Brady v NULIS Nominees

Federal Court of Australia|2021-08-23|Before: Markovic J

By 13 September 2021, the parties are to provide to the Associate to Markovic J draft orders to be made giving effect to these reasons.
Costs associated with the determination of the question of appointment of a sample group member be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MARKOVIC J: 1 This proceeding was commenced as a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act) by Mervyn Lawrence Brady. NULIS Nominees (Australia) Limited in its capacity as trustee of the MLC Super Fund is the respondent. 2 Mr Brady was a member of The Universal Superannuation Fund Scheme (TUSS) prior to 1 July 2016 and a member of the MLC Super Fund from 1 July 2016. He brings the proceeding on his own behalf and as the representative party for and on behalf of certain members of the MLC Super Fund whose benefits were transferred on 1 July 2016, by successor fund transfer, from TUSS to the MLC Super Fund. 3 A number of issues have arisen between the parties in relation to the conduct of the proceeding, one of which concerns the scope and content of the initial trial. That in turn raises a number of subsidiary or related issues including whether it is necessary to appoint a sub-group representative or sample group member in order for the Court to determine certain issues relating to loss (sub-group issue). That issue arises because in its defence NULIS raises a distinction between those members of the MLC Super Fund who were entitled to access their benefits at the relevant time and those members were not so entitled. For convenience only I will refer to these two groups of members as vested group members and non-vested group members respectively. 4 The applicant, who falls into the former category, does not consider that it is necessary to appoint a sample non-vested group member while NULIS contends that it is necessary. It is this issue which is addressed in these reasons.

background 5 The applicant relies on a further amended statement of claim (FASOC). It is not necessary for the purposes of resolution of the sub-group issue to set out the detail of the claim. In summary, the applicant impugns two resolutions made by the NULIS board in connection with the preparation and consideration of the successor fund transfer: the decision made on 10 June 2016 "to approve to maintain the current grandfathered commission arrangements pertaining to the products which form part of TUSS following the proposed [successor fund transfer] to the MLC Super Fund" (Grandfathering Decision); and the decision made on 16 June 2016 to approve certain contractual documents pursuant to which the grandfathered commissions were paid prior to the successor fund transfer. The applicant alleges that each of those decisions were made by NULIS in breach of the statutory covenants implied into the governing rules of the MLC Super Fund by subs 52(2)(b), (c) and (d) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). 6 The applicant also alleges that NULIS breached those covenants during the period from 1 July 2016 to 23 September 2020 (Relevant Period) by implementing the decision to maintain the grandfathered commission arrangements, by paying the commissions to financial services licensees and by obtaining the commissions from the members of the MLC Super Fund. 7 Commencing at para 60 of the FASOC the basis on which each group member is alleged to have suffered loss or damage is set out. Relevantly paras 60A and 60B provide: 60A By reason of the matters pleaded in paragraphs 17(a) and (b) above, the Applicant and each Group Member during the period each of them was a Member of the Fund had an equitable proprietary interest in the TUSS Division of the MLC Super Fund. Particulars (i) The Applicant was a Member of the TUSS Division of the MLC Super Fund from 1 July 2016 to 23 February 2021 and the benefits in his account no 8301190 were "unrestricted and non-preserved" during that period; 2016 annual statement MLB.001.001.0085 at page 1; 2017 ‍annual statement MLB.001.001.0087 at page 1; 2018 annual statement ‍MLB.001.001.0089 at page 1; and 2019 annual statement MLB.001.001.0090 at page 1; (ii) SIS Regulations 1994 (Cth) reg 6.20; (iii) Particulars of the period in which each of the Group Members was a Member of the TUSS Division of the MLC Super Fund and the benefits in their accounts shall be provided following the Initial Trial. 