were numbered the same way as and corresponded with the numbered terms in the other.
Mr Beck claims one of these changes was significant. Clause A11.3 was deleted. Clauses A11.1 and A11.2 remained, but were altered: to remove references in the caps on clause A11.1 Part B benefits to a maximum number of years of membership of the Fund; and, to replace those references instead with a percentage based formula. These alternations will be analysed in more detail later in these reasons. The new clauses A11.1 and A11.2 provided as follows:
"A11. LEAVING SERVICE BENEFITS
A11.1 If a Member ceases employment with an Employer and a benefit is not payable under any other provision of the Deed or the Rules, there shall be payable from the Fund an amount equal to the sum of the following Parts:
Part A an amount equal to 5% of the Member's Basic Amount for each year of Membership of the Fund and a proportionate amount for any part of such a year during which he or she contributed at the basic rate of 5% of Salary plus 3% of the Member's Basic Amount for each year of Membership of the Fund and a proportionate amount for any part of such a year during which he or she contributed at the basic rate of 3% of Salary,
Part B an additional amount equal to 8% of the Part A benefit for each year of Membership of the Fund subject to a minimum Part B benefit of 40% of the Part A benefit and a maximum calculated such that the sum of Part A, Part B and Part C do not exceed the reserve value determined by the Trustees (after considering the advice of the Actuary) held in the Fund in respect of such Member as at the date the Member ceases employment with the Employer, and
Part C an amount equal to the balance in the Member's Accumulation Accounts
A11.2 The Basic Amount in respect of a Member for the purpose of this Rule A11 shall be determined as follows:
(a) Where the Member was employed by an Employer for 12 months or longer, the Basic Amount shall be:
(i) the annualised averaged Salary payable to the Member within the period of 12 months immediately preceding the date on which he or she ceased to be so employed, or
(ii) in the case of each Member to whom paragraph (b) of the definition of Final Salary applies, that Member's Final Salary
(b) Where the Member was employed by an Employer for less than 12 months, the Basic Amount shall be the annualised averaged Salary which would have been payable to the Member had he or she been employed for 12 months calculated on the assumption that the Member's Salary continued unaltered for the balance of the 12 month period."
[8]
CSS's Decision to Amend
Why was this change made? The Trustee's declared purpose for the December 1996 deed amendments was a focus upon removing provisions from the Old Colonial Fund rules which might be age discriminatory and therefore unlawful under Commonwealth or State anti-discrimination legislation. Recital F of the December 1996 deed declared this purpose as follows:
"F. The Trustees desire to amend the Trust Deed as set out below in accordance with Clause 33 for the purpose of removing unlawfully discriminatory provisions (pursuant to Commonwealth and State legislation) and replacing them with non-discriminatory provisions."
There is no reason to doubt that this was CSS's purpose. The suite of amendments made and the contemporaneous evidence strongly support that as being its purpose. For example the July 1996 deed's definition of "Entitlement Age" as "the Member's 62nd birthday", was amended in the December 1996 deed to mean "the Member's 65th birthday or any other age agreed between the Company and the Trustees either generally or in a particular case".
Many of the provisions of Division 3 of the Old Colonial Fund as it stood after the July 1996 deed remained substantially the same: see for example Contributions (clause A1) and Normal Retirement Benefits (clause A2). Perhaps because of the expectations of an aging workforce and the impact of new anti-discrimination laws, the Early Retirement Benefits provisions (clause A3) were amended for the first time in the December 1996 deed to add pension entitlements to Members retiring over the age of 55 or 62 but before the now more flexibly defined "Entitlement Age", and with provisions to calculate their pensions taking into account their years of service after the age of 62 (clauses A3.2 and A3.3) together with a lump sum equal to the balance of the Members' Accumulation accounts (clauses A3.4 and A3.5). The December 1996 deed also provided for the more flexible payment of Late Retirement Benefits (clause A4). Other amendments were made to Division 3's Death Benefits (clause 8.6), Total and Permanent Disablement Benefits (clause 8.7) and Temporary Total Disablement Benefits (clause 8.8) to render them less age specific and more flexible in operation, irrespective of the age at which a person were first to become a member of the Fund or retire.
Clause A11.3 might not in itself at first seem to have been an obviously age discriminatory provision: it only enlivened the possibility of an additional discretionary benefit for a member leaving a defined Colonial Mutual Employer's service before age 55 and after a long period of service. Yet it was deleted.
Its deletion is explained in contemporaneous records. CSS's decision to delete clause A11.3 was informed by the advice of its then in-house lawyer, Ms Hilary Horan in a memorandum she prepared for the Board of CSS dated 17 December 1996. She recorded in the 17 December memorandum to the Board that the CSS Board and Colonial Mutual had advice that the benefit structure of the existing July 1996 deed provisions "was likely to offend the provisions of the Victorian Age Discrimination legislation which effectively comes into force on 1 January 1997". She explained the power of amendment and the effect of clause 33.1 and 33.3 and indicated that the proposed amendments complied with clause 33. She continued, "I am of the view that … the amendment does not in fact detrimentally affect accrued benefits". She attached a deed of amendment (Amending Deed No. 8) and a summary of the proposed amendments and offered her opinion, "I expect Colonial to approve the amendments and I will confirm this approval at the meeting. I also confirm that execution of the attached amending deed no. 8 would constitute an appropriate exercise of the Trustee's power of amendment".
She asked the directors to resolve "to execute amending deed no. 8 as tabled at this meeting".
Finally, in the attached summary Ms Horan explained that the proposed deletion of clause A11.3 was consequential on changes to clause A11.1. She put it this way:
"The maximum of 40 years and 30 years respectively have been removed from the calculation of Part B of the leaving service benefit (Rule A11.1). In view of this a maximum equal to the fund reserve has been inserted. Accordingly, Rule A11.3 has been deleted."
The Board minutes of CSS's directors record without reasons that they "resolve to: execute amending deed no. 8 as tabled at this meeting". No other materials survive to show what passed at this meeting.
Mr Beck's contentions in these proceedings are that Ms Horan was wrong in substance in this view. Other parts of Ms Horan's advice and the relevant board papers are dealt with later in these reasons.
[9]
The July 1998 deed
The changes that came with the July 1998 deed are largely accounted for by the growing complexity of the group structure of Colonial Limited, and its decision to offer in May 1998 an election to all its employees to move away from the existing defined benefits scheme represented by the Old Colonial Fund and to draw superannuation benefits on what was described as "the accumulation basis".
The option given to Mr Beck change from a defined benefit fund to our accumulation fund reflected a legal distinction that existed between these two kinds of fund in the SIS Regulations. An "accumulation fund" was defined in the SIS Regulations, reg 1.03(1) as "a regulated superannuation fund that is not a defined benefit fund". And the same regulation defined a "defined benefit fund" for non-public sector superannuation schemes, such as the Colonial Fund, relevantly as follows:
"'defined benefit fund' means:
…
(b) a regulated superannuation fund (other than a public sector superannuation scheme):
(i) that has at least 1 defined benefit member; and
(ii) some or all of the contributions to which (out of which, together with earnings on those contributions, the benefits are to be paid) are not paid into a fund, or accumulated in a fund, in respect of any individual member but are paid into and accumulated in a fund in the form of an aggregate amount."
An important difference the definitions of an accumulation fund and a defined fund is that with the latter, contributions and earnings are paid into and accumulated in the fund in the form of an aggregate amount, rather than "in respect of any individual member". So aggregated contributions and earnings are a distinguishing feature of defined benefit funds.
The July 1998 deed significantly expanded the management and administration provisions of the Colonial Fund, through what the July 1998 deed entitled "Division A". Many of the administration and other provisions of the July and December 1996 deeds were present again in the July 1998 deed, some of them with different words, together with new and different provisions. Some parts of Division A of the July 1998 deed were of relevance to the parties' submissions and are summarised below.
The emerging corporate complexity of Colonial Limited in 1998 meant that its various divisions, absorbed at different times in its history, were now allocated their own separately named divisions within the structure of the July 1998 deed. The relevant division of the July 1998 deed governing New Colonial Fund members, who had been members of the Old Colonial Fund, was Division H, entitled "Contributions and Benefits for ex members of Colonial Group Staff Superannuation Fund".
But excluded from Division H were persons who had made an election under clause A9.1(g) of the July 1998 deed to transfer to the Accumulations Division of the New Colonial Fund. The offer to members in Colonial Limited's 18 May 1998 letter reflected the right to elect conferred under clause A9.1(g) of the July 1998 deed. If a member of the Old Colonial Fund did not make a clause 9.1(g) election, the rights of the member would be governed by Division H of the July 1998 deed. But if an election were made, the member's rights would be governed by Division I of the July 1998 deed.
Mr Beck did not elect under clause A9.1(g) of the July 1998 deed. So his entitlements continued to be governed by Division H of the New Colonial Fund.
In the July 1998 deed the "Fund" was defined as "the Colonial Group Staff Superannuation Scheme"; it had been formerly known as the "State Bank Superannuation Benefit Scheme" and consisted of "cash, investments and other property for the time being held on account of the Trustee pursuant to clause A2.1". Clause A2.1 described all the various ways that money or property could come into the Fund.
The July 1998 deed (clause A2.2) empowered the Trustee to establish and maintain separate parts of the Fund when necessary or convenient including to separate the Fund "on the basis of the types of Benefits to be provided, [or] the Employers by whom the Benefits are being funded […]". The separation out of Division H, and the other Divisions, accounts for or at least one of these bases.
Division A of the July 1998 deed made provision for matters of general fund administration, the detail of most of which is not presently relevant except to say that the July 1998 deed continued and expanded the administrative functions and powers conferred by the July 1996 deed Division 1: the Trustee's powers, duties, rights and discretions (clause A3); the characteristics and governance of the Trustee as a body corporate (clause A4); the appointment to Office of Actuaries, a Secretary and an Auditor (clause A5); the maintenance of proper and comprehensive financial records and financial statements for the Fund (clause A6); Actuarial Investigation (clause A7); Investments (clause A8); membership (clause 9); general provisions relating to contributions and expenses (clause A10); general provisions relating to benefits (clause A11); and, various provisions to encompass future reconstruction of the Fund or alteration of the July 1998 deed (clauses A12, A13, A14 and A15).
Parts of clauses A1, A9 and A11 reproduced similar provisions in the July 1996 deed and December 1996 deed. Clause A1.12(a) and (e) provides for the manner of exercise of the Trustee's discretions. Clause A1.12(a) required the Trustee, CSS, to comply with Relevant Law, which was defined to include the SIS Act. Clause A1.12(c) provided that, subject to clause A1.12(a), provisions subjecting the Trustee to direction (by the Principal Company - Colonial Limited - or any other person) shall "to the extent such direction is prohibited by the Relevant Law" be construed "as a discretion to be exercised by the Principal Company or that other person with the consent of the Trustee".
The July 1998 deed's Division A Membership provisions (clause A9.1) classify all Colonial Limited's employees as Eligible Employees, who may, on application, become Members. The Trustee is obliged to accept each Eligible Employee applicant as a Member in two Divisions: namely Division A, and one of Divisions B to I, inclusive. Members would be allocated to Division H who "immediately before becoming Members were members of the [Old Colonial Fund] and who have not elected to transfer to Division I in accordance with this Deed". As earlier indicated Mr Beck did not elect under clause A9.1(g) to become entitled to Division I benefits instead of Division H benefits.
Finally, the July 1998 deed provides for an Augmentation Rule (in substantially similar terms to the July 1996 deed Division 2 clause 10) under clause A11.18, as follows:
"A11.18 Augmentation
(a) At the direction of the Principal Company and subject to paragraph (b) and Clause A1.12(e), the Trustee shall augment the amount of any benefit entitlement of any Member or other beneficiary under the Deed or rescind or discontinue all or any part of such augmentation (as the case may be) as the Trustee considers appropriate. However, before augmenting any such entitlement, the Trustee may require an undertaking from an Employer to contribute to the Fund such additional amounts or rates of contribution (if any) as the Trustee shall determine after seeking the advice of the Actuary.
(b) If any undertaking required by the Trustee under paragraph (a) is not given by an Employer or if an Employer does not fulfil the conditions of any such undertaking given by it, the Trustee may refuse to proceed with or discontinue the augmentation to which the undertaking relates."
As might be expected, Division H of the July 1998 deed follows a structure that is closely similar to Division 3 of the July and December 1996 deeds. The apparent aim of Division H, to be gleaned from its provisions, was to create a benefit structure that reflected the benefits payable under the Old Colonial Fund. Division H dealt with normal retirement benefits (clause H3), early retirement benefits (clause H4), late retirement benefits (clause H5), guarantees for pre-1983 members (clause H6), spouse and children benefits (clause H7), death benefits (clause H8), total and permanent disability benefits (clause H9), temporary and total disablement benefits (clause H10), benefits for members who transfer from the Old Fund (clause H11), and reviews of pension benefits (clause H12).
Finally and importantly Division H dealt with Leaving Service Benefits (clause H13). The July 1998 deed set out in H13.1 and H13.2, Leaving Service Benefits entitlements that were identical to those in clause A11.1 and A11.2 of the December 1996 deed. But consistently with the amendments effected in the December 1996 deed, there was no equivalent in the July 1996 deed Division H to clause A11.3 of the July 1996 deed. There is no need to reproduce this provision again in these reasons.
Finally, Division H included requirements that the Trustee maintain account records for each Member in a Voluntary Contribution Account. The provision H14.1 and H14.2 was closely modelled on previous similar provisions, discussed earlier in these reasons. It was different in that the starting point for the Member's Voluntary Contribution Account was any amount "transferred from the previous fund" which was the Old Colonial Fund established by the June 1978 deed, together with the credit balance of the Member's Transfer Account. Clause H14 is set out below. It should be noted that under the July 1998 deed "Accumulation Account" is defined as meaning the Member's Voluntary Contribution Account ("VCA") and the Member's Transfer Account ("MTA"). Clauses H14.1 and H14.2 provided as follows:
"H14 DIVISION H ACCOUNTS
H14.1 Maintenance of Account Records
The Trustee shall record for a Member:
(a) in a Voluntary Contribution Account:
(i) any amount transferred from the Previous Fund to be credited to this Account;
(ii) additional Member and Employer Contributions paid under Clause A10.4(c), H2.1 or H2.2; and
(iii) any other additional contribution specifically designated by the Employer for crediting to this Account; and
(b) in a Transfer Account:
(i) the balance standing to the credit of the Member's Transfer Account in the Previous Fund as at 30 June 1997; and
(ii) amounts transferred to the Fund in respect of a Member which the Trustee decides to credit to this Account.
H14.2 Credits and Debits to Accounts
The Trustee must also record in the relevant Accumulation Account:
(a) insurance premiums (if any) which the Trustee decides to debit to the Account;
(b) amounts debited (if any) to the Account for tax;
(c) amounts paid as benefits or transferred to an Complying Superannuation Arrangement from the Account;
(d) amounts credited or debited from time to time to the Account, being allocations of interest in accordance with Clause A6.10;
(e) such part (if any) of the costs and expenses incurred in the management and administration of the Fund (and the Previous Fund) as the Trustee considers appropriate to debit to the Account under Clause H15.5; and
(f) any other amounts determined by the Trustee having regard to the provisions of the Deed."
The New Colonial Fund was not absorbed into CBA's superannuation scheme until October 2003, some 3 years after CBA's takeover of Colonial Limited.
[10]
The OSF
In mid-September 2003 CBA announced its proposal to merge from 3 October 2003 the CGSS (the New Colonial Fund) and CBA's existing Superannuation Scheme (the OSF). The proposal was that all Members and assets would be transferred to the OSF and that Members would no longer be Members of the CGSS. The announcement stated "the Trustee has concluded that in principle merging is in the best interests of CGSS members and that members would have equivalent rights in respect of benefits in the OSF". This proposal had been foreshadowed in May 2003.
All Mr Beck's current Australian benefits were transferred to the OSF effective from 3 October 2003. No further election or other action was required on his part to achieve this. Mr Beck received a member transfer advice as at 2 October 2003, which stated that his vested benefit entitlement as at that date was $1,247,514.37. The final average salary used in his benefit calculations was $400,000, or 80 per cent of his then salary.
The OSF rules from October 2003 absorbed, largely unchanged, much of the structure of the several divisions created for the New Colonial Fund in the July 1989 deed. Division H of the New Colonial Fund, together with its various benefit entitlements, including clause H13.1 and H13.2, is reproduced in Division CH of the OSF. Division CH is in relevantly identical terms to Division H of the New Colonial Fund. The entitlements under what was Division H, clause 13H of the New Colonial Fund became "Part CH 13 Leaving Service Benefits" under the OSF. Similarly, within Division CH, Part CH14 dealt with the maintenance of account records and the crediting and debiting of accounts in the way that clause H14 had done in the New Colonial Fund.
A new provision, Division CH, clause CH7.4 became the subject of the parties' submissions. Clause CH7.4 dealt with Pre July 1983 and 1989 Guarantees in the following terms:
"CH7.4 Pre July 1983 and 1989 Guarantee
Where:
(a) immediately before 1 July 1989 a pension or other benefit was being paid or was payable under the Rule of the trust deed of the Previous Fund then in force and designated as Rule 18(a) or (b) to a Surviving Spouse or Child in respect of a Member who died in the Service of the Employer before that date; or
(b) immediately before 1 July 1983 a pension or other benefit was being paid or was payable under the Rules of the trust deed of the Previous Fund then in force and designated as Rule 18(c) to a Surviving Spouse or Child in respect of Member who died in the Service of the Employer before that date,
then in either case there shall be payable out of the Fund in respect of the Member to the same person or persons as would have been presently or contingently entitled under the Rules of the trust deed of the Previous Fund in force immediately before 1 July 1989 or 1 July 1983 (as the case may be) a pension calculated under, and subject in every respect to the terms and conditions of, those Rules."
