Colonial Mutual Life Assurance Society Limited v Brayley

the policy 10 The Schedule to the Policy relevantly contains the following definitions: 'Member: A person who, at the relevant time, is a member of the Fund and who has been accepted by us for insured cover under this policy. Insured Cover: The amount of death and total and permanent disablement cover for a member that we confirmed with you in writing on the letter of commencement of cover for the member and the most recent review date' 11 The policy itself provides: '1.1 We will pay you a benefit if a member dies. … 2.3 Cover for a member will continue until: · The date any benefit becomes payable for the member under this policy; … · The person is no longer a member; … whichever happens first. … 7.1 This policy may be varied by written agreement between you and us.'

the trust deed 12 The Rules of the Fund contain the following definitions: '"MEMBERSHIP" means, in relation to a Member, the continuous period of membership between the date the Member joins the Fund to the date he ceases to be employed by the Employer and where the content requires, includes the period during which the Member is a Non-Contributory Member. PROVIDED that for the purposes of the benefit payable on death or Total and Permanent Disablement under Rule 12 the Membership of a Member who dies or suffers Total and Permanent Disablement prior to the Normal Retirement Date shall be calculated on the basis that the Member had continued in Service until the Normal Retirement Date. … "NON-CONTRIBUTORY MEMBER" means a Member who is no longer an Employee and in respect of whom no further contributions are payable to the Fund but whose Benefits remain in the Fund pursuant to Clause 10.3 or who has by notice in writing to the Trustee elected to leave his Benefit in the Fund. The Non‑Contributory Member is not entitled to Member's Insurance but in all other respects the Non‑Contributory Member shall be deemed to be a Member PROVIDED no further contributions shall be made by or on his behalf and subject to Clause 10.3 the Non‑Contributory Member may withdraw his benefit after giving of three (3) months written notice to the Trustee.'

statutory provisions 13 The objectives and functions of the Tribunal are identified in ss 11 and 12 of the Act. In the context of the first respondent's complaint, its objective was to provide a mechanism for the review of the decision to which the complaint related that was fair, economical, informal and quick. Its function was to review the decision to which the complaint related. 14 The first respondent's complaint to the Tribunal was made under s 14 of the Act. Relevantly s 14 provides: '(1) This section applies if the trustee of a fund has made a decision … in relation to: (a) a particular member or a particular former member of a regulated superannuation fund; … … (2) Subject to … section 15, a person may make a complaint … to the Tribunal, that the decision is or was unfair or unreasonable. ….' 15 Section 15 of the Act is concerned to identify who may make a complaint under s 14. It is accepted that the first respondent was a person entitled to make a complaint under s 14. 16 Section 14AA provides: '(1) To avoid doubt, a complaint may be made under this Part about a decision whether or not the decision involved the exercise of a discretion. (2) However, a decision that did not involve the exercise of a discretion is taken to have been unfair and unreasonable if the decision was contrary to law.' 17 Section 18(1) of the Act identifies the parties to a complaint under s 14. The subsection relevantly provides: '(1) The parties to a complaint under section 14 are: (a) the complainant; and (b) the trustee; and (c) if the subject matter of the complaint relates to a death benefit or a disability benefit under a contract of insurance between the trustee and an insurer and the Tribunal decides that the insurer should be a party to the complaint - the insurer; … .'

In this case it appears that the Tribunal decided that the Insurer should be a party to the complaint.