60B The value of the interests referred to in paragraph 60A was reduced by reason of NULIS obtaining the Conflicted Remuneration from the Applicant and each Group Member. Particulars (i) The value of the Applicant's interest is that recorded in the 2016 ‍annual statement MLB.001.001.0085 at page 1; 2017 annual statement ‍MLB.001.001.0087 at page 1; 2018 annual statement MLB.001.001.0089 at page 1; and 2019 annual statement MLB.001.001.0090 at page 1 for account no 8301190; (ii) In the case of the Applicant, the Conflicted Remuneration was deducted by NULIS from account no 8301190 by including it in the calculation of the unit price for each investment option with the consequence that the balance in the account was reduced by the amount of the deduction; 2016 annual statement MLB.001.001.0085 at pp 3-4; 2017 annual statement MLB.001.001.0087 at pp 3-4; 2018 annual statement MLB.001.001.0089 at pp 3-4; and 2019 annual statement MLB.001.001.0090 at pp 3-4; (iii) Further particulars will be provided in conjunction with the Applicant's expert evidence; (iv) Particulars in respect of the Group Members shall be provided following the Initial Trial. (Underlining omitted.) 8 In its defence to further amended statement of claim NULIS denies that it has breached the covenants in s 52(2)(b), (c) and (d) of the SIS Act and that the applicant and group members have suffered any loss or damage as alleged. Among other things it says that any members of the MLC Super Fund who have not met a condition of release or are otherwise not entitled to access unrestricted non-preserved benefits in the superannuation account maintained on their behalf cannot have suffered any loss or damage as alleged. NULIS also contends that if it is liable to compensate the applicant or any of the group members for loss or damage as alleged, the statutory scheme and principles of trust law require restoration of the MLC Super Fund such that any and all compensation is to be paid into the relevant members' superannuation balances. 9 As to the question that presently arises for resolution, NULIS' defence includes: (1) under the heading "Introduction" at para F: Moreover, the Applicant purports to seek relief on behalf of members of the MLC Super Fund whose interest has not vested and who have no present entitlement to an interest in any particular property of, or any identifiable portion of, the MLC Super Fund. As the interests of such members in the MLC Super Fund have not yet vested, they have not suffered loss or damage as a result of any contravention of s 548(1) of the SIS Act (which is denied), and cannot bring an action under s 55(3) of the SIS Act. (2) and at para 60B: In response to paragraph 60B of the FASOC, NULIS: (a) denies that it obtained Conflicted Remuneration from the Applicant and each Group Member and therefore denies the paragraph; and (b) further or in the alternative: (i) refers to and repeats paragraphs 24 and 50 and subparagraph 60A(a) above; and (ii) denies that the payment of Grandfathered Remuneration to financial services licensees in respect of certain products as described in paragraph 50 above reduced the value of any interests of Group Members who, at the time, had not satisfied a condition of release or were not entitled to access unrestricted non-preserved benefits. 10 It is in that way that the distinction between the two classes of members of the MLC Super Fund, and thus of group members, is raised. 11 It is necessary to resolve the sub-group issue both for the efficient case management of the proceeding going forward and in order to enable the parties to resolve the proposed form of the common questions.