This completes the analysis of relevant provisions of the August 1985, July 1996, December 1996, July 1998 deeds and the OSF. It is now useful to turn to the applicable legislation, some financial issues and then the parties' respective contentions.
[11]
Applicable Legislation
Parliament enacted the SIS Act in order to make provision for the prudent management of certain funds and trusts, and for the supervision of those funds on the basis of the quid pro quo that in exchange for increased regulation, those funds and trusts may become eligible for concessional taxation treatment (SIS Act, s 3).
Functionally, the SIS Act regulates creatures that it calls "superannuation entities". A "superannuation entity" includes a "regulated superannuation fund": SIS Act, s 10. To be deemed such a "regulated superannuation fund", a fund must fulfil the criteria established by SIS Act, s 19. Those requirements are that the fund firstly has a trustee; secondly, either that the fund's trustee is a constitutional corporation pursuant to a requirement contained in the governing rules, or the fund's governing rules provide that the fund's sole or primary purpose is the provision of old-age pensions; and thirdly, that the trustee elects that the SIS Act will apply in relation to the fund.
The parties did not dispute that the Colonial Fund and the OSF were regulated superannuation funds, within the SIS Act and its regulations.
SIS Act, s 34 requires trustees of superannuation entities to ensure compliance with "prescribed standards". Section 34 also deals with the effect of its contravention on the validity of the underlying transaction. It provides as follows:
"Prescribed operating standards must be complied with
Standards must be complied with
(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.
Offence
(2) A person who intentionally or recklessly contravenes subsection (1) is guilty of an offence punishable on conviction by a fine not exceeding 100 penalty units.
Validity of transaction not affected by contravention of (1)
(3) A contravention of subsection (1) does not affect the validity of a transaction."
The s 34 "prescribed standards" are those which may be prescribed under SIS Act, s 31(1) by regulation as "applicable to the operation of regulated superannuation funds". The standards that may be so prescribed are wide ranging and may "include, but are not limited to" the range of matters set out in SIS Act, s 31(2)(a) - (u) which covers everything from: persons who may contribute to funds; vesting and beneficiaries; actuarial standards that will apply to funds; preservation of benefits; payment of benefits; the application by funds of money no longer required to meet payments of benefits to beneficiaries; numbers of trustees; keeping and retention of records; financial and actuarial reports; and the financial position, funding, solvency and winding up of funds.
The SIS Act, s 52 sets standards of governance for superannuation entities by embedding statutory covenants in their rules. Mr Beck complains that CSS breached the s 52(2)(c) covenant in this case. The SIS Act, s 52(1) and (2) provided, as at 11 December 1996 as follows:
"Governing rules taken to contain covenants
(1) If the governing rules of a superannuation entity do not contain covenants to the effect of the covenants set out in subsection (2), those governing rules are taken to contain covenants to that effect.
The covenants
(2) The covenants referred to in subsection (1) are the following covenants by the trustee:
(a) to act honestly in all matters concerning the entity;
(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;
(c) to ensure that the trustee's duties and powers are performed and exercised in the best interests of the beneficiaries;
(d) to keep the money and other assets of the entity separate from any money and assets, respectively:
(i) that are held by the trustee personally; or
(ii) that are money or assets, as the case may be, of a standard employer- sponsor, or an associate of a standard employer-sponsor, of the entity;
(e) not to enter into any contract, or do anything else, that would prevent the trustee from, or hinder the trustee in, properly performing or exercising the trustee's functions and powers;
(f) to formulate and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following:
(i) the risk involved in making, holding and realising, and the likely return from, the entity's investments having regard to its objectives and its expected cash flow requirements;
(ii) the composition of the entity's investments as a whole including the extent to which the investments are diverse or involve the entity in being exposed to risks from inadequate diversification;
(iii) the liquidity of the entity's investments having regard to its expected cash flow requirements;
(iv) the ability of the entity to discharge its existing and prospective liabilities;
(g) if there are any reserves of the entity-to formulate and to give effect to a strategy for their prudential management, consistent with the entity's investment strategy and its capacity to discharge its liabilities (whether actual or contingent) as and when they fall due;
(h) to allow a beneficiary access to any prescribed information or any prescribed documents."
SIS Act, s 52(3) - (9) explain the covenants and allow the SIS Regulations to prescribe further covenants as follows:
"Covenant referred to in paragraph (2) (e)
(3) A covenant referred to in paragraph (2) (e) does not prevent the trustee from engaging or authorising persons to do acts or things on behalf of the trustee.
Covenant referred to in paragraph (2) (f)
(4) An investment strategy is taken to be in accordance with paragraph (2)(f) even if it provides for a specified beneficiary or a specified class of beneficiaries to give directions to the trustee, where:
(a) the directions relate to the strategy to be followed by the trustee in relation to the investment of a particular asset or assets of the entity; and
(b) the directions are given in circumstances covered by regulations made for the purposes of this paragraph.
Regulations may prescribe other covenants
(5) The regulations may prescribe a covenant to be included in the governing rules of a superannuation entity and, if the governing rules of such a superannuation entity do not contain a covenant to the effect of the prescribed covenant, those rules are taken to contain a covenant to that effect.
Prescribed covenants may overlap with other requirements
(6) Without limiting the generality of subsection (5), the regulations may prescribe, for the purposes of that subsection, a covenant that elaborates, supplements, or otherwise deals with, any aspect of:
(a) a matter to which a covenant in subsection (2) relates; or
(b) a matter to which a provision of this Act (other than this section) relates.
But prescribed covenants must be capable of operating concurrently with other requirements
(7) However, a covenant prescribed for the purposes of subsection (5) must be capable of operating concurrently with
(a) all the covenants referred to in subsection (2); and
(b) this Act other than this section.
Covenant by corporate trustee has effect as covenant by trustee's directors (8) A covenant by a corporate trustee of a superannuation entity that is to
the effect of a covenant referred to in subsection (2), or to the effect of a covenant prescribed by regulations referred to in subsection (5), also operates as a covenant by each of the directors of the trustee to exercise a reasonable degree of care and diligence for the purposes of ensuring that the trustee carries out the first-mentioned covenant, and so operates as if the directors were parties to the governing rules.
Reasonable degree of care and diligence
(9) The reference in subsection (8) to a reasonable degree of care and diligence is a reference to the degree of care and diligence that a reasonable person in the position of director of the trustee would exercise in the trustee's circumstances."
The SIS Act, s 55 creates a statutory cause of action for the benefit of persons who suffer loss or damage as a result of the conduct of another in contravention of a covenant contained in "or taken to be contained in" the governing rules of a superannuation entity. SIS Act, s 55(1) - (4) provides as follows:
"Consequences of contravention of covenant
(1) A person must not contravene a covenant contained, or taken to be contained, in the governing rules of a superannuation entity.
(2) A contravention of subsection (1) is not an offence and a contravention of that subsection does not result in the invalidity of a transaction.
(3) 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.
(4) An action under subsection (3) may be begun at any time within 6 years after the day on which the cause of action arose."
The remaining subsections of s 55 deal with possible defences to the s 55 action, and are not relevant to these proceedings.
Mr Beck also complains that CSS contravened SIS Regulations, reg 13.16(1) in the December 1996 deed. SIS Regulations, reg 13.16 was promulgated under the power that s 31(1) of the SIS Act creates to "prescribe standards applicable to the operation of regulated superannuation funds ("funds")." Under s 31(2)(g), the standards that the SIS Regulations may prescribe include "the preservation of benefits arising directly or indirectly from amounts contributed to funds". The regulation as it stood on 11 December 1996 had been amended twice from its original form, but not in any way that is material to the current proceedings. It then provided as follows:
"(1) For the purposes of subsection 31 (1) of the Act, it is a standard applicable to the operation of regulated superannuation funds that, subject to subregulation (2), a beneficiary's right or claim to accrued benefits, and the amount of those accrued benefits, must not be altered adversely to the beneficiary by amendment of the governing rules or by any other act carried out, or consented to, by the trustee of the fund.
(2) The standard stated in subregulation (1) does not apply to an alteration if:
(a) in the case of an alteration that does not relate to minimum benefits within the meaning of Part 5:
(i) subject to subregulation (3), the beneficiary has consented in writing to the alteration; or
(ii) the Commissioner has consented in writing to the alteration after either:
(A) the alteration has been approved by at least two-thirds of all of the beneficiaries of the fund who are affected by it, in accordance with the procedures specified in subregulation (4); or
(B) subject to subregulation (5), if, in accordance with section 89 of the Act, the fund complies with the basic equal representation rules, the alteration has been approved by at least two-thirds of the total number of trustees or, if the fund has a single corporate trustee, by two-thirds of the directors of the corporate trustee; or
(b) the alteration is necessary for compliance with the Act, the Tax Act, the Income Tax Act 1986 or these Regulations; or
(c) the alteration is expressly permitted by the Act or these Regulations; or
(d) the alteration:
(i) is solely for the purpose of rectifying a mistake which has resulted in a beneficiary's right or claim to accrued benefits, or the amount of the beneficiary's accrued benefits, being advantageously altered; and
(ii) the Commissioner has approved the alteration.
(3) A consent referred to in subparagraph (2) (a) (i) is not effective for the purposes of this regulation unless, before the consent is given:
(a) the trustee of the fund has given to the beneficiary a notice that:
(i) informs the beneficiary that it is proposed that the beneficiary's right or claim to accrued benefits, or the amount of those benefits, be affected adversely; and
(ii) explains the effect of the alteration on the beneficiary's rights or claims to accrued benefits and the amount of those benefits; and
(iii) provides any other information that the trustee reasonably believes a beneficiary would expect to be told about the proposed alteration; and
(b) the beneficiary has been allowed adequate time to consider the proposed alteration and its effect on the beneficiary's rights or claims to accrued benefits and the amount of those benefits.
(4) For the purposes of sub-subparagraph (2) (a) (ii) (A), the procedures to be followed in obtaining the approval of beneficiaries are as follows:
(a) the trustee of the fund must send to each beneficiary of the fund who would be adversely affected by the alteration a notice that:
(i) informs the beneficiary that it is proposed that the beneficiary's right or claim to accrued benefits, or the amount of those benefits, be affected adversely; and
(ii) explains the effect of the alteration on the beneficiary's rights or claims to accrued benefits and the amount of those benefits; and
(iii) explains that the alteration requires:
(A) the approval of at least two-thirds of all of the beneficiaries of the fund who are affected by it, obtained by ballot in accordance with this subregulation; and
(B) the consent of the Commissioner; and
(C) explains the manner in which the beneficiary can cast his or her vote in relation to the ballot; and
(D) provides any other information that the trustee reasonably believes a beneficiary would expect to be told about the proposed alteration;
(E) the ballot must be conducted in a manner that ensures that each beneficiary is given not less than 21 days to consider the notice and the proposed alteration before voting.
(5) An approval referred to in sub-subparagraph (2) (a) (ii) (B) is not effective for the purposes of this regulation unless, at least 21 days before the giving of that approval, the trustee of the fund has given to each beneficiary of the fund who would be adversely affected by the alteration a notice that:
(a) informs the beneficiary that it is proposed that the beneficiary's right or claim to accrued benefits, or the amount of those benefits, be affected adversely; and
(b) explains the effect of the alteration on the beneficiary's rights or claims to accrued benefits and the amount of those benefits and
(c) provides any other information that the trustee reasonably believes a beneficiary would expect to be told about the proposed alteration."
The parties were at issue about the meaning of the words "Accrued Benefits" in SIS Regulations, reg 13.16(1). The term is not defined in the Division of the SIS Regulations in which reg 3.16(1) appears. But in a related Division of the SIS Regulations, Division 9.5, the term "Accrued Benefits" is defined for the purposes of that Division. SIS Regulations, reg 9.27 relevantly provides:
"Interpretation
In this Division:
"accrued benefits", in relation to a member of a 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;"
SIS Regulations, reg 9.27 expressly only applies its definitions to Division 9.5 of the SIS Regulations. It does not apply to the use of the term "Accrued Benefits" in reg 13.16(1): see also Employers First v Tolhurst Capital Limited (2005) 143 FCR 356; [2005] FCA 616 ("Tolhurst") at [57].
[12]
The Actuarial Evidence
Both Mr Beck and the CBA parties adduced expert actuarial evidence. Mr Beck relied upon a report from Mr John Newman, and the CBA parties upon a report of Mr Timothy Furlan, who has been the appointed actuary to the OSF since February 2005.
This actuarial evidence gave meaning to the technical terms used in clauses 33 and A11.3 of the July 1996 deed. It assisted in understanding the parties' contentions about the operation of the Colonial Fund and the OSF and the financial impact of CSS's decisions for Mr Beck.
The reports considered three main matters: (1) what is the "reserve value" of a defined benefit fund such as the Colonial Fund or the OSF; (2) if Mr Beck were to be paid at termination the full amount of the reserve value in respect of him as a member of the OSF, what would that value be; and, (3) what would be the estimated cost to Mr Beck of purchasing in the marketplace, the pension which would have been available to Mr Beck through the OSF, were a pre-55 discretionary benefit granted to him in the form of a pension.
Partial agreement was reached on matters (2) and (3) in the course of the hearing. It is not necessary for the Court to make any precise financial determinations based on the actuarial evidence about the current value of reserves in respect of Mr Beck in the OSF. In the end the actuarial evidence was valuable as indicative of the general financial effect upon Mr Beck of decisions that might be made by CBOSC. Some of the actuarial evidence purported to interpret the deeds that have been the subject of the Court's analysis. But the Court's construction of them was guided by traditional principles of interpretation.
The CBA parties submitted that Mr Furlan's figures should be preferred because Mr Furlan was the actuary of the OSF as at 11 July 2005 and can speak as one who had been asked to perform actuarial calculations as at that date, and so can now say what they would have been. To the extent that precise figures matter in these reasons the Court has generally accepted Mr Furlan's figures. They were ultimately not contentious.
(1) Reserve values in defined benefit funds. The first matter was the actuaries' description of the "reserve value" of the Colonial Fund in respect of a member. I accept their evidence on this subject as it does not conflict on this issue. Both actuaries gave similar evidence about how an actuary would assess the "reserve value" for individual members of a defined benefit superannuation fund.
Mr Newman explained the process of assessing such reserve value as follows:
"In my opinion Defined Benefits Superannuation Funds do not maintain a reserve value in respect of each individual member contributor.
If a defined benefits superannuation fund is required to assess a reserve value in respect of a member at a particular date, in my opinion the Trustee would need to assess the actuarial present value of the defined benefits accrued in respect of that member to that date, and to consider whether the fund has sufficient assets to cover the sum of these values for all members.
This assessment involves calculating the amount of the defined benefits that have already accrued in respect of service prior to the relevant date, although they are payable in future, then assessing the actuarial present value of these benefits. Provided the fund has sufficient assets - i.e. that the value of the assets exceeds the actuarial present value of these benefits for all members - this amount is taken as the member's reserve. If the fund does not have sufficient assets to provide full coverage the reserve in respect of an individual member must be reduced to take this into account.
For the purpose of assessing a reserve in respect of a specific member at a particular date, it would be feasible to use the methodology applied to assess the actuarial liability of the whole Fund at each actuarial valuation. That methodology involves calculating the actuarial present value of all future benefit payments that could arise in respect of past membership, then applying to each possible payment factors to allow for the probability of that payment arising, and to discount the amount so derived to a present value.
In my opinion it is usual to approximate the present value of expected future benefit payments that will arise in respect of past membership. The approximation usually used is the present value of the retirement benefits expected to be payable from the normal retirement date, assuming the member survived to that date. Other benefits that might be payable, for example benefits payable on death, are generally excluded from consideration for this purpose, as is the probability of such events occurring"
Mr Furlan confirmed that defined benefit funds do not maintain a "reserve value" in respect of each individual member contributor. But rather he explained that individual member projections and reserves were indirectly calculated as part of a periodic investigation and that the process occurred in five steps, which he explained as they apply to the OSF. Unsurprisingly, these 5 steps conformed with the elements that SIS Regulations, reg 9.31 requires to be included in an actuarial report in respect of an actuarial investigation undertaken for a defined benefit fund: SIS Regulations, Division 9.5.
Actuarial investigations of the OSF are undertaken on a triennial basis, during which the appointed actuary determines whether the OSF's assets are sufficient to meet its liabilities. First, the appointed actuary obtains the value of the assets held by the OSF from the most recent end of year financial statements. Secondly, the actuary determines the actuarial value of the assets by spreading changes in the market value of the assets over a number of years. Thirdly, the actuary deducts the accumulation member accounts from the actuarial value of the assets. The remaining net value of the assets is what is available to meet the "defined benefit liabilities" of the OSF.
Fourthly, the actuary determines the "defined benefit liabilities" of the OSF by developing assumptions that reflect the probabilities of different outcomes for different members, including matters such as resignation, retirement, death, disability, investment earnings and salary increases. Applying each of the assumptions to the data held for each member of the OSF, a proprietary computer program, called "Topact", undertakes a projection for each member, applying the probabilities of different outcomes to determine an "average outcome" for each member. The program then aggregates the results to determine an aggregate figure for "defined benefit liabilities".