18 Section 37 of the Act sets out the Tribunal's powers when reviewing a decision of a trustee of a fund that is the subject of a complaint under s 14. Section 37 provides: '(1) For the purpose of reviewing a decision of the trustee of a fund that is the subject of a complaint under section 14: (a) the Tribunal has all the powers, obligations and discretions that are conferred on the trustee; and (b) subject to subsection (6), must make a determination in accordance with subsection (3). (2) If an insurer or other decision-maker has been joined as a party to a complaint under section 14: (a) the Tribunal must, when reviewing the trustee's decision, also review any decision of the insurer or other decision-maker that is relevant to the complaint; and (b) for that purpose, has all the powers, obligations and discretions that are conferred on the insurer or other decision-maker; and (c) subject to subsection (6), must make a determination in accordance with subsection (3). (3) On reviewing the decision of a trustee, insurer or other decision-maker that is the subject of, or relevant to, a complaint under section 14, the Tribunal must make a determination in writing: (a) affirming the decision; or (b) remitting the matter to which the decision relates to the trustee, insurer or other decision-maker for reconsideration in accordance with the directions of the Tribunal; or (c) varying the decision; or (d) setting aside the decision and substituting a decision for the decision so set aside. (4) The Tribunal may only exercise its determination-making power under subsection (3) for the purpose of placing the complainant as nearly as practicable in such a position that the unfairness, unreasonableness, or both, that the Tribunal has determined to exist in relation to the trustee's decision that is the subject of the complaint no longer exists. (5) The Tribunal must not do anything under subsection (3) that would be contrary to law, to the governing rules of the fund concerned and, if a contract of insurance between an insurer and trustee is involved, to the terms of the contract. (6) The Tribunal must affirm a decision referred to under subsection (3) if it is satisfied that the decision, in its operation in relation to: (a) the complainant; and (b) so far as concerns a complaint regarding the payment of a death benefit - any person (other than the complainant, a trustee, insurer or decision-maker) who: (i) has become a party to the complaint; and (ii) has an interest in the death benefit or claims to be, or to be entitled to benefits through, a person having an interest in the death benefit; was fair and reasonable in the circumstances.'

reasons of the Tribunal 19 The Tribunal noted that its role in respect of a complaint made under s 14 of the Act was to determine whether the decisions of the Trustee and the Insurer were fair and reasonable in their operation to the complainant in the circumstances. 20 The Tribunal concluded, in effect, that to perform its role with respect to the first respondent's complaint it was required to decide three issues. It identified these issues in the following way: '1. Whether a liability on the part of either the Insurer or the Trustee may arise because of the failure to offer a continuation option to the Deceased pursuant to the terms of the policy. 2. Whether the Insurer is liable to pay the claim under the Policy, or as a combination of its obligations under the Policy and those under the Administration Agreement. 3. If the answer to issue 2 is "no", is the Trustee separately liable to the Complainant?'

This appeal is concerned only with the decision of the Tribunal concerning the second of the three issues identified by it.

21 The Tribunal expressed the view that the question of whether the Insurer was liable was one of considerable difficulty. It noted that the wording of the Trust Deed and the Policy indicated that, as Dr Loughlin was immediately prior to her death a Non-Contributory Member within the meaning of the Trust Deed, she was not entitled to the insurance benefits payable to a Member. As a consequence it was satisfied that the wording of the Trust Deed and the Policy indicated that a death benefit was not payable in respect of Dr Loughlin's death. 22 Nonetheless the Tribunal considered that it was fair and reasonable in all of the circumstances: 'to conclude that the original Trust Deed and Policy provisions were mutually varied by conduct as outlined in the Trustee' [sic] letter to the Insured [sic] of 5 February 1997.' 23 The only letter dated 5 February 1997 to which the Tribunal refers in the body of its reasons for decision is a letter described as being 'from the Trustee to the Insurer' rather than from the Trustee to the Insured. The Appeal Book contains only one letter dated 5 February 1997. That letter is on the letterhead of the Fund and signed by a Fund consultant. It is addressed to a Fund Administrator of the Insurer. In these circumstances it may be assumed that the reference by the Tribunal to the Trustee's letter to 'the Insured' of 5 February 1997 is a slip. 24 The written reasons for decision of the Tribunal include the following passage: "The Tribunal notes that in its letter of 5 February 1997, the Trustee asserted: • With regard to Rule 10, its provision that the benefit is payable "on the death of a member while in Service" is "certainly not the way the death benefit has been calculated in the past" - it had been calculated at 1 July and the cover remained constant throughout the year. (Tribunal's Note: The Tribunal queries whether the Trustee is perhaps referring to the calculation of premiums, not the calculation of the actual benefit payable on the death of a member while in service.) · The Trust Deed is not consistent with existing practices, as the Insurer (as Administrator) was aware, and the Deed was being redrafted. · The Insurer allowed cover to continue up to 30 June following a member "ceasing their contract" (presumably with the employer), unless that member ceased to be a member of the Fund. That meant that a full year's premium was debited, even if the member had ceased to be "employed" and the Insurer had been accepting liability for the full 12 months. · "This practice over previous years" means that the Insurer had been accepting liability for insured cover for the full 12 month period. Consequently it would not be reasonable for the Insurer to simply refund premiums "when liability for insurance cover has always been accepted for a full 12 month period for these members". Here, the Trustee is asserting that there were mutually arranged variations to the strict provisions of the formal documents and that those variations had been relied on by the parties for a period of years. In other words, the variations were accepted by both parties by their conduct. Any failure by the Insurer to perform under the varied terms while taking the benefits, would be a breach of its utmost good faith duties (as Insurer) and/or the fiduciary duties which would be implied into its role as Fund Administrator. Had the Trustee's assertions not been correct, the Tribunal would have expected the Insurer to expressly deny them and state what it believed to be the correct position, but it has never done this. Instead, it sought to rely on the original provisions (or alleged provisions) of the Policy. The variations outlined by the Trustee, in the Tribunal's opinion, set out a commercially practical arrangement which overcome the problems involved in the original arrangements and, as such, would be justified by a Trustee seeking to act in the interests of members.' As is mentioned above, the Tribunal formed the view that it was, in the circumstances, fair and reasonable to conclude that the original Trust Deed and Policy provisions were mutually varied by conduct. 25 On this basis the Tribunal determined that: "the Member was insured until 30 June 1996 and therefore the Insurer must pay the claim to the Trustee with interest.'