parties' submissions 12 The applicant accepted that the question of whether there is a functional or substantive difference between the damages claims of vested and non-vested members will need to be determined at the initial trial but characterised the question as whether it is necessary to accelerate the claim of a group member in order for the Court to determine that issue. 13 The applicant submitted that, in turn, that depends on case management considerations about whether the Court requires a sub-group representative or sample group member in order to make findings on an issue. He contended that the issue raised by NULIS turns on the construction of the NULIS Trust Deed and the characterisation of the rights under that deed, the construction of the NULIS Trust Deed will already be considered as part of his claim and the Court does not need a sub-group representative or sample group member to bring forward additional facts to resolve the issue. 14 The applicant submitted that the Court would not create additional costs burdens unless it was necessary to do so and that case management considerations could only support bringing forward a sub-group representative party if doing so would aid the Court in the determination of a factual controversy not otherwise capable of being resolved. He contended that this is not necessary in this case where the only arguments that NULIS seeks to ventilate are the legal effect of any distinction between the interests of members and, in that context, the construction of the NULIS Trust Deed and the Superannuation Industry (Supervision) Regulations 1994 (Cth). 15 The applicant submitted that NULIS does not appear to contend to the contrary. He contended that if the appointment of a sub-group representative does not assist the Court in resolving a controversy, then it is difficult to see why the parties would be put to the additional expense that would be generated by the appointment. 16 NULIS accepted that ultimately it was a matter for the applicant, properly advised, to determine the case he wishes to bring before the Court but submitted that it has an equal interest in ensuring that the determination of common questions resolves substantial parts of the controversy. NULIS submitted that it is concerned that the absence of a sample group member representing non-vested members will prevent the Court from resolving the proceeding insofar as it concerns that category of group members. 17 NULIS submitted that it is not contending that a sub-group representative needs to be appointed pursuant to s 33Q of the FCA Act. Rather it relies upon the case management practice which has developed which enables the identification of sample group members who can be called as witnesses so that the Court can, by reference to the individual circumstances of those sample group members, proceed to determine issues of fact or law which are common to a sub-set of group members that do not include the applicant. NULIS points out that unlike sub-group representatives, sample group members are not recognised under Pt IVA of the FCA Act and do not become liable for costs associated with the determination of the issues common to the subset of group members of whom he or she is a sample representative. 18 NULIS submitted that the question is whether a group member who has not satisfied a condition of release can have suffered relevant loss. It contended that, in the absence of the applicant bringing forward someone who meets the relevant description, the question is hypothetical and advisory in circumstances where the applicant himself has unrestricted non-‍preserved benefits and therefore no interest in the question of whether a non-vested group member has suffered loss.

consideration 19 Section 33Q(1) of the FCA Act provides that if it appears to the Court that determination of the issue or issues common to all group members will not finally determine the claims of all group members the Court may give directions in relation to the determination of the remaining issues. Further subs (2) permits the Court, in the case of issues common to claims of only some group members, to give directions establishing a sub-group consisting of those group members and appointing a person to be the sub-group representative party on behalf of the sub-group members. Section 33Q(3) provides that where the Court appoints a person other than the representative party to be a sub-group representative party that person is liable for the costs associated with the determination of the issue or issues common to the sub-group members. 20 However, NULIS does not seek directions under s 33Q of the FCA Act but seeks the appointment of a sample group member based on case management principles. The availability of such a course was explained by Lee J in Dillon v RBS Group Australia Pty Ltd (2017) 252 FCR 150 at [62] to [66] as follows: 62 When one understands the variety between individual claims that can be determined in a class action, it is not surprising that the grouping and acceleration of types of group members' claims is far from unprecedented. For example, in large scale negligence actions (such as the Project B class action example given above) there are likely to be a number of complexities involving not only the questions of the existence of duty, but also breach and causation. 