Finally, the actuary deducts the defined benefit liabilities from the OSF's assets to determine whether there is a surplus or a deficit: SIS Regulations, reg 9.31(1)(b). Mr Furlan explains that the individual member projections described in this process are an interim incidental step in the actuarial investigations and that the actuary does not ordinarily as part of such actuarial investigation review individual member projections generated by the program. The projections that Topact generates for each OSF member were ordinarily used by the actuary only to determine the pool of "defined benefit liabilities" for deduction from the OSF's assets, to determine whether the OSF is in surplus or deficit. Ordinarily, the individual projections were not, so far as Mr Furlan was aware, provided to CBOSC, the trustee of OSF.
How are reserves calculated? The reserve in respect of Mr Beck is calculated by reference to Mr Beck's and Mrs Beck's dates of birth, the date Mr Beck joined Colonial Mutual in South Africa, the date of his termination and his salary for superannuation purposes at termination. In addition to these factual matters related to the past, actuarial assumptions about the future are applied to reach the reserve for a member: investment returns, salary increases, pension increases and mortality assumptions. To this list Mr Furlan added "account balances" which seems to be a reference to the state of a member's "Accumulation Account". Provided consensus can be reached about the applicable actuarial assumptions, the past personal profile of an individual member should produce a single reserve figure for the member.
Reserves as Accounting Provisions. In the context of a defined benefit superannuation fund such as the OSF the term "reserves" is used by actuaries to mean a sub-division of the assets in the financial statement of the fund, or an actuarial reserve in the sense of "defined benefit liabilities". He said it was not the practice of the OSF to set aside or reserve funds for any individual, such that for example no precise assets or potential entitlements were reserved for Mr Beck in the financial statements or in the actuarial investigations.
Mr Furlan elaborated on the accounting treatment of reserves as follows: it was not necessary for the appointed actuary undertaking an actuarial investigation under the SIS Regulations to review individual member projections for ascertaining a member's reserve, so that the projections were usually discarded after a general actuarial investigation; but if a current projection was requested of the actuary for an individual member, the Topact computer program could readily produce it; the projections for individual members were not kept in ledgers for each individual but were nevertheless accessible, if needed, for each individual member through the Topact computer program; and, an individual reserve is almost a "nonsense concept", as it is the aggregate reserve that makes sense to the actuary.
Reserves and clause A11.3. Mr Newman also explained the actuary's involvement when a trustee is considering the exercise of discretion to grant a pre-55 discretionary benefit. As clause A11.3 provided, actuarial advice must be sought on the member's reserve before the trustee can decide the amount to be paid, as "the total payment to or in respect of such members" can be up to an amount "not exceeding the reserve value ... in respect of such member". The amount in the reserve held in the OSF "in respect of the member" would be calculated, as Mr Furlan indicated, using the Topact program. The actuarial assumptions made would generally be based on those used in the latest actuarial valuation of the OSF at the time the reserve calculation was required.
But Mr Furlan explained that no part of the reserve includes "provision for the possibility of the discretionary uplift in a defined benefit payment". Just what this answer means is important. The Court understood Mr Furlan to be saying that reserves do not cover a discretionary payment that exceeded what had been calculated at present values in respect of the future payment of a member's benefits. But that is what clause A11.3 says. It limits the discretionary payment it permits to a maximum "not exceeding the reserve value … in respect of such member".
But actuarial advice may also be necessary for the trustee to make a supplementary decision about determining pension benefits, after the trustee has made a pre-55 discretionary benefit determination under clause A11.3. Mr Newman explained what was required in this second stage, as follows:
"Clause 22 (b) of the August 1985 Deed sets out two different circumstances in which the Trustee is required to obtain actuarial advice.
[…]
The second is when the Trustee has determined that an additional amount is to be paid to the member, but wishes to provide an annuity instead of paying a lump sum. The actuary would advise the amount of the annuity that has an actuarial value equivalent to the sum that the Trustee has determined to pay. This will depend on the age from which the Trustee decides the annuity should be payable, and on the other specific terms and conditions of the pension. This advice requires actuarial assumptions to be made in respect of the same issues on which assumptions are required when calculating the reserve -in particular the relationships between future investment returns, salary increases, and pension increases.
If the Trustee's objective is to provide a pension from the age of 62 on the same terms and conditions with respect to indexation and reversion as would have applied had the member remained in service to 62, the actuarial assumptions used to determine the appropriate amount of pension given a particular lump sum would, in my opinion, be expected to be identical to those used to determine the amount of reserve held in the fund for that member. Therefore if the Trustee decided to increase the benefit to the member's reserve, and this has been assessed as described above and not reduced because of a level of underfunding, but the Trustee wishes to provide this benefit in the form of an annuity payable from age 62 on the terms on which pensions are otherwise payable from the fund, in my opinion the annuity so determined would be the pension that has accrued to the member."
Reserves and the Fund Surplus. Mr Newman pointed out that any surplus in the OSF is not relevant to the amount of the reserve in the OSF that relates to Mr Beck's accrued benefits. This is because the calculation of Mr Beck's reserve follows from his relevant personal circumstances, and actuarial assumptions as to future investment returns, salary increases, pension indexation and mortality, provided the OSF has sufficient assets to cover the actuarial present value of the defined benefits accrued in respect of all members. In other words, any surplus in this defined benefit fund is the net result after the calculation of Mr Beck's reserve and the reserves of all other members, which are aggregated and deducted from the assets of the OSF.
But reserves with respect to members of a defined benefit fund can be added to the fund's surplus from time to time. Mr Furlan baulked at describing any part of the OSF's reserve in respect of a member, as "his reserve" but said that if a member retired early, pre-55, and received a pre-55 discretionary benefit that was less than that member's share of the aggregate reserve, as calculated by the actuary, then that unused share would return to and became part of the OSF's surplus. He said that the "concept of a reserve is trying to set aside enough money to pay benefits as they fall due" and is really an accounting concept, being a prudential "financial provision". But the actual payments made to a member can and will at times differ from the reserve: the difference is added to, or subtracted from, the OSF's aggregate surplus.
The OSF has at all relevant times been in surplus. Mr Furlan could not remember a time since 1994 when CBA had been called upon to contribute to the OSF because of a threatened insufficiency of assets. The OSF's financial statements show the extent of that surplus at relevant times. No actuarial assessment is available for the OSF as at the date of Mr Beck's termination on 11 July 2005. In accordance with the SIS Regulations, the OSF undertook triennial actuarial investigations, one as at 30 June 2003, before Mr Beck's termination and one as at 30 June 2006, at the end of the financial year during which his termination occurred. The 30 June 2006 report shows the OSF's financial position close to his date of termination. Financial analysis of the OSF is reported upon by both including and excluding Division F of the OSF, its accumulation fund. Excluding Division F assets, the actuarial value of the assets of the OSF as at 30 June 2006 was $4.46 billion. Overall, including Division F, as at 30 June 2006 the OSF had an actuarial surplus of assets over the present value of accrued benefit liabilities of $1.258 billion. The coverage of the accrued benefit reserves of members by the actuarial value of the OSF's assets at 30 June 2006 was 127 per cent. But when defined benefits are considered in isolation the coverage is higher. The asset coverage of accrued benefits reserves when Division F is excluded, was 150 per cent as at 30 June 2006. The actuary concluded in 2006 that "this indicates the OSF's satisfactory progress towards funding benefit liabilities over the longer term" and that the "OSF continues to be in a strong financial position with no immediate threats to the security of members' benefits".
Comparable figures on 30 June 2009 show some change in the position. Excluding Division F assets, the actuarial value of the OSF's assets was $4.008 billion but the total effect of the OSF's experience over the three years to 30 June 2009 "was to marginally improve the OSF's long term financial position compared to the expected based on the 2006 investigation". The 30 June 2009 investigation showed the OSF remained "in a sound financial position" and revealed an actuarial surplus of $1.430.5 billion of the actuarial value of assets over the present value of accrued liabilities. The coverage of the accrued benefit reserves of members by the actuarial value of assets at 30 June 2009 was 135 per cent. When Division F was excluded and defined benefits considered in isolation, the asset coverage increased to 156 per cent. But the actuary informed the OSF trustee in June 2009 that it was likely CBA would need to commence contributions to the OSF in the three year period following the next actuarial investigation at 30 June 2012, and that CBA should plan for that.
Although Mr Furlan's evidence was to the effect that CBA had not contributed to the OSF since 1994, the possibility that it might do so was in contemplation at times.
(2) Mr Beck's reserves in the OSF. Mr Newman and Mr Furlan each undertook calculations of the maximum reserve that was available to have been paid to Mr Beck under clause A11.3, when his service was terminated on 11 July 2005. On the assumptions he made Mr Newman reached a figure for Mr Beck's reserves as at that date of $1,936,901.
Mr Furlan was also requested to calculate the reserve figure in respect of Mr Beck as at his termination on 11 July 2005. He used similar data to Mr Newman but applied slightly different assumptions in his calculation. Using the Topact software he assessed the reserve for Mr Beck as at 11 July 2005 at $1,796,446. He indicated that some difference is not unexpected, especially as he has access to all the assumptions actually used for the actuarial investigations of the OSF, which Mr Newman did not. Counsel for Mr Beck conceded that Mr Furlan's figure could be used as the reserve figure.
In contrast, Mr Beck's withdrawal benefit, although he left it in the OSF, was $1,397,008.
Whatever the slight differences between Mr Furlan and Mr Newman about the lump sum of the reserve as at Mr Beck's retirement date, they both agreed that the Augmentation Rule, clause 10, could be used to provide a pension to Mr Beck utilising his reserves at termination. Mr Newman calculated such a pension benefit on two possible scenarios. The first scenario ("the full pension") assumed Mr Beck could continue as a contributing member of the OSF to the early retirement age permitted in the July 1996 deed and still reflected in the OSF Division CH, namely the age of 55, with Mr Beck's service notionally continuing to accrue benefits and his salary notionally increasing. This scenario must be based on notional salaries since Mr Beck is no longer employed. Leaving aside other permutations that Mr Newman considered, this full pension scenario would have resulted in Mr Beck receiving a pension of $160,487 per annum from age 55. On the same assumptions a pension of $254,602 per annum was payable from age 60.
Mr Newman's alternative scenario also uses the Augmentation Rule, clause 10, but provides to Mr Beck the pension that had accrued to him through the reserves at termination of his employment but with the pension payable from retirement without any further contribution ("the paid up pension"). This produces a lower pension of $143,360 per annum at age 55. The same assumptions give a pension of $189,780 at age 60. It is not necessary to canvass the issues between the actuaries about these two scenarios. But the actuaries accept that they are two possible ways in which the Augmentation Rule could be used to provide a pension to Mr Beck.
These two scenarios are to be contrasted with what would happen if Mr Beck were to attempt to purchase similar pensions on market either with his withdrawal benefit of $1,397,008, or were he to be paid the lump sum of his reserves as at 11 July 2005 of $1,796,446. The differences can be seen in the next section.
(3) Purchasing an annuity on market. Mr Newman's evidence raised the last actuarial matter: contrasting the annuity Mr Beck could receive using his reserve in the OSF, with the cost of purchasing such annuities in the market place. The purchasing power of a capital sum to acquire an annuity depends upon whether the purchase is taking place within a defined benefit fund, such as the OSF, or at market prices outside the fund. Mr Furlan explained that funding a pension from within the fund would involve the commitment of less capital than trying to fund a pension in the marketplace, due to the different regulatory requirements applicable to the purchase of an annuity from a life insurance company, as distinct from a defined benefit fund, such as the OSF. A life insurance company offering an annuity in the marketplace has to hold capital and recover the cost of the capital, and typically has to invest conservatively, which lowers the discount rate and increases the cost of the annuity. Whereas an employer will bear the investment risk of a pension from a defined benefit fund, typically does not place a capital charge on the defined benefit fund to cover that risk, and will accept investments involving more risk. Because the employer accepts such risks less capital is needed to purchase an annuity through a defined benefit fund than buying the equivalent annuity in the marketplace.
The parties agreed upon what capital would be required to fund various levels of pension reflecting Mr Beck's relevant profile in the marketplace. Mr Newman and Mr Furlan agreed the range of cost for the purchase on market of pensions of various amounts between $162,222 p.a. and $254,602, as follows:
Pension per annum Estimated cost to purchase in market
$162,222 $4.63m to $5.39m
$189,780 $5.41m to $6.30m
$225,620 $6.44m to $7.49m
$238.841 $6.81m to $7.93m
$254,602 $7.26m to $8.45m
[13]
These figures show a substantially higher price for members such as Mr Beck attempting to buy a pension on market contrasted with funding a pension through the OSF.
The relief Mr Beck seeks in his Third Further Amended Statement of Claim ("3FASC") arises out of events in two distinct time periods. The first period is December 1996, when clause A11.3 was deleted from the July 1996 deed. The second period is the years 2000, 2001 and the following years, when CBA engaged Mr Beck, he moved from Melbourne to Sydney and soon after CBA terminated his employment. It is convenient to analyse Mr Beck's claimed relief by reference to these two periods.
Mr Beck first claims, and the CBA parties contest, that the December 1996 deed's deletion of clause A11.3 breached clause 33.2 of the rules of the Old Colonial Fund and contravened SIS Act, s 52(2)(c), and SIS Regulations, reg 13.16(1). CSS did not appear to contest Mr Beck's contentions. But the CBA parties now argue that CSS validly exercised the power to amend.
Mr Beck seeks declarations as to these alleged December 1996 contraventions and breaches: 3FASC, prayer 1. And he seeks consequential relief on the basis that clause A11.3 still subsists in the OSF deed for his benefit. Mr Beck's consequential relief principally consists in: requiring CBOSC to pay the reserves held in the OSF to Mr Beck (3FASC, prayer 3); seeking that CBOSC now exercise the clause A11.3 discretion and pay such of Mr Beck's reserves to him as can be paid pursuant to clause A11.3 (3FASC, prayer 3A); ordering CBA to pay him equitable compensation (3FASC, prayer 4); and claiming rectification of the OSF deed to restore an equivalent to clause A11.3 (3FASC, prayer 5).
Secondly, Mr Beck seeks relief in the 3FASC, arising out of representations made on behalf of CBA during 2000-2001 and the following years. The relief claimed during this period is based on alleged implied terms of good faith in Mr Beck's employment contract with CBA, and estoppels and unconscionable conduct arising out of CBA's representation to him (3FASC, prayers 7 and 8). The relief sought requires CBOSC to exercise its discretion under a restored clause A11.3 under certain constraints: specifically that CBA must apply the OSF rules to give effect to its 2000-2001 representations to approve the paying to Mr Beck of either his reserves or a pension based on his reserves. These estoppels and this unconscionable conduct also found Mr Beck's claimed entitlement to a pension based upon the reserve held in the OSF in respect of him, irrespective of whether clause A11.3 is restored as part of the OSF.
[14]
The December 1996 Amendments
Analysis of whether the December 1996 amendments were authorized by clause 33 or were in contravention of the SIS Act and SIS Regulation is dealt with below in seven parts.
1. The construction of the July 1996 deed.
2. The effect of the December 1996 amendments.
3. To what extent can the Court review CSS's decision to amend?
4. Were the amendments authorized under, or in breach of clause 33?
5. Did the amendments contravene SIS Act, s 52(2)(c)?
6. Did the amendments contravene SIS Regulation reg 13.16(1)?
7. What is the effect of any breach or contravention found?
[15]
(1) The Construction of the July 1996 deed
The July 1996 deed must be construed in its context. The Old Colonial Fund, the New Colonial Fund and the OSF are all superannuation trusts that operate as part of a relationship between an employer and employees. Its "matrix of fact" is that it is part of an employment relationship: Lock v Westpac Banking Corporation (1991) 25 NSWLR 593 ("Lock") at 602. This has a consequence that where the language of the superannuation trust with the benefit of employees - a pension scheme - is not clear, it has been held appropriate to construe it in a "practical and purposive, rather than detached and literal" way: Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 ("Mettoy") at 1610 and Jacobs' at [2942]. And it should be construed with a view to giving "reasonable and practical effect to the scheme" bearing in mind that it has to be operated against a constantly changing commercial background: Re Courage Group's Pension Schemes [1987] 1 WLR 495 at 506 and Jacobs' at [2942].
Superannuation trust deeds benefit employees for whom superannuation is often their greatest asset, apart from their houses. That superannuation is in large measure something for which employees have exchanged value, in the form of their work and contributions: Finch v Telstra Super Pty Ltd [2010] HCA 36; (2010) 242 CLR 254 ("Finch") at [33]. It can be seen as "deferred pay": Air Jamaica Limited v Charlton [1999] 1 WLR 1399 (PC) ("Air Jamaica") at 1407 and Finch at [33]. The beneficiaries of a superannuation scheme are not volunteers receiving the trustees' bounty, but have given valuable consideration in services and contributions: Mettoy, at 594-550; Lock, at 602 and Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd [2002] VSC 576; (2002) 174 FLR 1 ("Ansett") at [236] - [237].
A discretionary power conferred on the trustee of a superannuation fund will usually be fiduciary: Davis v Richards and Wallington Industries Ltd [1990] 1 WLR 1511 ("Davis") at 1537. A discretionary power conferred on the employer alone will also usually be fiduciary: Mettoy at 1619 and 1620. But where rules were to be made by an employer with the consent of the trustees and the subsidiaries of the employer, the power in the subsidiaries' hands was held not to be fiduciary: Davis at 1537.