contentions of the applicant 26 The applicant contends that the decision of the Tribunal fails to reflect the constraint imposed on the Tribunal by s 37(5) of the Act. It denies that the Trust Deed, to which it is not a party, and the Policy were 'mutually varied by conduct' or at all. It argues that an approach which could result in a group policy denying entitlement to one member while conferring entitlement on another member in comparable circumstances should be rejected. It further argues that it is not open to the Tribunal to conclude that a decision under a contract of insurance is unfair or unreasonable within the meaning of s 14 of the Act if the decision is a necessary consequence of the application of the terms of the contract of insurance.

Role of the Tribunal 27 The Tribunal is vested with administrative, not judicial, powers and functions (Attorney‑General for the Commonwealth v Breckler (1999) 197 CLR 83). For this reason it lacks the capacity to make determinations of legal rights which are binding and authoritative in the sense that judgments of courts are binding and authoritative. A decision of a decision‑maker as varied by the Tribunal, or a decision made by the Tribunal in substitution for a decision of a decision‑maker, is for all purposes other than the making of a complaint under the Act about the decision, taken to be the decision of the decision‑maker concerned (s 41(3)). Persons affected by a decision varied or made by the Tribunal thus have the same legal rights in respect of the decision, other than the right to make a complaint under the Act, as they would have had had the Tribunal not reviewed the decision. 28 The Tribunal is expressly empowered by s 14AA(1) of the Act to review a decision concerning which a complaint is made under s 14 of the Act whether or not the decision involved the exercise of a discretion (see [16] above). The Act does not define the expression 'the exercise of a discretion'. In some contexts the exercise of a discretion may be distinguished from the making of a judgment (see, for example, National Mutual Life Association of Australia Ltd v Campbell [2000] FCA 852; 99 FCR 562 at [30]-[31]; Employment Advocate v Williamson [2001] FCA 1164; 111 FCR 20 per Branson J at [78]; J Edelman, 'Judicial Discretion in Australia', Australian Bar Review, vol. 19, no. 3, June 2001, p. 285). However, it seems relatively plain that in the context of s 14AA of the Act the reference to a decision which did not involve 'the exercise of a discretion' is intended to be a reference to a decision where the law, the rules of the relevant fund or the terms of any relevant contract of insurance mandated a particular result (see Attorney‑General v Breckler, per Kirby J at [88]). That is, that s 14AA(1) is intended to make it clear that a complaint may be made under Part 4 of the Act that a decision is or was unfair or unreasonable even where the decision was one which did not call for a judgment to be made as to fairness or reasonableness or otherwise. 29 I note incidentally that it is likely that the expression 'contrary to law' is intended to bear a wider meaning in s 14AA(2) than the same expression bears in s 37(5) of the Act. In s 37(5) 'contrary to law' is used in contradistinction to contrary to the governing rules of the fund concerned and contrary to the terms of a contract of insurance. In the context of s 37(5) it would appear that "contrary to law" is intended to mean contrary to the general law. However, the expression 'contrary to law' when used in s 14AA(2), which was only inserted into the Act by s 8 of the Superannuation Legislation Amendment (Resolution of Complaints) Act 1998 (Cth), seems intended to have a broader meaning so as to encompass not only contrary to the general law but also contrary to the governing rules of the fund concerned and contrary to the terms of a contract of insurance. It appears plain that s 14AA(1) was enacted to make it clear that the Tribunal's jurisdiction was not confined to reviewing the exercise of discretionary powers on the part of a trustee (see Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd [1998] FCA 51; 79 FCR 469). Section 14AA(2) is concerned with how the Tribunal should deal with a complaint concerning a decision that did not involve the exercise of a discretion. The subsection will have a narrow field of operation, and thus leave the Tribunal without guidance to a significant degree, unless the subsection reaches not only to non‑discretionary decisions that are contrary to the general law but also to non‑discretionary decisions that are contrary to the governing rules of the fund concerned or contrary to the terms of a contract of insurance. 30 Where the Tribunal reviews a decision that did not involve the exercise of a discretion within the meaning of s 14AA its options are limited. If it forms the view that the decision was contrary to law (see [29]), it must proceed on the basis that the decision was unfair and unreasonable (s 14AA(2)). As the Tribunal may not itself make a determination on a complaint under s 14 of the Act that would be contrary to law (s 37(5)), the determination of the Tribunal under s 37(3) will in a case of this kind of necessity reflect the Tribunal's view of the decision that was required by the law. If the Tribunal forms the view that the decision was not contrary law, for the same reason the Tribunal will be obliged to affirm the decision. 31 Where the Tribunal reviews a decision that did involve the exercise of a discretion within the meaning of s 14AA, the appropriate course, in my view, is for it to consider first whether the actual decision, as opposed to the process by which the decision was reached, was fair and reasonable in the circumstances (National Mutual Life Association of Australia Ltd v Jevtovic, unreported, Sundberg J, 8 May 1997). The words "unfair" and "unreasonable" are used in the Act as words of broad content so that difficulty attends any attempt to define them precisely (National Mutual Life Association of Australia Ltd v Campbell at [36]). If the Tribunal forms the view that the decision was fair and reasonable in the circumstances it must affirm the decision (s 37(6)). It must do so even though the Tribunal might not itself have made the same decision (National Mutual Life Association of Australia Limited v Scollary [2002] FCA 695 at [37]). 32 If the Tribunal is not satisfied that the decision was fair and reasonable in the circumstances, ss 37(1) and (2) require the Tribunal put itself in the position of the trustee and, in an appropriate case, the insurer and other relevant decision‑maker (National Mutual Life Association of Australia Ltd v Campbell at [32]; Briffa v Hay (1997) 75 FCR 428 at 443‑445). From that position or positions the Tribunal must determine whether, consistently with:

(a) the general law; (b) the governing rules of the fund concerned; and (c) if a contract of insurance between the insurer and a trustee is involved, the terms of the contract,

the unfairness or unreasonableness that the Tribunal has identified in respect of the trustee's decision can be addressed in whole or in part.

33 If the Tribunal concludes that it cannot address, in whole or in part, the unfairness or unreasonableness identified by it without acting in a manner that is contrary to the general law, the governing rules of the fund concerned or the terms of a relevant contract of insurance between an insurer and the trustee, the Tribunal is required to leave the perceived unfairness or unreasonableness unaddressed (s 37(5)). If the Tribunal concludes that the unfairness or unreasonableness identified by it can be addressed consistently with the general law, the governing rules of the fund concerned and the terms of any relevant contract of insurance between an insurer and the trustee, it must exercise its determination‑making power for the purpose of placing the complainant as near as practicable in such a position that the unfairness or unreasonableness, or both, that the Tribunal has identified no longer exists (s 37(4)). 34 The above analysis reveals that although all complaints made to the Tribunal under s 14 of the Act are, in a formal sense, complaints that a decision is unfair or unreasonable (s 14(2)), the Tribunal is not empowered to remedy all unfairness or unreasonableness that it may perceive. In particular, the Tribunal lacks power to remedy any perceived unfairness or unreasonableness that is a necessary consequence of the application in the particular case of the governing rules of the fund concerned or the terms of a contract of insurance between an insurer and the trustee.