63 It was the recognition of this reality that brought into focus the use of case management techniques to identify questions that went beyond strictly common questions (as that concept is used in ss 33C and 33H). As Gillard J explained in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] Aust Torts Reports 81-692 at [42]: In my opinion, it is important that the Court conducts group proceeding litigation in a practical manner and ensures that as many questions of law and fact having a degree of commonality are decided. Once the group proceeding is completed and if an individual claim is to proceed, the individual litigant has the benefit of findings of law or fact to assist him in obtaining relief. It follows that a group proceeding is not concerned with the complete cause of action of a claimant, in the sense that all elements of the cause of action and issues raised are determined in the proceeding. The Court considers and determines the common questions of law and fact. (Emphasis added.) 64 Similarly, J Forrest J in Matthews v SPI Electricity Pty Ltd noted at [4]: In practice, notwithstanding that there may be a commonality in the alleged cause of the harm occasioned to the group members, a trial focusing solely on the representative plaintiff's claim may not cover the claims of all group members. To address this problem, a practice has developed to permit other group members to give evidence at trial as to relevant facts concerning his or her claim. This evidence then enables the court to make findings and give judgment in relation to those other claims, which enables binding determinations to be made in respect of most, if not all, group members. 65 In Earglow Pty Ltd v Newcrest Mining Ltd (2015) 230 FCR 469 at [55]-[66], Beach J noted the practice of the Court adopting this expedient where there may be significant differences in the liability cases of individual claimants apart from just causation and damages issues. 66 What this approach demonstrates is the flexibility which the extensive case management powers in ss 33ZF and 37P provide for the efficient management of class actions. I said at the outset of these reasons that the expression an "initial trial of common issues" is a misnomer. This is because experience demonstrates that in many cases of quite different types of class actions, the Court has found it expedient to not only deal with the claim of the representative applicant at the initial trial but also with common questions (properly so called) and also questions which have utility in resolving aspects of the claims of a subset of the group members, which, to adapt Gillard J's phrase, may be called issues of commonality. (Emphasis in original.) 21 Similarly in Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 2) [2020] FCA 1355; (2020) 148 ACSR 14 the applicant sought to appoint a sample group member, Ms Rea. The respondent did not dispute that it was convenient to determine Ms Rea's claim at the initial trial. At [17]-[19] Gleeson J said: [17] In Johnson Tiles, the representative plaintiffs were permitted to call group members to give evidence relevant to their claims, even though their evidence was not relevant to the claims of the plaintiffs. These witnesses were described as sample group members. [18] At [37], Gillard J concluded that s 33Q(1) gives a wide power to the Court to decide questions which will not finally determine the claims of all group members. His Honour gave the following reasons concerning the Court's power at [48]-[51]: [48] In my opinion, there is nothing in Part 4A of the Act which requires that there has to be a plaintiff for each group. Certain prerequisites have to be satisfied, but there is nothing which precludes a plaintiff whose claim is the same as those constituting one group, also bringing the proceeding on behalf of other members of another group, so long as the three threshold features are present. In my view, the provisions referred to above make that clear. [49] In my opinion, it follows that it is open to a plaintiff to call a witness who may give evidence of factual matters, which do not assist that plaintiff's claim but do raise for consideration and determination, a question of fact or law which is common to some or all members of a group. [50] In my view, the Court should endeavour to decide as many common questions of fact and law in a group proceeding, to facilitate the outcome of the litigation. If some questions are only relevant to some group members and not all, or to one group and not the other, so be it. As long as it may have some substantial practical effect in the determination of the litigation, one of the objects of group litigation is achieved. [51] It follows that, in my opinion, the plaintiffs are entitled to call, as witnesses, any member of a group in order to adduce evidence which is relevant to any issue raised, and a plaintiff may represent a group even though he is not a member of that group. Of course, he must have a claim against the defendant. [19] The respondents accepted that the practice of appointing sample group members is well established, but note that all relevant authority is prior to the decision of the High Court in BMW Australia Ltd v Brewster (2019) 374 ALR 627; [2019] HCA 45 (BMW). Mr Kirk SC also acknowledged the Court's power to appoint sample group members to hear test cases. However, Mr Kirk SC contended, following BMW, it is not permissible to appoint a sample group member to facilitate the determination of issues common to the claims of a sub-set of group members. 