The central question of construction in this matter is whether the words "the value of the benefits accrued in respect of any member prior to the effective date of the amendment" in clause 33.2 of the July 1996 deed encompasses such rights as the member may have under clause A11.3. If the clause A11.3 rights are encompassed within the words of clause 33.2, then (leaving aside for a moment questions as to whether the trustees acted honestly and for a proper purpose and addressed the right questions) the amendment cannot proceed in a way which will detrimentally affect those rights.
In my view there are indications in the July 1996 deed and in authority that those words in clause 33.2 do encompass clause A 11.3 rights.
The actuarial evidence set out earlier in these reasons shows that clause A11.3 does something slightly artificial for a defined benefit fund. It is defining the maximum payment possible to the member under that provision upon the assumption that there is a "reserve value as determined by the trustee after considering the advice of the actuary held in the Fund in respect of such member" (emphasis added). The actuarial evidence indicates that there is actually no ledger for an individual member and no quarantining of funds for an individual member anywhere in a defined benefits fund, a position which is to be distinguished from an accumulation fund. Yet this composite expression in clause A11.3 speaks in terms that assume that some "reserve value" is actually "held" and held "in respect of such member". But it is true to say that reserves are held "in respect of a member" because they can be defined, at least an accounting sense, for the member as amounts representing the actuarial probability that such member's contingent entitlements will become vested entitlements over the course of time. They can be identified with precision at least in an accounting sense to represent those future entitlements. And they will change in amount over time based on the personal and service variables associated with an individual member. In my view the composite expression in clause A11.3 treats this accounting reserve value as notionally representing a part of the Fund securing the member's future entitlements ("held…in respect of") and in the short term before the member can call for those entitlements, as the available resource for the exercise of the clause A 11.3 discretion. In this sense the wording of clause A11.3 indicates a special kind of benefit for a qualifying member.
But was this an accrued benefit within clause 33.2? In the way this composite expression in clause A11.3 is written it is not difficult in my view to describe it as a benefit "accrued in respect of any member" within clause 33.2. Over time in an accounting sense it does "accrue", as the member's service changes "in respect of" the member and the fund available for clause A11.3 benefits enlarges. Nothing elsewhere in the July 1996 deed is inconsistent with this interpretation of this clause A11.3 composite expression.
But in another sense clause A11.3 represents a "benefit accrued in respect of a member". Importantly, Mr Beck'shad a clause A11.3 right under the July 1996 deed to be considered for discretionary benefits in the due administration of the trust.
When superannuation schemes are being construed, members' rights to consideration for discretionary benefits have often received attention. In each case the terms of the trust deed will determine the quality of the right in each case. Beneficiaries in employee pension schemes have an established right to the exercise of discretions in the due administration of the trust beyond their mandatory benefits.
This has been recognised in a number of modern authorities. In MGM, Kearney J said (at 73C) that he regarded the trust deed in that case did envisage "as being secured by contributions not only benefits to which members may become entitled under the rules but also other and additional benefits which are covered by [the discretionary] provisions". Again in Mettoy at 1619D Warner J said, "In my opinion it is not correct to say that the rights of the beneficiaries under the scheme are satisfied when they have received mandatory benefits and that anything more lies in the bounty of the employer. I think that the beneficiaries have a right to be considered for discretionary benefits": see also Cooke P in UEB at 297 - 298. And in Finch (at [30]) the High Court said of the applicant/superannuation scheme member who was looking to the trustee to form an opinion about his entitlements, that he "was not the object of a discretionary power of appointment. He was the beneficiary of a trust, and although the precise form and quantum of his beneficial interest was contingent on particular events, he did have a beneficial interest."
In my view Mr Beck's right to consideration for a pre-55 discretionary benefits under clause A11.3 was itself a "benefit accrued in respect of" him as member within clause 33.2 of the Old Colonial Fund.
[16]
(2) Amending Clause A11.1 and Deleting Clause A11.3 - Analysis
Analysis of the precise legal effect of the amendments to clause A11.1 and the deletion of clause A11.3 of the rules of the Old Colonial Fund is the starting point to determine whether these changes breached clause 33.2 or contravened s 52(2)(c), or reg 13.16(1). The combined effect of amending Clause A11.1 and deleting clause A11.3 in the context of the December 1996 deed as it then stood was substantial: it was considerably broader than Ms Horan envisaged when she advised Colonial Mutual's Board to approve the December 1996 deed amendments.
Clause A11.1 and A11.3 Benefits. The differences between clause A11.1 and A11.3 benefits under the July 1996 deed are fundamental to the present analysis. A clause A11.1 benefit is payable as of right to a Member ceasing employment with a Colonial Mutual Employer. In contrast, payment of the benefit under A11.3 is wholly discretionary. The same contrast existed in the predecessor provisions, clause 22(a) and 22(b) of the August 1985 deed.
The clause A11.1 payment as of right has three cumulative financial components: Part A, Part B and Part C. Each of these three components is based on a mathematical formula. Part A and Part B each apply a formula to the "Basic Amount" defined in clause A11.2. The Basic Amount is a precise measure of the final annual salary used for the application of the Part A and Part B formulas.
The Part A formula returns to the Member 5% (or 3% where applicable) of final annual salary for each year of the Member's service. This return of funds to the Member is not dissimilar in quantum to the compulsory annual contribution of 5% that had been required from a Member under clause 15 of the August 1985 deed, although, Division 2, clause 6 of the July 1996 deed permitted a more flexible rate of annual Members' contribution.
The Part B formula built on the Part A amount, giving the Member an entitlement to a further 8% of the Part A amount. But this additional Part B amount had a collar and a cap: it had a minimum quantum of 40% of the Part A amount and had a maximum quantum limited by using a multiplier of 40 years (or in respect of members joining after 1 February 1995, 30 years) of the Member's service.
The Part C formula did not rely on the Basic Amount. To complete the quantum of the clause A11.1 benefit, Part C added "the balance of the Member's Accumulation Accounts", which Division 2 clause 7 required the Trustees to keep. The Accumulation Account is the Colonial Fund's Trustees' record of all Member-related accruals of defined benefits or obligations under the July 1996 deed. It could be described as a ledger of the particular benefits of each Member, showing the balance due to each Member of these particular benefits.
In contrast to clause A11.1's formula-based approach, clause A11.3 was entirely discretionary and permitted the trustees to "increase the total payment to and in respect of such Member", namely the amount that would otherwise be payable under clause A11.1 "to an amount not exceeding the reserve value…in respect of such Member" [emphasis added]. The expression "reserve value" is not defined in the July 1996 deed, or the August 1985 deed. Clause A11.3 assumes that the "reserve value" will in the usual case be different from and more than the "Members' Accumulation Account", as the clause A11.3 discretion is contemplated to "increase the total payment" under clause A11.1 "to an amount not exceeding the reserve value" [emphasis added]. Clause A11.3 confers on the trustees, "subject to the approval of the Company [Colonial Mutual]", the discretion to pay any amount between the sum of Parts A, B and C of clause A11.1 and the reserve value. Other than requiring Colonial Mutual's approval and finding long service and exceptional circumstances, the discretion is unconfined: see also the July 1996 deed, clause 5.3.
Amending A11.1 and deleting A11.3. Clause A11.1 was amended in December 1996 by deleting the words of its second sentence qualifying the "Part B" benefit: "However in the determination of a Part B benefit the maximum number of years of Membership of the Fund which shall be counted shall be 40 for Members who joined the Fund prior to 1 February 1995 and 30 for Members who joined the Fund on or after that date". These deleted words were replaced in the December 1996 deed by the words "and a maximum calculated such that the sum of Part A, Part B and Part C do not exceed the reserve value determined by the Trustees (after considering the advice of an Actuary) held in the Fund in respect of such Member as at the date the Member ceases employment with the Employer".
This alteration changes the cap on the amount payable under clause A11.1, Part B. The alteration raises the ceiling on Part B amounts from a fixed percentage (8%) of the amount payable for each Membership year under Part A up to a maximum number of years. The ceiling was lifted in December 1996 up to an amount calculated by reference to the "reserve value" held in the Fund in respect of a Member. This lifted the cap on the calculation of Part B benefits. But it did not alter the primary formula from which the Part B benefit is calculated: this remained as 8 per cent of the Part A benefit for each counted year of Membership.
Under Part B Mr Beck was always entitled to 8 per cent of his Part A benefit, for each of his 24 years of service from 1981 to 2005, unless reduced by a cap. Replacing the 30 and 40 year caps on the multiplier to produce the Part B benefit with a sum equal to Mr Beck's reserve value, merely meant that there were fewer constraints upon Mr Beck's Part B benefit reaching its own inherent maximum of 8% of his Part A benefit.
But to reduce constraints against the payment to Mr Beck of the maximum Part B benefit, does not provide an equivalent benefit to the one that might be payable to him under clause A11.3. The lack of equivalence can readily be seen. Although Mr Beck's reserve value became, after the December 1996 amendment, the theoretical maximum benefit payable under clause A11.1 Part B, that maximum reserve value will never be available to Mr Beck if it is more than Part B's own defined limit, namely 8 per cent of Mr Beck's Part A entitlement, together with his Part A and Part C entitlements. But under clause A11.3, the difference between the Part B maximum (on top of the Part A and Part C entitlements) and the reserve value in respect of Mr Beck would always potentially be available at Mr Beck's request, as a matter of trustee discretion and company approval.
Put another way, when all the Clause A11.1 components add to an amount lower than the reserve value in respect of a Member, the Member will never enjoy the benefit of the reserve value after the December 1996 amendments. But before those amendments the discretion under clause A11.3 always made that reserve value potentially available to the Member.
The Augmentation Rule, Division 2, clause 10. An important question as to whether the December 1996 amendments were in the best interests of Members was whether the Augmentation Rule, Division 2, clause 10 was the functional equivalent of the deleted clause 11.3. The CBA parties submitted that the Augmentation Rule provided superior benefits to Colonial Fund Members than did clause A11.3 and that as it was retained after the amendments, Members were no worse off as a result.
This argument is not persuasive because the differences between the Augmentation Rule and clause A11.3 make the former an inadequate substitute for the deletion of the latter.
Once a Member seeks the Trustee's consideration of a benefit under clause A11.3 the Trustee's duty is to consider whether or not the Member has given "a long period of service" and whether or not there are "exceptional circumstances". Once the Trustee has determined these matters, the Trustee must consider whether or not to pay a sum to the Member so that the total (of the pre-55 resignation benefit and the pre-55 discretionary benefit) payment for the Member is "an amount not exceeding the reserve value…held in the fund in respect of such Member" at the relevant date. When is the Trustee has determined whether to make such a payment the Trustee would need to seek "the approval of the Company" to that payment.
In contrast, under the Augmentation Rule the Trustee can only act upon the direction of the Company. When so directed to act, the Trustee may have to require contributions from any relevant subsidiary of the Company who employs the member. If that subsidiary is unwilling to provide the contributions the augmentation benefit will not be paid.
Deleting clause A11.3 disadvantages members of the Colonial Fund as at December 1996.
First, before the December 1996 amendments the Old Colonial Fund contained both clause A11.3 and the Augmentation Rule. Their combined presence at that time would mean that a Trustee would be exercising the clause A11.3 discretion in its context on the basis that it was additional to the Augmentation Rule. And clause A11.3 directs the Trustee to give special consideration to the claims of Members in exceptional circumstances and giving long service and where their reserves already cover contemplated payment, such that no further call for funds from the company or the employer would be required. This marks out an additional duty of consideration to this class of Members over and above the general duty of consideration for all Members available through the Augmentation Rule, an additional duty which the Trustee would be entitled to take into account when exercising the clause A11.3 discretion. This factor would represent a potential advantage the persons qualifying under clause A11.3 would have over other Members only relying upon the Augmentation Rule.
Secondly, under clause A11.3 the Trustee has a duty to respond to the Member by giving consideration as Trustee to the Member's request for a clause A11.3 benefit. Although the trustee has to seek the Company's approval before paying the clause A11.3 benefit, the Trustee charged with that duty makes the decision to pay and the payment will occur unless the Company is prepared not to approve the Trustee's decision. This is better for the Member than under the Augmentation Rule, under which the company may decide not to give a direction to the Trustee. This seems to be the Company's unfettered right, as indeed is disapproval of the trustee's decision under clause A11.3. Authority suggests that the power to give or not to give a direction under the Augmentation Rule is probably not fiduciary (as the overall decision to recommend a payment is still one for the Trustee) and therefore the power can be exercised in the Company's own interests: Mettoy at 1619-1620.
Thirdly, although clause A11.3 requires a Trustee to seek the "approval" of the "Company", the Trustee will never have to seek funds from the company or from a related "Employer" to give effect to a clause A11.3 decision, because the Trustee's decision to make the payment will always be covered by existing reserves "held in the Fund in respect of such member". A Member seeking to take advantage of the Augmentation Rule always faces the risk that the Trustee will make a request for further funds with which the Company may be unwilling to comply, thereby stopping the augmentation.
For these reasons I do not regard the survival of the Augmentation Rule after the December 1996 amendments as an equivalently valuable substitute to a member of the Colonial Fund for the deletion of clause A11.3 from the Colonial Fund rules.
Mr Beck contends that the December 1996 amendments contravened the covenant in SIS Act, s 52(2)(c) and the standard in SIS Regulation, reg 13.16 and breached clause 33.2 of the July 1996 deed. It is convenient next to deal with the issues of the Court's capacity to review CCS's decision to amend and whether the amendments were in conformity with clause 33.
[17]
(3) To what extent can the Court review CSS's decision to amend?
Aspects of the July 1996 deed clause 33 power to amend and the clause A11.3 power to confer a pre-55 discretionary benefit involve some exercise of Trustee's discretion. As will be seen below they also involve a requirement to determine some matters of fact. I am mindful that the High Court has warned that the term "discretion' may be an inadequate description of an inquiry which involves the identification and evaluation of factual matters: Finch at [29] and see M.J. Leeming, "Chameleon Hued Words: A Note on Discretionary Trusts" (2015) 89 ALJ 371.
The relevant principles as to the review of trustees' discretionary decisions may be shortly stated. In a non-superannuation context McGarvie J stated the relevant principles in Karger v Paul [1984] VR 161 ("Karger") at 163-164: that the court would not review a trustees' exercise of discretion where the discretion was exercised in good faith, on a real consideration of the issue and in accordance with the purposes for which the discretion was conferred; but if the trustee chose to give reasons, the Court could review them.
This approach to the review of trustees' discretions has often been applied in the context of superannuation funds: Sayseng v Kellogg Superannuation Pty Ltd [2003] NSWSC 945 ("Sayseng") at [55] to [57] (Bryson J) and Baker v Local Government Superannuation Scheme Pty Ltd [2007] NSWSC 1173 ("Baker") (McDougall J). But it is well recognised that even if a trustee does not give reasons, the Court may intervene if the trustee's decision is one that no reasonable person could have reached on the information available to the trustee: Maciejewski v Telstra Super Pty Ltd [1999] NSWSC 341 ("Maciejewski") at [15] (Windeyer J). And Young J said in another Maciejewski related case that where a trustee does not give reasons and where there is a prima facie case of error, the absence of reasons "will tend to make that prima facie case a virtual certainty": Maciejewski v Telstra Super Pty Limited (1998) 44 NSWLR 601.
In recent years increasing levels of judicial caution have been expressed about whether the principles in Karger can be applied without some attenuation in the context of superannuation pension schemes. In 2000 in Telstra Super Pty Limited v Flegeltaub (2000) 45 ATR 470, Callaway JA in the leading judgment, accepted that Karger could be applied but Ormiston JA and Batt JA reserved the point for further consideration.
Then in 2010 the High Court in Finch (at [33] and [36]) recently stated the law in a way that distinguishes superannuation schemes from discretionary trusts that attract Karger principles. After affirming the characterisation of superannuation as "deferred pay" and as a method of attracting labour, the Court said in Finch (at [33]), "The legitimate expectations which beneficiaries of superannuation funds have that decisions about benefit will be soundly taken are thus high. So is the general public importance of them being sound." This public importance has implications for rights of review of trustee's decisions of the High Court said (at [36]) "Thus the public significance of superannuation and the close attention paid to it through statutory regulation support the conclusion that the decisions of superannuation trustees are not likely to be largely immunised from judicial control without clear contrary language in the relevant trust document".
The CBA parties drew to the Court's attention clause 5.3 of the July 1996 deed that was said to inhibit review of the trustee's decision-making. But the High Court's reasoning in Finch (at [36] footnote 24]) makes clear that language, such as that in clause 5.3, is not sufficient to immunise the decisions of superannuation trustees such as CSS from judicial control.
Whether Karger principles will be modified, so that the discretionary decisions of the trustees of superannuation schemes will not be immunised from judicial review to reflect the general public importance of those decisions being sound, is not yet clear. But as the analysis in the next section of these reasons shows, even on the application of Karger principles, clause 33 did not authorise CSS's attempted exercise in December 1996 of its power to amend the July 1996 deed.
The principles that are stated in Karger have been considered in relation to the amendment of superannuation trust deeds. These are considered in the next section.
[18]
(4) Were the Amendments Authorised Under or in Breach of Clause 33.2?
[19]
The Parties' Submissions
Mr Beck contends: that properly construed the term "benefits accrued" in clause 33.2 has the same meaning as "accrued benefits" in reg 13.16(1) and includes both absolute and potential entitlements; that benefits conditional upon a favourable exercise of discretion are examples of potential entitlements included within this term; and that absolute entitlements encompassed within the expression include the right to due consideration of the exercise of an available discretion conformably with the due administration of the fund by its Trustee.