Approach of the Tribunal 35 The Tribunal did not, at least expressly, give consideration to whether the decision concerning which complaint had been made involved the exercise of a discretion in the sense that the decision was not dictated by the general law, the governing rules of the Fund or the terms of the Policy. If the Tribunal had concluded that the decision was dictated by, relevantly, the terms of the Trust Deed or the Policy, it would have been obliged to affirm the decision as it was not entitled to make a determination that would be contrary to the terms of either the Trust Deed or the Policy. The Tribunal is not empowered to rewrite a trust deed or policy of insurance in an endeavour to ensure that its terms are fair and reasonable. 36 In this case the written terms of the Trust Deed and the Policy were not in dispute. A death benefit was not payable under the written terms of the Trust Deed and the Policy in respect of Dr Loughlin's death. Whether the terms of the Trust Deed or the Policy had been varied was a question of law. The Tribunal of its own initiative, or at the request of a party, could have referred this question of law to the Court for decision (s 39). It did not do so. Consequently, it was required to form a view itself (necessarily not conclusive) as to whether the terms of the Trust Deed or the Policy or both had been varied. In doing so it was required to make findings of fact and apply the appropriate rules of law (Attorney‑General v Breckler per Kirby J at [87]). It was not entitled to proceed on the basis that this question of law could be determined not by reference to legal principles but by reference to standards of fairness and reasonableness. 37 The conclusion of the Tribunal that the terms of the Trust Deed and the Policy had been 'mutually varied by conduct' is not supported by relevant findings of fact or by reference to legal principles. Nor do the reasons of the Tribunal disclose the precise variations which it found to have been made to the terms of the Trust Deed and the Policy respectively or the date or dates upon which the variations came into effect. I am satisfied that the Tribunal's conclusion as set out in [25] above was not intended to reflect an answer to a question of law. Rather, as the language in which the conclusion is expressed indicates, the Tribunal was concerned to identify what it considered would be a fair and reasonable result in all of the circumstances. For the reasons set out above, this involved an erroneous understanding of the extent of the powers of the Tribunal. 38 The second respondent sought to support the determination of the Tribunal by reference to principles of estoppel. The written reasons of the Tribunal do not suggest that it based its determination on a finding that the Insurer was estopped from denying a liability to pay a death benefit in respect of Dr Loughlin's death. In Retail Employees Superannuation Pty Ltd v Crocker [2001] FCA 1330 at [14]-[16] Allsop J observed: '… the complaint of Ms Crocker, at least to the Tribunal, was that she was entitled to disability insurance and that on a number of separate occasions the Trustee had sent documents to her which appeared to indicate that she was entitled to, or had taken out, disability cover in the fund. She complained that the propositions that she was not so entitled, or not so covered, were in conflict with what she had been told. In the context of a trustee acting as the trustee of a superannuation fund pursuant to a trust deed and an insurer issuing a policy to the trustee on behalf of the members of a fund, allegations of the kind just mentioned might throw up for consideration a number of matters if one were concerned with analysing or determining all the legal rights and obligations of the three parties (member, trustee and insurer) inter se: questions as to whether the member was entitled under the terms of the trust or the terms of the insurance policy to disability cover; questions as to whether, irrespective of the terms of the policy, the trustee had bound itself in some fashion to the member to provide disability cover; questions as to whether any such obligation had been created in contract, by estoppel or in some other legal or equitable framework; and questions as to whether, if the trustee had so bound itself and was not entitled to have the insurer pay the claim, it was entitled to indemnify itself out of the trust fund to meet such obligation. However, the Tribunal's task was not to determine all such rights and obligations of the parties. To do so would, in all likelihood, see it purport to engage in the exercise of judicial power. Rather, the Tribunal's task was confined to the role given to it by the Act. … ' 39 As Allsop J pointed out in Retail Employees Superannuation Pty Ltd v Crocker, the Tribunal is not empowered to determine all of the legal rights and obligations of the parties before it. Had the Tribunal purported to determine that the insurer was estopped from denying a liability to pay a death benefit in respect of Dr Loughlin's death it would, in my view, have exceeded its statutory powers. However, I am satisfied that the Tribunal did not purport to do so.

conclusion 40 I conclude that the determination of the Tribunal is affected by an error of law in that it reflects a misunderstanding by the Tribunal of the true extent of its powers. The appropriate orders, in my view, are for the determination of the Tribunal to be set aside and for the matter to be remitted to the Tribunal to be determined again in accordance with these reasons for judgment. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

Dated: 30 October 2002 Counsel for the Applicant: Dr G A Flick SC

Solicitor for the Applicant: Abbott Tout

Counsel for the First Respondent: No appearance

Counsel for the Second Respondent Mr R W Evans

Solicitor for the First and Second Respondent: NSP Buck

Date of Hearing: 26 September 2002

Date of Judgment: 30 October 2002