22 Her Honour also considered whether sub-groups were required under s 33Q(2) of the FCA Act to determine all of the proposed common questions. In determining that they were not, at [24]-‍[25] her Honour relevantly said: [24] If I am wrong in that conclusion, I would also reject Mr Kirk SC's argument that the appointment of sub-group representative parties is necessary in order to determine issues common to the claims of group members apart from the applicant for the following reasons: … (6) The reasons of the High Court in Timbercorp Finance Pty Ltd (in liq) v Collins (2016) 259 CLR 212; 339 ALR 11; [2016] HCA 44 (Timbercorp), especially at [49] (French CJ, Kiefel, Keane and Nettle ‍JJ) and [141] (Gordon J), do not require a conclusion that the applicant may not represent group members at the initial trial with respect to issues common only to some group members. In Kamasaee v Commonwealth (No 10) [2017] VSC 272, McDonald J rejected an argument that Johnson Tiles was wrong and inconsistent with the decision in Timbercorp. At [40], his Honour concluded that nothing in the High Court's reasoning, either expressly or by necessary implication, supported a conclusion that, absent an order under s 33Q appointing a group member as a sub-group representative, a plaintiff in a group proceeding cannot call a witness to give evidence of factual matters which do not support the plaintiff's personal claim but which do raise for consideration and determination a question of fact or law which is common to some or all members of a group. …: [25] As to Dyczynski, Mr Kirk SC contended that the logic of the decision has relevant implications. At [96], Murphy and Colvin JJ said: [96] … the applicant and class members are privies in interest of class members only in respect of the common questions of fact or law, not their individual claims. The applicant could not represent the interests of affected class members in relation to Preliminary Questions which concerned the merits of their individual claim to fall within one or more of the categories of Art 33. Her representative capacity was limited to the claims giving rise to the common claims the subject of the proceeding: Timbercorp Finance Pty Ltd (in liq) v Collins (2016) 259 CLR 212; 339 ALR 11; [2016] HCA 44 (Timbercorp) at [39], [49], [53]-[54] (French CJ, Kiefel, Keane and Nettle JJ), [122] and [141]-[142] (Gordon J). 23 The applicant seemingly wishes to avoid the appointment of a sample group member, as opposed to a sub-group representative under s 33Q(2) of the FCA Act. However, for the following reasons, I am persuaded that a sample group representative who is a non-vested group member should be appointed. 24 First, it appears to be common ground between the parties that one of the issues to be determined at the initial trial is whether a non-vested group member can and has suffered loss as a result of NULIS' alleged conduct. There is a risk that, in the absence of bringing forward a group member who meets that description, the question is hypothetical or advisory in circumstances where the applicant is a vested group member having unrestricted non-preserved benefits and thus no interest in the relevant question: see Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at 356. That risk can be easily alleviated by the appointment of a sample group member. 25 Secondly, the question is not merely a legal question but a mixed question of fact and law. 26 Thirdly, as the authorities set out above make plain, the appointment of a sample group member is not unusual and the Court has ample power to make such orders. It is an accepted practice which enables other group members to give evidence at trial as to relevant facts concerning their claim. The Court can then make findings in relation to those other claims. 27 Fourthly, the appointment of a sample group member does not carry with it the costs consequences that might flow from the appointment of a sub group member under s 33Q(2). Any additional costs that the applicant (or his funder) may incur as a result of an order or direction appointing a sample group member needs to be considered in the context of the whole of the proceeding and the importance of resolution of the issue to, potentially, a not insignificant number of group members. 28 Finally, the applicant, who is conducting the proceeding on behalf of group members, owes a fiduciary duty to them: see Dyczynski v Gibson [2020] FCAFC 120; (2020) 381 ALR 1 at [209]-[210] and Santa Trade Concerns Pty Ltd v Robinson (No 2) [2018] FCA 1491 at [21]. In the discharge of that duty he should take the steps necessary to maximise the possibility that the initial trial will determine as many questions as possible which are common to group members or to a subset of group members.

Conclusion 29 For those reasons I will make an order appointing a sample group member who meets the description of a non-vested group member. The parties should provide draft orders to my Associate to that effect within 21 days of the date of publication of these reasons. 30 I will reserve on the question of costs associated with the determination of this question to be considered at the same time as the costs of the interlocutory application filed by the applicant on 11 May 2021 and the other issues raised for determination on 21 June 2021. 31 I will make orders accordingly. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.

SIS Regulations 1994(Cth)reg 6.20

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