Mr Beck says that the effect of CSS's December 1996 amendment was that the value of Mr Beck's right to be paid up to the limit of the reserve value on his account after due administration of the fundwas reduced to nil, because the discretion to grant such a benefit was taken away.
Clause 33.2 provides that the "value of benefits accrued" in respect of a Member is "such amount as the Trustees after considering the advice of the Actuary, determine has accrued". Mr Beck says that CSS did not seek any advice from the Actuary for the December 1996 amendments, and did not make any determination of the value of accrued benefits on the basis of any such actuarial advice. Instead CSS sought and relied upon the advice of an in-house lawyer, Ms Horan on other matters. That was insufficient to discharge CSS's obligation under clause 33.
The CBA parties submit that the evidence shows that in December 1996 CSS properly engaged the clause 33 amendment mechanism and effectively deleted clause A11.3.
[20]
Consideration
Did CSS validly exercise the clause 33 amendment power on 30 December 1996?
The applicable principles are clear. The express terms granting and controlling the power of amendment of a superannuation trust deed must be complied with: Jacobs' at [2945]. The circumstances relevant to assessing the validity of each amendment are the circumstances existing at the time of the amendment: Jacobs' at [2945].
The duty to comply with the terms of a clause permitting amendment requires the person having the power to amend to construe the clause correctly, for any opinion at which that person is to arrive can only be formulated validly if the person has a correct understanding of the question to be considered MGM, at 735 and Jacobs' at [2945]. This is restated in Karger in the principle that there must be a real consideration of the issue before the trustee.
The construction of the particular powers of amendment must take place in the context of the entire trust instrument: Lock at 602. Construction of the power of amendment should not unduly fetter the power, because superannuation trusts must commonly operate over a lengthy period and if they are to achieve their objectives need to be able to accommodate changes of many kinds: Re UEB Industries Ltd v Pension Plan [1992] 1 NZLR 294 ("UEB") at 307.
The clause 33.1 power to "amend, add to, delete or replace (together 'amend') all or any of the provisions" of the July 1996 deed is conferred "subject to clause 33.2". Amendments made pursuant to the power have a broad effect they are: "binding on each Employer, each Member in any other person claiming under or bound by the Deed". Perhaps because of that broad effect the controls of clause 33.2 play an important role.
But the controlling power of clause 33.2 declares itself "subject to clause 33.3". Thus the controls of clause 33.2 are operative unless clause 33.3 is applicable. Mr Beck's principal submission is that clause 33.2 is applicable and that it, as the provision controlling amendment, was not complied with in a number of ways. Specifically he submits that no actuarial valuation was obtained and put before the CSS Board at the time of the amendment of the value of benefits accrued to beneficiaries. But the CBA parties say that clause 33.3 applies and that it was not necessary for CSS to obtain any actuarial valuation before embarking on the December 1996 amendment.
The clause 33.2 control is to prohibit any amendment by which "the value of the benefits accrued in respect of any Member prior to the effective date of the amendment is detrimentally affected" without "the written consent of the Member". It is not in contest that no written consents were obtained from any member for the December 1996 amendments. Those words alone might perhaps be thought to import an objective test, whereby the detrimental effect of an amendment could be determined at any time after the event. But the words that follow in parentheses indicate otherwise. These words "(the value of the benefits accrued being such amount as the Trustees, after considering the advice of the Actuary, determine has accrued)" show that CSS was required at the time of the amendment to obtain the advice of the appointed actuary as to "the value of the benefits accrued" before deciding whether or not the amendment would detrimentally affect those benefits. This is logical. It would be difficult to determine whether any detriment had occurred to the "value of the benefits accrued", unless those benefits were identified and quantified. Thus in my view CSS was required to obtain actuarial advice about the extent of "the benefits accrued" for "any Member". This was not an impossible task. Presumably it could be done by class (of Members).
The execution of this task would have revealed that there were Members such as Mr Beck who had "accrued benefits" in the form of reserves held in the Fund on account of the probability that they would in due course obtain vested entitlements to pensions. It would have further revealed that the possibility of early access to those reserves, in the Trustee's discretion, was being extinguished by the amendments' deletion of clause A11.3.
In my view the clause 33.2 task could not been carried out without an actuarial opinion so the Trustee could "determine" the "benefits accrued" as at the date of the amendments. No such opinion was obtained. Ms Horan's 17 December 1996 memorandum to the CSS board does not refer to any such actuarial advice being commissioned, being tabled, or been required to be taken into account. The minute of the CSS board's decision does not refer to any such advice being tabled, discussed or taken into account at the meeting. CSS needed to measure and exercise its power to amend in the light of current actuarial advice about accrued benefits of members. CSS could not have done so on any view of the limited materials before it. CSS therefore could not have reached its "opinion on the basis of a correct understanding of the question to be considered': MGM at 735B. The power to amend miscarried. But none of this would matter if clause 33.3 applies.
Does clause 33.3 apply? In my view it does not. Clause 33.3 is designed to authorise amendments to the July 1996 deed to ensure compliance with taxation and superannuation legislation. It is not a basis for CSS generally to amend the July 1996 deed on the basis of its own opinion as to what is necessary or desirable for the purposes of the deed complying with any State or Commonwealth legislation that could possibly affect superannuation funds and thereby giving CSS the licence to override the clause 33.2 Member protections against amendments.
Clause 33.3 says certain amendments that "the Tustees consider necessary or desirable" for better securing of "taxation concessions" or for "ensuring conformity with" the Relevant Requirements or specified legislation "shall be deemed not detrimentally to affect the value" of accrued Member benefits. But the legislation that is described as having this effect is bracketed in clause 33.3 with "the Relevant Requirements" and is described as "any other present or future State or Commonwealth laws governing or regulating the operation or maintenance of superannuation funds" (emphasis added). Clause 33.3 is not engaged by attempts to comply with any State or Commonwealth legislation that might possibly affect a superannuation fund. The provision only engages with laws that "govern or regulate the operation of superannuation funds". Specifically, that means legislation like the SIS Act, the SIS Regulations and related income tax legislation. The "Relevant Requirements" as defined under the July 1996 deed only include taxation legislation or legislation such as the SIS Act, the SIS Regulations and cognate legislation directly regulating the superannuation industry. It might possibly include "any other law which the Trustees and the Company agree is a "Relevant Requirement". But this does not apply. There is no evidence that the Trustee and the Company agreed that anti-discrimination legislation of the State of Victoria even became an agreed "Relevant Requirement".
Crafting clause 33.3 in this way served an important purpose. It could be expected that taxation or superannuation legislation would be constructed so as to preserve rather than diminish the accrued benefits of fund members. But legislation which did not have a specific focus on governing or regulating superannuation could not be assumed to have that objective. Therefore compliance with such less specific legislation was not a safe basis for dispensing with the requirements of clause 33.2. Of course there is every good reason for Ms Horan in her advice to the Board to seek to ensure that the Fund complied with Victorian anti-discrimination legislation and it was laudable that the Board had that objective. But that does not mean that the CSS Board's task automatically brought CSS within clause 33.3. In my view it did not and clause 33.2 applied. CSS did not comply with clause 33.2, and ultimately therefore did not address itself to the correct question. Because of this failure the December 1996 power to amend miscarried. The amendments were invalid.
But even if the controls on the amendment process had been properly followed, for the reasons already stated "the value of the benefits accrued in respect of [Mr Beck] prior to the effective date of the amendment [were] detrimentally affected", resulting in a failure to comply with clause 33.2.
[21]
The Parties' Submissions
Mr Beck alleges that in December 1996 CSS breached the covenant contained in the governing rules of the Old Colonial Fund pursuant to s 52(2)(c). This s 52(2)(c) covenant requires CSS to "exercise the Trustees' powers in the best interests of the beneficiaries". Mr Beck submits that in deleting clause A11.3, without providing an equivalent substitute provision, CSS breached the s 52(2)(c) covenant by failing on 30 December 1996 to exercise the power to amend in the best interests of the beneficiaries. Mr Beck submits that: clause A11.3 (and its predecessor under the 1985 deed, clause 22(b)) provided beneficiaries, including Mr Beck, with an opportunity to be considered for an enhanced benefit on leaving the service; and, that its removal, without an adequate replacement was not in the best interests of all beneficiaries.
Mr Beck submits, and the CBA parties accept, that he did not consent to the deletion of clause A11.3 in December 1996. The issue presented is therefore whether the deletion of clause A11.3 was in the "best interests" of beneficiaries, specifically Mr Beck.
Mr Beck did not submit that the s 52(2)(c) covenant expands the general law. The CBA parties did not contest this position.
Mr Beck submits that the effect of the amendment was to take away from all Members of the Colonial Fund both a right to enjoy the due administration of the Fund through clause A11.3 and the opportunity to have a potentially favourable exercise of that discretion to be paid in advance benefits to the full value of the reserve held on Members' behalf. Mr Beck says that instead the OSF made a profit upon CBA's termination of Mr Beck without cause, preventing his employment up to age 55. Mr Beck concedes that it may be appropriate for a fund to be able to utilise reserves that have otherwise been set aside for a member who voluntarily resigns but submits that this is a totally inappropriate outcome for a member who is prevented without cause from becoming entitled at age of 55 to benefits that are already the subject of reserves.
Mr Beck submits that he had a right to due administration of the Fund in relation to clause A11.3, the exercise of which right in turn meant that the Trustee should have given due consideration to the grant of a pre-55 discretionary benefit under clause A11.3. Mr Beck submits that this was in itself an accrued right to a benefit, albeit one contingent upon a favourable exercise of discretion by CSS in December 1996 and CBOSC now, subject to approval by CBA.
Mr Beck points out that the body of rights that he has as a beneficiary of the Colonial Fund may be characterised in one of two ways. His interest may be seen as an expectancy: JD Heydon & MJ Leeming, Jacobs' Law of Trusts in Australia, (7th ed 2006, LexisNexis) ("Jacobs'") at [2938]; Re Coram (1992) 36 FCR 250 at 253 at 356-7 per O'Loughlin J and Wrightson Ltd v Fletcher Challenge Nominees Ltd [2002] 2 NZLR 1 at [28]. Courts have also characterised the bundle of rights of an employee in a pension fund as "a species of property": Imperial Group Pension Trust Limited v Imperial Tobacco Ltd [1991] 1 WLR 589 at 599; Sir Nicholas Brown Wilkinson VC. But the position may vary depending on the terms of the trust deed in question: Jacobs' at [2938].
In whatever way a member's rights are characterised, as an expectancy or as a species of property, Mr Beck says the exercise of the power to amend in December 1996 was not in the best interests of the beneficiaries. It took away all his rights, whatever form they took.
Mr Beck says that he would have qualified for the Trustees' due consideration of a clause A11.3 payment because he had given long service and his circumstances were exceptional. Whether he did so qualify would have been a matter for the Trustee's consideration. But had he so qualified, it is his right to due consideration under clause A11.3 that he says the amendment destroyed.
The CBA parties take issue with Mr Beck's contentions in three places. They submit: (1) that the Court cannot second guess the Trustee's decision as to what is in the best interests of the beneficiaries, based on the Court's own sense of fairness and reasonableness; (2) that in any event, it cannot be said that the removal of clause A11.3 was contrary to CSS's obligation to act in the best interest of beneficiaries, because of CSS's duty to all beneficiaries; and (3) the Augmentation Rule, Division 2, clause 10, survived the December 1996 amendments and gave Mr Beck and all other beneficiaries rights that were preferable to clause A11.3.
First, the CBA parties submit that the Trustee's exercise of discretion to amend cannot be impugned upon the basis that their discretion was unfairly exercised or was unreasonable or unwise. Where the discretion is expressed to be absolute it may be that bad faith needs to be shown before it can be impugned. The soundness of the exercise of discretion can be examined where reasons have been given, but the test is not fairness or reasonableness: Clerical Administrative and Related Employees Superannuation Pty Ltd v Bishop (1997) 76 IR 139 ("Bishop") per Northrock J and Attorney General for the Commonwealth v Breckler (1999) 197 CLR 87 ("Breckler") at 99-100, Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd (1998) 79 FCR 469 at 480 and Manglicmont v Commonwealth Bank Officers Superannuation Corporation Pty Ltd (2010) 239 FLR 159 ("Manglicmont") at [21] per Rein J. And the CBA parties submit that Mr Beck has not made out any of the relevant grounds on which the exercise of the Trustee's discretionary power can be challenged.
Secondly, the CBA parties submit that Mr Beck must fail in his contention that the removal of clause A11.3 was contrary to CSS's obligations to act in the best interests of the beneficiaries. The CBA parties point out that the obligation of the Trustees is to act in the interests not just of each Member, such as Mr Beck, but in the interests of the beneficiaries as a whole. The CBA parties submitted that clause A11.3 conferred an unconfined discretion on the Trustee. But the removal of clause A11.3 meant that, subject to the operation of the Augmentation Rule, Division 2, clause 10, which remained a rule of the Colonial Fund after the December amendments, the amount to be paid to a Member henceforth would be referrable solely to the application of a precisely defined formula in clauses A11.1 and A11.2, a result that could not be said to be capricious, wanton, not in good faith or otherwise not in the interests of beneficiaries as a whole.
Thirdly, the CBA parties argued that the Augmentation Rule was preferable to the discretion under the clause A11.3 from the viewpoint of beneficiaries in at least two respects. First, clause A11.3 requires the joint decision of the Colonial Fund Trustee and the Employer before the rule can be exercised in the Member's favour. But under the Augmentation Rule, Division 2, clause 10 it was only necessary for the Employer to decide to exercise the discretion in favour of the member (after which the Trustee must comply). Moreover, the Augmentation Rule is unlimited in terms of the nature of the Augmentation it permits, whereas the amount payable under rule A11.3 is capped. The CBA parties point out that Mr Newton's actuarial evidence, adduced in Mr Beck's case, accepts that the Augmentation Rule could have been used to pay the benefits Mr Beck now seeks. That being so, the CBA parties submit, a complaint that CSS's wrongful conduct put a discretionary benefit beyond the power of CBOSC and CBA acting together is without substance, because CBA now acting alone has equivalent power to confer the relevant benefit upon him. Thus it cannot be said that his interests were adversely affected.
[22]
Consideration
The applicable general law with respect to trustees acting in the best interests of beneficiaries is not in dispute. It is stated in cases such as Manglicmont; Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd (2006) 15 VR 87; [2006] VSC 112; Asea Brown Boveri Superannuation Fund No 1 Pty Ltd v Asea Brown Boveri Pty Ltd [1999] 1 VR 144 ("Asea") at 159-161; Cowan v Scargill (1984) 2 All ER 750 at 760. The components of that duty have been variously described: the trustees duty towards their beneficiaries is paramount, and they must put the interests of their beneficiaries first; when the purpose of the trust is to provide financial benefits for the beneficiaries, as is usually the case, the best interest of the beneficiaries are normally their best financial interests; and the best interests may encompass present and future beneficiaries, holding the scales impartially between them.
In my view, the removal of clause A11.3 in the circumstances of the December 1996 amendments was not in the best interests of beneficiaries of the Colonial Fund. The removal took away both Mr Beck's and other members' rights to consideration for discretionary benefits that had been recognised in the authorities discussed above under the heading "The Construction of the July 1996 Deed". It perhaps does not matter whether those rights are to be characterised as an expectancy or as a species of property.
The CBA parties' submissions to the contrary are not persuasive. First, whether the trustees' discretion can be impugned and on what basis has been dealt with earlier in these reasons and is not an obstacle in this case to reviewing the CSS' decision. Secondly, CBA's argument that the Augmentation Rule was an adequate substitute for the removal of clause A11.3 is answered by the Court's analysis above under the heading "Amending Clause A11.1 and Deleting Clause A11.3 - Analysis". The Augmentation Rule was not an equivalently valuable substitute for the deletion of clause A11.3. Thirdly, the answer to CBA's argument that the Augmentation Rule is unlimited whereas clause A11.3 is capped, is answered by the Court's earlier analysis that, before the December 1996 amendments, Mr Beck had the benefit of both of these provisions, not just one. And the fact that the Augmentation Rule could now possibly be used to pay Mr Beck the benefits he seeks does not show that the Augmentation Rule is in fact equivalent, on its own, to the pre December 1996 Colonial Fund deed.
[23]
The Parties' Submissions
Mr Beck submits that the deletion of clause A11.3 contravened the standard that reg 13.16(1) applied to the Old Colonial Fund. As will be seen later in respect of the covenants in SIS Act, s 52(2)(c), Mr Beck submits that a consequence of such a contravention is that CSS thereby failed to comply with the clause 33.1 condition precedent to the validity of the December 1996 amendments, that they be made "subject to…the Relevant Requirements". Mr Beck's contention that the Relevant Requirements were a condition precedent to the exercise of the clause 33 right to amend is dealt with later in these reasons.
But did the December 2013 amendments contravene the reg 13.16 standard? Mr Beck submits that they did. There are several steps in his logic. He submits that "accrued benefits" in reg 13.16(1) of the SIS Regulations includes "potential" entitlements as well as "absolute" entitlements, in part because elsewhere in the SIS Regulations (reg 9.27), the term "accrued benefits" is defined to include "benefits to which a member has an absolute or potential entitlement". Mr Beck submits that his "right or claim to accrued benefits" was "altered adversely [to him]" by the "amendment of the governing rules" to delete clause A11.3, therefore contravening reg 13.16(1). Mr Beck says that he had both a right and a claim, (whether they be to absolute or potential entitlements), which were altered adversely to him, because if the December 1996 amendments were effective, his right and his claim were entirely eliminated.
The CBA parties submit that there was no contravention of the reg 13.16(1) standard. First, they submit that the precise question which arises in this case as to the interpretation of reg 13.16(1) has already been considered and determined adversely to Mr Beck's contentions in Auspine Staff Superannuation Pty Ltd v Henderson [2006] FCA 1281; (2007) 14 ANZ Ins Cas 90-127 ("Auspine"). The superannuation trust deed in Auspine had been amended in 1999 by deleting the rule (rule 4.7), which gave the trustee a discretion to increase the amount paid to a member of the fund. The plaintiff in Auspine submitted that the discretion in rule 4.7 should have been exercised in his favour. The Court (Jessup J) reasoned (at [47]) that at the time when it was said that the trustees should have exercised this discretion the rule was already gone and that reg 13.16 did not apply to save it. Jessup J said (at [47]) the following:
"47. Under s 37(1)(a) of the Complaints Act, the tribunal had all the powers, obligations and discretions that were conferred on the trustee. I am prepared to read this provision in the sense of conferring on the tribunal the powers etc that the trustee had at the time of its own decision under the rules of the fund. As I have indicated, the tribunal decided that the trustee, having found (as it should have) that the complainant was totally and permanently disabled, and having noted (as it did) that r 4.3 would not deliver to the complainant the proceeds of any insurance policy, should then have concluded that the unfairness of such an outcome could and should be rectified under r 4.7. In other words, in the tribunal's thinking, r 4.7 should have been brought into play when the trustee made its own decision as to the complainant's entitlement. This could not have been earlier than the date upon which the insurer advised the trustee that it had denied the claim under the policy. This was much later than 26 November 1999, when r 4.7 was, by amendment, removed from the deed and the rules. At the time when, according to the tribunal, the trustee should have acted under r 4.7, the rule was gone. Regulation 13.16(1) is of no benefit to the complainant in this respect, as on no view could the possibility that the trustee might make a discretionary payment to him in excess of his entitlement be regarded as an 'accrued benefit'. For these reasons, I consider that the tribunal's determination that it was unfair and unreasonable for the trustee not to have resorted to r 4.7 to make a payment to the complainant equivalent to that which he would have received under the policy was erroneous. The error involved was one of law."
The CBA parties submit that the decision in Auspine disposes of the argument upon which Mr Beck's entire claim depends and that this Court is required to follow Auspine unless convinced it is plainly wrong: Australian Securities Commission v Marlborough Gold Mines Pty Ltd (1993) 177 CLR 485 ("Marlborough") at 492. The CBA parties submit Auspine is plainly correct and is consistent with the approach of the Full Court of the Federal Court in Asgard Capital Management Ltd v Maher [2003] 131 FCR 196 ("Asgard") at [9], where it was held that "accrued benefit" was "a benefit in which the beneficiary has an absolute interest".
Moreover, the CBA parties submit that interpreting "accrued benefits" as benefits in which the beneficiary has an absolute interest is consistent with statements of the law in other cases such as Australian Super Pty Ltd v Woodward Australian Super Pty Ltd v Woodward (2009) 262 ALR 402; [2009] FCAFC 168 at [40] and consistent with the statements of Young J in Global Custodians Ltd v Mesh [2002] NSWSC 47 at [122] in relation to the general exercise of the power to amend trust deeds:
"(5) The exercise of a power to amend cannot affect any vesting which has already taken place. This is because the power to alter the trusts is itself an interest in the Trust and its exercise cannot affect an already vested interest."
The CBA parties submitted that the mere possibility that Mr Beck might one day be a person in respect of whom CSS might consider, with Colonial's consent, exercising a discretion under clause A11.3 to increase the benefit to which he would otherwise be entitled: was neither a benefit in which Mr Beck had an absolute interest as at December 1996, nor a benefit which had vested as at that date. Therefore Mr Beck did not have any clause A11.3 "accrued benefits" within reg 13.16 in December 1996.
Finally, the CBA parties reject Mr Beck's reliance upon the definition of "accrued benefits" in reg 9.27, because that definition expressly only applies in Division 9.5 of the Regulations. They submit reg 9.27 does not govern the term "accrued benefits" in reg 13.16(1). Moreover, the CBA parties submit that the definition in reg 9.27 does not assist Mr Beck's case in any event because the key word in the statutory definition in 9.27 is the word " absolute or potential entitlement" [emphasis added], which picks up familiar notions connected with fixed trusts, the essential aspect of which is that the member is entitled to demand or compel the trustee (to transfer value to the beneficiary). The CBA parties say that the force of the word "potential" in reg 9.27 is merely to refer to the right which is dependent upon some contingency being fulfilled, as distinct from the exercise of a discretion. They conclude that Mr Beck therefore did not, as at December 1996, have any "entitlement", whether absolute or potential, to have CSS exercise the clause A11.3 discretion in his favour.
[24]
Consideration
Mr Beck's submissions are the more persuasive. In my view the deletion of clause A11.3 from the Old Colonial deed did contravene reg 13.16(1). The text and the regulatory context of reg 13.16 indicate this.
The language of reg 13.16 speaks of a number of concepts. First, the regulation declares that what must not be adversely altered is "a beneficiary's right or claim to accrued benefits, and the amount of those accrued benefits". The regulation distinguishes between a "right" and a "claim" to "accrued benefits". Then the regulation adds to the "right or claim" to accrued benefits, the further idea that "the amount of those accrued benefits" [emphasis added] also must "not be altered adversely to the beneficiary".
A "right…to accrued benefits" encompasses a presently vested right in possession. On its own a "beneficiary's right…to accrued benefits" might be construed as a right to benefits that had accrued as at the date of the amendment contemplated by reg 13.16. But adding "claim" to the text weakens any limitation on the accrued benefits to the present time. The regulation does not distinguish between a present claim to accrued benefits and a future claim to accrued benefits.
And for good reason. An amendment's adverse effect on both presently accrued benefits and future claims to accrued benefits may prejudice fund members. The CBA parties accept that the expression "accrued benefits" may apply to benefits payable upon the occurrence of a future contingency. But they do not accept that a discretionary payment could ever come within these words. But no amendment could alter Mr Beck's future claim to a pension from the Old Colonial Fund once he reached the age of 55, or at any time up to the age of 62 or beyond.
But reg 13.16(1) also separately prohibits "the amount of those accrued benefits" being altered adversely to a beneficiary by amendment to the governing rules, or by any other act. This means that even if the right or capacity to make future claims is not impaired the "amount" of the accrued benefits must also not be impaired by the amending or other action. The word "amount" in its primary Macquarie Dictionary meaning is "quantity or extent" and in its secondary meaning is "the full effect, value or import". The "amount" of Mr Beck's accrued benefits in the sense of their "quantity or extent" and their "full effect, value or import", includes that a characteristic of the benefits is that the accounting accrual that represents them may in certain circumstances be able to be enjoyed before the age of 55, in the Trustees' discretion. A description of the "amount" in the sense of "extent" or "value" of a benefit, which could be called for as of right at age 55 but potentially enjoyed in discretion pre-55, would not be complete, unless the benefit's feature of possible enjoyment before that age were not also included.
Moreover, the reg 9.27 definition of "accrued benefits" has greater impact on the same term in reg 13.16(1) than the CBA parties acknowledge. Clause 9.27 defines "accrued benefits" as benefits to which a member has "an absolute or potential entitlement" [emphasis added]. But Division 9.5 is of special relevance to the Old Colonial Fund, which was a defined benefit fund. Division 9.5 sets the actuarial standards applicable to defined benefit funds: within it reg 9.26 declares that Division 9.5, "applies only to defined benefit funds", a Division in which "accrued benefits" means "an absolute or potential entitlement" at the actuarial valuation date for defined benefit funds. Division 9.5 provides a regime for the actuarial reporting upon defined benefits funds that can be assumed when reg 13.16 is being applied. This in turn influences the interpretation of reg 13.16.
The structure of Division 9.5 is important. Division 9.5 sets standards for the purposes of SIS Act, s 31(1) for the operation of defined benefit funds: reg 9.28. The relevant standards are those contained in regs 9.29 and 9.30. Regulation 9.29 requires a trustee of a defined benefit fund to require an actuarial investigation to be made of the fund at least every three years. When undertaking an actuarial investigation a trustee of a defined benefit fund must obtain an "actuarial report" within 12 months of the fund's valuation date containing the matters specified in regulation 9.31: reg 9.30. Regulation 9.31 then sets out the contents of the actuarial report required under reg 9.30. But the most relevant of these mandatory requirements are set out in reg 9.31(1)(a)-(d), which provide as follows:
"(1) Subject to regulation 9.33, an actuarial report required under regulation 9.30 that relates to a private sector fund or a fully funded public sector superannuation scheme must contain, in addition to any other matter:
(a) a statement of the value of the assets of the fund at the valuation date; and
(b) a statement of the actuary's opinion on whether, at the valuation date, the value of the assets of the fund is adequate to meet the value of the liabilities of the fund in respect of accrued benefits in the fund of members of the fund; and
(c) a statement recommending, in respect of the 3-year period immediately following the valuation date, the rate at which, or the range of rates within which, the actuary considers employer contributions should be made or, where the actuary considers employer contributions should be made at different rates or within different ranges in respect of 2 or more periods within the 3-year period, such different rates or ranges of rates; and
(d) a statement, made in accordance with subregulations (3) and (4) regarding the financial position of the fund; …"
In forming a reg 9.31(1)(b) opinion, the actuary must consider the position of the fund as at the valuation date and the likely future position of the fund in the next three years: reg 9.31(2). Thus, in respect of defined benefit funds, an actuarial report will set out "the value of the liabilities of the fund in respect of accrued benefits in the fund of members of the fund". The "value of the liabilities" of a defined benefits fund are assessed in the report in respect of a member's "accrued benefits", including all the benefits that may become payable to the member in the future, but which have not as yet become payable, "the absolute or potential entitlements", as at the actuarial valuation date. Thus the liabilities of defined benefit funds in actuarial reports produced in accordance with the Division 9.5 standards, will include within their "accrued benefits" all members' potential future benefit entitlements that have not as yet become payable to the member.
Reg 13.16(1) applies to defined benefit funds, as well as accumulation funds. If "accrued benefits" in reg 13.16(1) did not mean the same for such funds as it does in Division 9.5, then the odd consequence would follow that with respect to defined benefit funds a trustee could amend the governing rules, or otherwise act without legal restraint, so as to adversely alter the amount of a beneficiary's potential entitlements, even though the purpose of the actuarial report on the same defined benefit fund was to ensure the solvency of the fund on the basis of the beneficiary's potential entitlements. There is much to be said for interpreting "accrued benefits" in reg 13.16 in the same way for defined benefit schemes as it is in reg 9.27.
If that is the approach taken, then reg 13.16(1) prohibits adversely altering the amount of potential entitlements, or a beneficiary's claims to potential entitlements in defined benefit funds such as the Old Colonial Fund. For Mr Beck to seek the exercise of the Trustee's clause A11.3 discretion is to claim his potential entitlements. In my view, to delete clause A11.3 from the Old Colonial Fund in December 1996 was to contravene clause A11.3. Even though clause A11.3 was a discretionary provision, its deletion still was adverse to Mr Beck in removing his capacity to claim his potential entitlements.
The authorities CBA cites, Auspine, Asgard, and Tolhurst, do not stand in the way of this interpretation of rule 13.16. No argument about the interplay of reg 9.27 with reg 13.16 with respect to a defined benefit fund was put to the Court in Auspine. The discretionary provision in Auspine, rule 4.7, did not link the discretionary payment to the amount of a member's reserve as the clause A11.3 discretion did in this case. In Auspine the discretion was completely unconfined and not connected with any member's future benefit or entitlement whatsoever. Rule 4.7 in Auspine provided that "notwithstanding anything to the contrary herein contained, the Trustee in its absolute discretion may pay to a Member at any time and any amount provided that such payment will not prejudice Government approval of funds". Unlike clause A11.3 which links the discretion to make a payment to the early enjoyment of a future benefit, which payment can never be greater than a Member's potential future entitlement as presently assessed, rule 4.7 was entirely unconfined. Decisions in this field will often turn upon the precise form of the superannuation deed provisions in question. Nothing in these reasons doubts the correctness of the conclusion in Auspine. The clause in question here is materially different.
Nor is Asgard contrary to this interpretation of reg 13.16. Asgard was not concerned with a trustee's discretion to make payments to beneficiaries but with the construction of SIS Regulations, reg 6.22, which prohibits members' benefits in a regulated superannuation fund being cashed in favour of a person other than the member. In Asgard a dishonest financial adviser had stolen monies that were due and payable to a fund member from a superannuation fund. The Full Court's observation in Asgard, on which the CBA parties rely, does not address the meaning of "accrued benefit" in either regs 13.16 or 9.27. Rather it is stated as a general proposition, which is undoubtedly correct as a matter of general principle. The Full Federal Court said in Asgard, at [9]:
"[9] The question in issue seems to come down to this. Does reg 6.22 impose an obligation upon the trustee to ignore a direction given by a beneficiary to pay an accrued benefit (that is a benefit in which the beneficiary has an absolute interest) to the beneficiary's authorised agent or to any other person nominated by the beneficiary? It would, to say the least, be a most inconvenient result if this were the proper construction of reg 6.22. Take, for example, the following situation which, in one form or another, is often likely to occur. A beneficiary has purchased a property. He instructs his solicitor to attend settlement to hand over the purchase price in exchange for the title deeds. The beneficiary wishes to fund the purchase (in whole or in part) out of his superannuation benefit. He directs the trustee to pay the benefit to his solicitor so that the solicitor can attend the settlement. According to the respondent's construction of reg 6.22, if the trustee carries out this instruction it would be in breach of trust. All the trustee is permitted to do is to pay the benefit to the beneficiary and leave it to the beneficiary to arrange for payment to his solicitor."
The conclusion reached here is also consistent with Branson J's decision in Tolhurst. In Tolhurst the applicant had appealed to the Federal Court from the Superannuation Complaints Tribunal, contending that the Tribunal had denied procedural fairness and had misconstrued reg 13.16. Her Honour decided the case on the basis that the Tribunal had denied the applicant procedural fairness. But in dicta she made observations (at [56] - [58]; 143 FCR 356 at 369 - 370) about the construction of reg 13.16 that are consistent with the Court's present interpretation of that provision. After setting out reg 13.16 her Honour said:
"[56] As noted above, the Decision Record sets out the terms of reg 13.16 of the SIS Regulations and then records the Tribunal's view that:
[i]n the Complainant's case the relevant accrued benefits are his defined benefit entitlement and the accumulation (net of contributions tax) of superannuation guarantee contributions in respect of him up until 25 May 1998 plus interest.
[57] Neither the SIS Act nor the SIS Regulations contains a definition of 'accrued benefit' for the purpose of reg 13.16. In Asgard Capital Management Ltd v Maher [2003] FCAFC 156 ; 131 FCR 196 ('Maher') the Full Court of this Court gave consideration to Div 6.3 of the SIS Regulations, which is concerned with the cashing of benefits. At [9] the Full Court equated accrued benefits with benefits in which the beneficiary has an absolute interest. It did so in a context in which the time fixed by the terms of the trust for the distribution of trust property had arrived (see [7]). The definition of 'accrued benefits' contained in reg 9.27 of the SIS Regulations for the purpose of Div 9.5 of those regulations is as follows:
accrued benefits, in relation to a member of a defined benefits 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.
[58] It is not necessary on this appeal for me to reach a concluded view on the precise meaning to be attributed to the phrase 'accrued benefits' in reg 13.16 of the SIS Regulations. However, in my view, a member's 'accrued benefits' for the purpose of that regulation cannot exceed the benefits to which the member has an absolute or potential entitlement at the relevant date on account of the length of time that the member has been a member of the fund."
As Branson J says the reg 13.16 "accrued benefits" of a member of a regulated superannuation fund, such as Mr Beck cannot exceed the benefits to which he has either an absolute or potential entitlement at the relevant date of their assessment. The Court's findings here do not suggest that Mr Beck's "accrued benefits" for the purposes of reg 13.16 would exceed his potential entitlements, which are always assessable for clause A11.3 purposes at a particular date at which a clause A11.3 payment was contemplated.
[25]
(7) Effect of Breaching Clause 33.2 and Contravening Relevant Requirements
What is the effect of these contraventions and this breach? The CBA parties argued that SIS Act, ss 34(3) and 55(2), which provide that a contravention of the Act does not result in the invalidity of a transaction, mean that whatever contravention Mr Beck points to in these proceedings, the December 1996 deed's amendment of the Old Colonial Fund does not necessarily lead to invalidity of the replacement provisions. Sections 34(3) and 55(2) are set out earlier in these reasons.
But Mr Beck counters this with a persuasive submission. Mr Beck submits that the contraventions of the SIS Act, s 52(2)(c) covenant and the contravention of SIS Regulation, reg 13.16(1), as well as the breach of clause 33.2 give rise to invalidity by the operation of clause 33.1.
The power to amend in clause 33.1 is expressed to be "subject to clause 33.2 and to the Relevant Requirements". As seen earlier, the term, "Relevant Requirements" is defined in the July and December 1996 deeds to include the covenants and standards set out in the SIS Act and the SIS Regulations. Those covenants include the covenants and standards in s 52(2)(c) and reg 13.16(1).
Mr Beck submits that on the proper construction of clause 33.1, compliance with clause 33.2 and the Relevant Requirements are conditions precedent to the valid exercise of the power to amend. Mr Beck submits that absent such compliance, the amendment effected by the December 1996 deed was ultra vires, void and of no legal effect and that clause A11.3 at all times remained a governing rule of the Old Colonial Fund both as at 11 May 2005 when CBOSC rejected Mr Beck's request for an early retirement benefit and as at 11 July 2005 when Mr Beck's employment was terminated. Moreover, Mr Beck submits clause A11.3 remains a governing rule of the OSF and is a rule under which Mr Beck's request has still not received CBOSC's due consideration.
Mr Beck submits that support for this result may be found in the August 1985 deed, clause 34.2, which relevantly provides that the "deed is required to be interpreted so that it does not breach the Relevant Requirements". Indeed the definition of Relevant Requirements subsisted in the 1985 deed as well as the two 1996 deeds. But even without clause 34.2 of the August 1985 deed general principles of construction of commercial agreements would require the deed to be interpreted to conform with applicable law.
I accept Mr Beck's argument. If the words "subject to clause 33.2 and to the Relevant Requirements" in clause 33.1 are not read as stipulating a condition precedent to a valid exercise of the power to amend, then the trustee's purported exercise of the clause 33.1 power could take effect in a way that was not in the best interest of beneficiaries. That result would (1) constitute a breach of the s 55(2)(c) covenant and (2) contravene the standard imposed by SIS Regulations, reg 13.16(1). The self evident purpose of clause 33 itself is to avoid such an outcome. The words "subject to" should be read as a condition precedent to the validity of the amendment. And reading the words "subject to clause 33.2" as a condition precedent gives effect to the deed's own stipulation that it be interpreted so as not to breach the Relevant Requirements.
SIS Act, ss 34(3) and 55(2) do not answer this conclusion. Although those subsections provide that a contravention does not result in the invalidity of a transaction, I accept Mr Beck's argument that the words "subject to clause 33.2" should be read as avoiding any breach of the deed long before these statutory provisions engage with the issue of consequential invalidity.
[26]
CBA's February 2005 Decision and Consequential Relief
In the result therefore as a matter of contract the effect of the contravention was invalidity, regardless of the SIS Act and SIS Regulations, and clause A11.3 was not deleted from the Old Colonial Fund. This means that the CBA parties' conduct and decisions in February 2005 concerning his entitlements were predicated upon incorrect assumptions: that clause A11.3 was not part of the OSF deed and that the clause A11.3 discretion was not available to be exercised for the benefit of Mr Beck.
Mr Beck submits that as a result, in February 2005 CBOSC did not give due consideration - indeed gave no consideration at all - to Mr Beck's request for an A11.3 benefit, because it took the view in contemporaneous correspondence, that the OSF rules no longer contained any provision under which it was entitled to give consideration to his request. Mr Beck also submitted that he lost potential entitlements because he did not even get the benefit of due consideration and the possibility of a favourable exercise of discretion.
Consistently with their contemporaneous correspondence, the CBA parties do not now contend that in February 2005 CBOSC attempted to give Mr Beck the benefit of the substance of clause A11.3. It clearly did not. CBOSC failed to undertake its duty as a trustee to give consideration to Mr Beck's request for a favourable consideration under that provision.
Two questions now arise. To what relief is Mr Beck now entitled on account of CBOSC's failure to give consideration to the exercise of discretion under clause A11.3? And to what extent is the relief to which he would otherwise be entitled modified by the estoppel case he propounds?
Declaratory and other relief. In my view, Mr Beck is entitled to the declaratory relief he claims, concerning the December 1996 amendments. CBOSC is the successor to all CSS's rights and liabilities as trustee of the Old Colonial Fund for the events that occurred in 1996. The CBA parties did not take issue that CBOSC was now responsible as trustee for CSS's actions then.
Issues were raised by the CBA parties but not fully argued as to whether the OSF deed should now be rectified to restore clause A11.3 to Division CH. Exactly what further relief, if any is now sought, in relation to the OSF deed may need to be the subject of some further argument. The CBA parties faintly suggested at one stage during submissions that a restored clause A11.3 would happen to refer to "Colonial Mutual" and not CBA as the employer and may not be effective. But this cannot be right. CBA must have exactly the same role with respect to the OSF as Colonial Mutual had with respect to the Old Colonial Fund, if the substance of clause A11.3 is restored. The July 1996 deed contained a provision (Division 2, clause 13) that the Trustees of the Old Colonial Fund could only transfer the Members' entitlements and other Fund assets of the Fund to a "Successor Fund' as defined under that deed. A "Successor Fund" was defined under the July 1996 deed (Division 1, clause 3) as a term having the same meaning as it has in the SIS Regulations. The SIS Regulations, reg 1.03 defines a "successor fund" in relation to the benefits available in an original fund, as a fund that (a) "confers on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits", and (b) "before the transfer , the trustee of the fund has agreed with the trustee of the original fund that the fund will confer on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits". To provide "equivalent rights" under this regime a restored clause A11.3 must refer to CBA in the role of the employer, which are defined as "the Company", Colonial Mutual in the July 1996 deed.
The Court asked in the course of argument whether these were representative proceedings and was informed that they were not. Uniform Civil Procedure Rule ("UCPR") 2005, r 7.9(2) makes it unnecessary for any other persons having a beneficial interest in the OSF to be joined as parties to these proceedings, because they are bound by the result through CBOSC as trustee. But some consideration may need to be given to whether, for example, notice should be given to any other persons who are or were members of OSF Division CH in a similar position to Mr Beck, who may not, for their own reasons, wish to be bound by this decision.
And after these proceedings CBOSC will no doubt give separate consideration as trustee to the discharge of its trust duties to all those present and former members of the OSF Division CH (and the Colonial Fund) who are in a similar resignation/retirement position to Mr Beck but who are unaware that clause A11.3 of the July 1996 deed survived into the OSF despite the December 1996 amendments.
The Effect of the Estoppel Case. But Mr Beck's estoppel case, analysed below, is also successful. Ordinarily after a declaration were made as to the invalidity of the December 1996 amendments to delete clause A11.3, the appropriate consequential relief would be for the Court to remit the matter for further consideration to CBOSC. Aspects of such consequential such relief are dealt with here. But the need for such relief may be subsumed in the relief to be granted with respect to Mr Beck's estoppel case, which in an important respect does not depend upon whether or not clause A11.3 of the July 1996 deed is a present and binding part of the OSF as between Mr Beck and the CBA parties. Issues of the precise form of relief to be granted should be determined at a supplementary hearing after the parties have had an opportunity to consider these reasons.
Ignoring the outcome of the estoppel case for a moment, the parties are in contention about what consequential relief would be appropriate, if Mr Beck's case concerning the 1996 amendments were successful. Some of the parties' arguments on this question can be considered now on the available evidence. Both sides accept that at the least, Mr Beck's success in relation to the December 1996 amendments means that his request for a consideration of a clause A11.3 benefit should be remitted to CBOSC for further consideration.
The usual remedy where invalid amendments have been found is a declaration of right together with an order remitting the matter to the trustee for consideration according to law, together with a grant of liberty to restore: Baker at [63] per McDougall J, Finch at [36] and Karger.
If consideration of a clause A11.3 benefit is now remitted to CBOSC, issues arise as to whether the Court should determine any of the preconditions for deciding whether Mr Beck qualifies for such a benefit: for example, whether Mr Beck as at July 2005 had undertaken "long service", or whether there were "exceptional circumstances" in his case. These would be matters for the trustee, CBOSC. Determining matters such as "exceptional circumstances" and even "long service" may involve comparing Mr Beck's situation with those of other Members. The Trustee is best equipped to undertake such comparisons. But if CBOSC undertakes that task, it may take into account the findings made in these reasons, for example, in Mr Beck's estoppel case.
But Mr Beck also argues that the matter should not now be remitted to CBOSC for clause A11.3 consideration but rather that the Court should now execute the trust. He cites cases such as Tonkin v Western Mining Corporation [1998] WASC 101 and Tutevski v Total Risk Management Pty Limited [2009] NSWSC as examples of the Court executing the trust where the trustee had taken an adversarial position against an applicant or that for other reasons it was appropriate for the Court to exercise its jurisdiction to execute the trust.
But Mr Beck's argument on this issue is not persuasive. Although CBOSC took the firm position from late 2004 that clause A11.3 was not available for its consideration in Mr Beck's case, its correspondence does not indicate that it would not bring an impartial mind to bear were the matter remitted to it for further consideration according to law after consideration of these reasons. Its position was principally a legal one and not one prejudging the merits of whether Mr Beck qualified under, or should receive a favourable decision under, clause A11.3.
CBSOC has not yet had an opportunity to consider Mr Beck's request for an exercise of its clause A11.3 discretion according the law. Until now CBOSC has wrongly assumed that it has no such discretion. It should be given that opportunity. The Court is not satisfied that CBOSC would not give proper consideration to the exercise of its discretion once CBOSC has had the opportunity to examine these reasons.
Mr Beck argued for other alternative remedies. But it is not necessary to consider these remedies further in the light of the relief to be granted. But they can be briefly identified and reserved for further consideration, if required.
The first alternative remedy is in express/resulting trust. Mr Beck argues that CBSOC holds Mr Beck's reserve (less any sum paid on his July 2005 termination) on behalf of Mr Beck upon the express trust constituted by the July 1996 deed as amended except for the deletion of clause A11.3.
Mr Beck also submits that the value of reserve in respect of Mr Beck can also be characterised as held on resulting trust for him, because it was acquired by the payment of his funds into the Colonial Fund and its successor funds by or on behalf of Mr Beck.
Mr Beck relies too on doctrines of constructive trust. Mr Beck says his entitlement to the fund, pending due administration and the exercise of CBOSC's discretion in accordance with law may be secured by a declaration that CBOSC "holds the reserve upon the constructive trust and is hereby charged with the payment of a benefit which is properly payable up to the date of the reserve upon terms due consideration is now given to the plaintiff's request for a benefit under clause A11.3". But it is not necessary to decide this or the other express or resulting trust issues.
[27]
The 2000-01 Employment Arrangements
Mr Beck's claims based in breach of a duty of good faith in contract, estoppel and unconscionable conduct all arise out of events in the 2000-2001 period.
CBA is a necessary party for the grant of any relief. If Mr Beck is able to call for CBOSC to exercise the clause A11.3 discretion, CBA would, as Colonial Mutual's successor, be in a position to provide or withhold "the approval of the Company" as those words appeared in clause A11.3. Mr Beck submits that CBA would need to be bound by any declaration of right concerning the validity of the December 1996 amendment and would need to be bound by any order remitting the matter for further consideration.
[28]
Duty of Good Faith
Based on the decision of the Full Court of the Federal Court of Australia, Commonwealth Bank of Australia v Barker (2013) 214 FCR 450 (Jacobson, Lander and Jessup JJ) (the Full Court decision) Mr Beck contended that a duty of mutual trust and confidence existed in contracts of employment in Australia in the context of pension schemes and such a duty constrains the conduct of both the trustee of such schemes and the employer. Mr Beck submitted that if CBOSC were to exercise the clause A11.3 discretion and were to reach the view that but for CBA's approval it should pay Mr Beck such a benefit, then CBA's duty of good faith meant that CBOSC must exercise its discretion in the way which was most favourable to Mr Beck and must not disregard his interest or prefer his own interests or otherwise act in the interests of CBA. The result Mr Beck contended was that he should be granted the pension he requested.
The legal basis for this argument disappeared after the hearing in these proceedings. In Commonwealth Bank of Australia v Barker [2014] HCA 32, the High Court allowed an appeal against the Full Court decision and concluded (at [1], [43], [109], [115] and [119]) that a term of mutual trust and confidence should not be implied by law in all employment contracts in Australia. But in any event this argument still depended upon Mr Beck successfully deploying other doctrines to restore clause A11.3 to the rules of the OSF.
[29]
Estoppel
Mr Beck next contends that CBA is estopped from denying its approval to the CBOSC's exercise of discretion under clause A11.3, and indeed that he should be treated as now entitled to a pension.
The centrepiece of Mr Beck's alleged estoppel, as he explained in his opening written submissions, is that he accepted CBA's offer of employment after it took over Colonial Limited on the basis of assurances that led him to expect his superannuation entitlements would include such a benefit and on the basis that if he were terminated from CBA's employment before age 55 without cause or for ill health "he would be entitled to a pension (under rule 19(a) [of the August 1985 deed] or the equivalent)…up to the limit of his reserve". Clause 19(a) of the August 1985 deed provides a right to a pension on retirement at 55 and has its equivalent in the July 1996 deed in clause A3 and the OSF deed in clause CH4.1.
Mr Beck's primary case is that he expected he would remain in employment with CBA until at least age 55 and would thereby become entitled to that pension. This was said to arise out of a common assumption between employer and employee over many years of service, in which Mr Beck was encouraged to make significant changes in his personal life to accommodate CBA's wishes. That assumption was continued, it is said, by CBA after its takeover of Colonial Mutual. Mr Beck says that it was unconscionable for CBA now to depart from that assumption and deny him a pension.
Mr Beck also puts the case based on clause A11.3 of the July 1996 deed. He says if clause A11.3 is part of the OSF rules as between him and the CBA parties then the matter should go back to CBOSC for consideration under clause A11.3 and CBA cannot withhold its approval under clause A11.3 to a decision by CBOSC to grant him a clause A11.3 benefit. Alternatively CBA should now use its power of direction under the Augmentation Rule and provide him with a pension.
Mr Beck's equitable estoppel case is based on the High Court's statements of principle in Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 ("Waltons"). The applicable law is not in dispute. To establish an equitable estoppel a plaintiff must make out six elements: (1) the plaintiff assumed or expected that a particular legal relationship would exist with the defendant and the defendant would not be free to withdraw from that relationship, (2) the defendant induced the plaintiff to adopt the assumption or expectation, (3) the plaintiff acted or abstained from acting in reliance on the assumption or expectation, (4) the defendant knew or intended that he would to do so, (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled, and (6) the defendant has failed to act to avoid that detriment: Waltons at 428 - 429 per Brennan J and Waddell v Waddell [2012] NSWCA 214 ("Waddell") at [40] per Campbell JA. Mr Beck seeks to make out each of these six elements. In my view he is mostly successful in doing so.
(1) Assumption of a Particular Legal Relationship. Mr Beck first relies on a representation through a condition of his contract of employment with CBA, recorded in Mr Mulcahy's letter of 26 June 2000, in which he says "your existing superannuation arrangements will continue to apply". This contractual statement in the contract is said to carry with it a representation that Mr Beck's rights to reserves held by the New Colonial Fund in respect of him were unchanged and that provided he did not resign from his employment those reserves would be paid to him on the termination of his membership of the Fund: 3FASC at [79], [80] and [81].
Mr Beck's estoppel case is also based on the conduct of CBA employees. Mr Beck says that he assumed or expected the legal relationship of employer and employee, with specific reference to his employee superannuation entitlements benefits, would continue, so that Mr Beck would not lose his rights in relation to the reserves held in respect of him in the New Colonial Fund: 3 FASC [83]. A number of statements CBA personnel made to Mr Beck are said to have induced this assumption or expectation.
Mr Beck's pleaded assumptions or expectations are based on written and oral representations. The first of Mr Beck's assumptions or expectations, based in the letter of 26 June 2000 falls at the first hurdle. But the assumption or expectation based on the oral representations requires more detailed analysis, and is successful.
The estoppel based on the 26 June 2000 employment agreement must fail. All the agreement relevantly says on the subject of superannuation is "your existing superannuation arrangements will continue to apply". On its own this does not enter upon the subject of the content of those "superannuation arrangements". The discussion of the content of the arrangements takes place outside the written agreement. But the statement that existing superannuation arrangements "will continue to apply" cannot represent that a pre-55 discretionary benefit such as clause A11.3 would be made available to Mr Beck. The clause had been removed three and a half years earlier. This statement about the continuation of existing arrangements could never amount to a representation about the availability of clause A11.3 to Mr Beck. This aspect of Mr Beck's case need not be considered further.
But the oral representations from CBA's executives, Mr Mulcahy and Mr Cupper, both in mid-2000 and mid-2001 did create in Mr Beck assumptions or expectations about a particular legal relationship. The mid-2000 and the mid-2001 oral representations need separate consideration but were cumulative upon one another. The context is important to the meaning of what was said on both these occasions.
The mid-2000 pre-employment discussions were being held between an experienced senior actuary and a senior executive delegated by the CEO to negotiate an employment package with the actuary. Throughout the conversations the actuary made quite unambiguously clear that his superannuation entitlements, present and future, were central to his decision making that would follow the discussions. He made this clear both implicitly by rejecting low base-pay salary offers and explicitly by declaring "what's important to me is my accrued retirement" benefits. Mr Beck sought and indeed received, and then had confirmed in the contract, that he would continue to receive the superannuation benefits that he would have received had he continued as an employee of Colonial.
But Mr Beck's stipulations became more specific. He declared his special interest in the subject of his pension entitlements. He raised this when he said "I won't come to CBA unless I can protect and enhance my pension that I am entitled to under the defined benefit pension scheme" [emphasis added]. Even Mr Mulcahy's response "we undertake to protect [your pension rights under the Colonial Fund] going forward" could and should reasonably be taken by Mr Beck as assent to what Mr Beck had asked about his pension and that he would be able to "protect and enhance" it with CBA.
The word "enhance" means in ordinary Australian English (Macquarie Dictionary): 1. "to raise to a higher degree; intensify; magnify"; and even more probably 2. "to raise the value or price of". That could only mean one thing here.
At that time Mr Beck's principal "right" to a pension that he anticipated being able to enjoy and that he wanted to protect and enhance, was the pension that would be payable to him as of right if he obtained the age of 55 as an employee of CBA, the plus-55 pension, available under clause A3, and its various successors (and originally payable under 19(a) of the August 1985 deed). He did not have any "right" to a pension under clause A11.1. He only had a right under clause A11.3 to an "amount", which could in CSS's discretion and with the consent of Colonial Mutual be converted into a pension, under clause 15 of the July 1996 deed and its successors. Objectively assessed Mr Beck's language was directed to his plus-55 clause A3 pension and must have been taken to mean this by Mr Mulcahy during their discussion.
Mr Beck's case is that as a result of these statements he assumed or expected that CBA would pay him the reserve that was held on his behalf in the New Colonial Fund if he called for it in the future. I doubt this assumption or expectation can be inferred from the words used. The words do not mention an immediate right to his reserve. And such a right would have gone even beyond Mr Beck's understanding of his pre-55 discretionary benefit under the old clause 22(b). Mr Nixon for CBA says that this inference goes too far and I agree with him.
But the words used did lead to Mr Beck holding a closely related assumption or expectation. He says he also assumed that if he were to be employed by CBA and did not resign then he would be paid his pension (when he became entitled to it at age 55), or the reserve in respect of his pension that had accumulated. In my view Mr Beck reasonably took away from his conversations with Mr Mulcahy that CBA would not interfere with Mr Beck protecting and enhancing his pension rights by continuing to work on as an employee of CBA up to the age of 55. This inevitably brought with it the legal effect that CBA would not exercise its right under the employment agreement to terminate Mr Beck's employment other than for cause before that date.
In my view this is the assumption or expectation that Mr Beck held as a result of what Mr Mulcahy said to him. He continued to hold it thereafter. What happened in mid-2001 strengthened it.
Mr Mulcahy also took part in the mid-2001 Aria restaurant conversation. This was not just a pleasant three course meal in a fine harbourside restaurant among six friends. Mr Mulcahy had a purpose for the dinner. It was no accident Mr Mulcahy and Mr Cupper raised with Mrs Beck the subject of her and the family moving to Sydney and seeking that they do so to "show commitment to the Bank". I infer that their fear was that because she and the family and Mr Beck were "living apart", he might be tempted to give notice under his contract to cease his employment to the Bank. They did not want this, so they asked for what they described as a "commitment" in Mr Beck's relationship with the Bank. Asking for "commitment" in a relationship such as this cannot sensibly be understood as being other than mutual commitment. Although it was not expressly stated, in my view, CBA's equivalent commitment was inherent in the bank's request to Mr Beck. Mr Mulcahy was asking Mrs Beck and the family to support Mr Beck's relationship with the Bank. It is repugnant to the request being made that Mr Mulcahy or Mr Cupper could have consistently added to their words to Mrs Beck, "and when you and your husband and family move here to Sydney we may of course give him six months' notice of termination, if and when it suits us". Mr Mulcahy and Mr Cupper knew that Mrs Beck would speak to her husband quickly about this important subject and she did. To speak to her was to communicate with him on this matter. The commitment then being sought, and in my view also being "offered" was in the mutually understood background that Mr Beck had already been promised, that his pension rights would be protected and enhanced. From this time he could reasonably assume and expect that he would not be terminated other than for cause before he became entitled to a pension at 55.
The burden of what the Bank was asking for should not be overlooked. The CBA executives were asking Mr and Mrs Beck to overcome an 18 month reluctance to uproot established family relationships and move to Sydney, something they were clearly disinclined to do after moving from South Africa fourteen years earlier.
The CBA parties argue that the representations Mr Beck relies on are insufficiently precise to found an estoppel. Citing the High Court's decision in Legione v Hateley (1983) 152 CLR 406, at 435-6 that a representation must be unambiguous to found an estoppel in pais, and must also be clear before it can found a promissory estoppel, they argue that none of the CBA executives' representations is precise enough to found an estoppel here.
But this argument is not persuasive. First the representations are clear enough in the context of the high level of expertise that Mr Beck and Mr Mulcahy were dealing with one another about Mr Beck's superannuation future. Mr Mulcahy knew he was talking to an actuary. Both men should be credited in their use of language with the intelligence and precision that their professional backgrounds imply. They each well understood what "protect" and "enhance" Mr Beck's "pension" meant in that context.
Secondly, the argument does not correctly state the law. Equitable estoppel does not require the precision of a representation necessary to enforce a legally binding promise: Tadrous v Tadrous [2012] NSWCA 16 at [38] - [42], per Meagher JA. What attracts the intervention of equity on the basis of this principle is assurance or encouragement which creates an expectation that an interest will be granted and then conduct in reliance on that expectation: Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at [35] and Riches v Hogben (1985) 2 Qd R 292.
(2) Inducement to Adopt the Assumption. The circumstances strongly suggest that CBA induced Mr Beck to adopt his assumption or expectation. The representations occurred in the course of negotiations in which Mr Beck sought an assurance that CBA would "protect and enhance" his pension. For Mr Mulcahy, Mr Beck was a "key keep". He intended Mr Beck to act on what he said, so CBA would secure his services. Mr Beck took firm negotiating positions that show he was not going to be induced to go to CBA except on terms that were satisfactory to him. He only gave his assent after he had obtained the promise he had sought. Only then did he sign Mr Mulcahy's 26 June letter. I accept Mr Beck's evidence that he was induced by the mid-2000 representations.
But he was also induced by the mid-2001 representations to continue to hold the stated assumption or expectation. The Beck family's move to Sydney is strong evidence of the power of the assumption Mr Beck then held.
(3) Acting in Reliance on the Assumption. Mr Beck acted in reliance on this assumption or expectation as a result of both the mid-2000 and the mid-2001 representations. He took employment with CBA. He did not explore his other options.
(4) Intention to Rely. CBA's intention that Mr Beck should rely on the assumption or expectation so induced can be inferred from its conduct both in mid-2000 and in mid-2001. Mr Mulcahy's own evidence about his motivation in mid-2000 is that he thought that Mr Beck was a "key keep". His (and Mr Cupper's) mid-2000 representations are consistent with an intention to secure the services of a "key keep" in the long term.
But CBA's conduct in mid-2001 is equally significant in showing its intentions. CBA intended to convey to Mr (and Mrs) Beck that his long term employment with CBA was assured in the terms of the assumption the Court has found. That is why Mr Mulcahy and Mr Cupper went to the trouble of having the Becks dine with them and their partners at Aria Restaurant, after Mr Beck had already been working for CBA for 12 months.
(5) Detriment is Occasioned. Mr Beck will suffer detriment if the assumption or expectation is not fulfilled. The relevant detriment that makes such an estoppel enforceable is that which the parties asserting the estoppel would suffer as a result of his or her original change of position. The assumption which induced it was repudiated by the parties estopped: Delaforce v Simpson-Cook [2010] NSWCA 84; (2010) 78 NSWLR 483 ("Delaforce") at [41] -[42] per Handley AJA (Allsop P and Giles JA agreeing). As Dixon J said in Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641 ("Grundt"), at 674-5:
"That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption. In stating this essential condition, particularly where the estoppel flows from representation, it is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment."
CBA contends that Mr Beck has not proven what he would have done and in particular that he would have been in a better position had he stayed in Melbourne rather than take up employment with CBA in Sydney. But Allsop P explained in Delaforce (at [5]) that this is not necessarily a deficiency in the case of a party alleging an equitable estoppel:
"That the party encouraged cannot show that he or she would have been better off in the posited alternative reality is not fatal to the making out of the estoppel. Indeed, the inability to prove such things reveals a central aspect of the detriment: being left, now, in that position."
The relevant detriment is "one that the plaintiff's action or inaction (ie, what the plaintiff has done or not done in reliance on the assumption or expectation) will bring about if the assumption or expectation is not fulfilled": Waddell at [66] per Campbell JA; see also Meagher JA in Walsh v Walsh [2012] NSWCA 57 at [13] and Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 5th Edition, 2015 [17-040]. For that purpose, "equitable estoppel looks backwards from the moment when a promise falls due to be performed and asks whether, in the circumstances which have actually happened, it would be unconscionable for the promise not to be kept": Waddell at [66].
When in accordance with authority one looks backward and asks whether it would occasion detriment if the assumption or expectation is not fulfilled, the actuarial evidence shows the acuteness of Mr Beck's position. He did not make any alternative arrangements for his pension future from 2000 other than committing himself to CBA. His history immediately before the CBA takeover shows that he is someone who would probably have taken careful steps to preserve his pension future. He now finds himself in the position where if he does not receive the pension he was led to expect, the cost of finding an equivalent pension on market will be prohibitively expensive.
(6) Avoiding the Detriment. It is not in contest that CBA has failed to avoid this detriment. If the Augmentation Rule were available to provide an equivalent benefit, as CBA now contends it is, the Augmentation Rule could satisfy the equity created. CBA must in conscience now satisfy that equity. It may wish to do so by exercising the power under the Augmentation Rule in Mr Beck's favour on termination: see Milling v Hardie [2014] NSWCA 163; Harrison v Harrison [2013] VSCA 170; and Delaforce.
But it may prefer to do so by other means. I am mindful that the estoppel as found only operates against CBA. It is not at all clear that Mr Mulcahy or Mr Cupper were making any representations on behalf of OSF in 2000 or 2001. The CBA parties should be given an opportunity to consider these reasons before deciding on their course.
Mr Beck says that the equity to which Mr Beck is entitled as a pension under clause 19(a) of the August 1985 deed (and later clause A3 of the July 1996 deed and now clause CH4.1 of the OSF deed) could perhaps be the subject of a declaratory judgment, without the need to remit the matter for any further exercise of discretion by CBOSC. The Court will hear further submissions about relief.
[30]
Unconscionable Conduct
Mr Beck's unconscionable conduct claim relies upon the same facts as his claim in estoppel. But Mr Beck adds that he was in position of special disadvantage so far as the CBA parties are concerned, because they were in a position to control the reserve in the OSF through the powers and the discretions they held and that Mr Beck was to their knowledge vulnerable to any misuse of those powers, particularly in the circumstances that clause A11.3 was deleted without his consent.
Mr Beck points to the well-known statements in Commercial Bank of Australia v Armadio (1983) 151 CLR 447; [1983] HCA 14 ("Armadio") at 462 per Mason J, citing Fullagar and Kitto JJ in Blomley v Ryan (1956) 99 CLR 362 ("Blomley"); [1956] HCA 81 at [33] and [34] to the effect that the categories of special disadvantage are not closed for claims for unconscionable conduct.
The relevant unconscionable conduct is said to be CBA's conduct in encouraging Mr Beck to expect an early retirement benefit and then failing to fulfil that expectation by capturing the reserve at Mr Beck's expense.
It is difficult to see that Mr Beck was under "special" disadvantage in the Armadio sense. There is considerable force in Mr Nixon's submissions that as an actuary Mr Beck was far better placed than most to understand the rules of his own superannuation scheme. Indeed it is that very insight on his part that allows the estoppel case to work in his favour.
Nor can it be said that there is any misuse of CBA's power in relation to Mr Beck, as a beneficiary. CBA has never sought to use clause A11.3 against Mr Beck. If the amendment in December 1996 is posited as the point of abuse of power, in my view it was not. Everything in the contemporaneous documents suggests that the December 1996 amendments had a proper purpose, to make the Old Colonial Fund compliant with contemporary anti-discrimination legislation. And Mr Beck has not sought to bring a case that he was in a position of special disadvantage because he was not told about the December 1996 amendments. That would be quite a different case from the one that was argued. In my view Mr Beck's unconscionability case fails.
[31]
The Limitation Act Defences
The CBA parties have pleaded defences under the Limitation Act 1969 (the NSW Limitation Act"). CSS has not filed a defence. The CBA parties contend that if any accrued benefit of the plaintiff was adversely affected by entry into the 1996 deed then a claim against CBOSC must fail as: (1) any claim for breach of the July 1996 deed by entry into the December 1996 deed was statute barred as at 31 December 2008 (12 years later) by NSW Limitation Act, s 16; (2) as any claim against CSS for breach of the s 52(2)(c) covenant was statute barred (after 6 years) as at 31 December 2002 by reason of the SIS Act, s 55; and (3) any claim for breach of a general law duty was barred (after 6 years) as at 31 December 2002 by analogy with the breach of s 52(2)(c) covenant pursuant to NSW Limitation Act, s 23. The present proceedings were commenced against CSS and CBOSC on 6 July 2011 and against CBA on 2 November 2011.
The CBA parties' NSW Limitation Act defences do not succeed for several reasons. Mr Beck's contentions on these defences are generally persuasive.
First, the law of the July 1996 deed is the law of Victoria, not the law of New South Wales. The Victorian Limitation Act, the Limitation of Actions Act 1958 (VIC) ("the Victorian Limitation Act") is the applicable legislation. The Choice of Law (Limitation Periods) Act 1993 (NSW), s 5 makes clear that the applicable law for limitation purposes (including by analogy) is the law of the deed, which is the law of the State of Victoria.
Applying the Victorian Limitation Act shows Mr Beck's action is within time. The Victorian Limitation Act, s 5(3) provides as follows:
"5(3) An action upon a bond or specialty shall not be brought after the exploration of 15 years from the date in which the cause of action accrued."
Smart AJ explained the operation of this provision in Tuftevski v Total Risk Management Pty Ltd [2009] NSWSC 315 ("Tuftevski") at [149] - [152]. Thus even if the plaintiff's cause of action accrued on 31 December 1996, proceedings were commenced against the CSS and CBOSC (6 July 2011) and CBA (2 November 2011) within time, within 15 years. The 15 year limitation period would have expired on 31 December 2011, about two months after proceedings were commenced.
Secondly, Mr Beck's cause of action has accrued within 6 years of proceedings being commenced. Mr Beck's cause of action does not accrue until CBOSC makes a decision under clause A11.3 and notice of that decision is given to him, or alternatively CBOSC declines or fails to make a decision within a reasonable period after its investigations and procuring specialist advice had completed: Tuftevski at [152]. CBOSC first to have decided not to exercise any clause A11.3 discretion on 6 May 2005. It gave notice of this decision to Mr Beck on 11 May 2005. At that point CBOSC declared it did not have any relevant discretion. Mr Beck has 15 years from May 2005 to commence proceedings. He is within that time.
But alternatively Mr Beck submits that no decision has yet been made for the purposes of clause A11.3. CBOSC has taken the view that clause A11.3 was not available to it for it to exercise a discretion to grant Mr Beck a long service pre-55 retirement benefit. It did not make a decision. So Mr Beck says time did not begin to run. Moreover, any cause of action Mr Beck had was only prospective until its termination on 11 July 2005. Mr Beck argues that it was only upon his termination on that date that he suffered loss and the reasoning in Wardley Australia Limited v Western Australia (1992) 175 CLR 514 is applicable; and see Kenny & Good v MGICA (1999) 199 CLR 413 at 425.
Mr Beck does not seek compensation under SIS Act, s 55. So the limitation period in SIS Act, s 55(4) is irrelevant.
[32]
Remedies
The proprietary estoppel cases provide examples of Equity granting relief but making adjustments in order to do equity between the parties: see for example ER Ives Investment Limited v High [1967] 2 QB 379 and Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 607-8 per Priestley JA. Similar adjustments can be made in promissory estoppel cases.
If Mr Beck is to be treated as if he had worked with CBA until the age of 55 for the purposes of calculating a pension from that age under the OSF, some adjustments will need to be made. As Mr Beck did not work beyond the age of 51, CBA did not have the benefit of his services and he did not have the benefit of income from CBA for that period. Moreover no salary from CBA was used during those years to make contributions to the OSF. The reserve held in the fund in respect of a pension for Mr Beck on 11 July 2005 will need to be adjusted for factors such as these, and no doubt others. Unless these adjustments can be agreed a supplementary hearing as to relief may need to be held on these issues. Parties should include directions in draft short minutes in relation to any supplementary hearing that is required in relation to these adjustments.
[33]
Conclusion and Orders
For the reasons given, the plaintiff, Mr Beck, has been successful in challenging the validity of the decision to amend the rules of the Old Colonial Fund in December 1996 to remove clause A11.3. He is now entitled to consideration of possible benefits under that clause.
But he has also been successful in his estoppel case and is now entitled to relief on the basis that he was entitled to a pension at age 55, subject to the adjustments and other relief considerations above.
There will need to be a supplementary hearing to deal with these matters and perhaps with costs.
Therefore the Court orders:
1. Direct the parties to bring in short minutes of order to give effect to these reasons; and
2. Adjourn these proceedings for any argument as to the form of short minutes of order or as to costs to 9.30am on 24 August 2015.
[34]
Amendments
08 July 2015 - Reformatting of styles.
27 July 2015 - para 296 - line 6 - reg 13.16 changed to clause A11.3.
03 August 2015 - [298] (first line), reg 13.15 changed to reg 13.16.
02 December 2015 - [60] "which would be possible" to "which would not be possible"
10 February 2016 - [296] reg 13.16 changed to clause A11.3
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Decision last updated: 10 February 2016