Flegeltaub v Telstra Super Pty Ltd [1998] VSC 144

5. Between March 1975 and February 1994 the plaintiff was employed by Telstra Corporation (formerly known as Australian Telecommunications Corporation). The defendant Telecom Super Pty. Ltd. is and was at all times material the trustee of the Telecom Superannuation Scheme. On 28 February 1994 the plaintiff retired from her employment with Telstra on the ground of invalidity.

8. On 18 February 1993 the plaintiff made an application to the defendant for payment of the total and permanent invalidity benefit which she contends she is entitled to under the Superannuation Scheme. On 11 May 1994 the defendant in its capacity as trustee of the scheme rejected the plaintiff's application.

11. On 15 November 1994 the plaintiff, through her solicitor, requested the defendant to reconsider its decision. The defendant did so, but on 13 December 1994 it again rejected the plaintiff's claim.

14. On 30 June 1995 the plaintiff filed a writ in the Court seeking a declaration to the effect that the defendant's decisions are void and of no effect in law, a declaration that the plaintiff is entitled to a total and permanent invalidity benefit pursuant to the trust deed of the scheme, and an order that the defendant pay her such benefit.

17. The plaintiff alleges that in making the decisions it did the defendant (inter alia) breached the duty it owed to the plaintiff to give her application real and genuine consideration, breached its duty not to act unreasonably, arbitrarily, or oppressively and breached its duty to the plaintiff to consider her application responsibly. The plaintiff further alleges that the defendant's decisions to reject her applications were not sound.

20. On or about 10 January 1996 the plaintiff delivered 12 interrogatories for the examination of the defendant. Interrogatories 1(a), 3(a), 5 and 6 are not the subject of any dispute between the parties and can be put to one side. The plaintiff's application before the Master was that the defendant answer the remaining interrogatories. Apart from interrogatories 1(b) and (c) and 3(b) and (c) the Master rejected the application. As the appeal is a hearing de novo, the plaintiff again seeks orders that the defendant answer the remaining interrogatories.

23. The interrogatories in question seek to elicit from the defendant its reasons for making the two determinations it did in respect of the plaintiff's application and the state of its mind at the time it did so.

26. Before the Master it was argued by counsel for the defendant that the defendant, acting as it was as a trustee, was not obliged to give reasons for its decisions, that it had not given any reasons and that in any event being a corporation it could not be interrogated concerning its state of mind. In support of the first contention counsel for the defendant placed great reliance upon the decision of McGarvie, J. in Karger v. Paul [1984] VicRp 13; [1984] V.R. 161.

29. In an endeavour to counter the defendant's argument that the defendant had not given any reasons for its decision, counsel for the plaintiff sought special leave to rely on the affidavit of Steven George Miller sworn 26 October 1998, an affidavit which was not before the Master. In the circumstances I consider that it is appropriate to grant the special leave sought. If the fact is that the defendant did give to the plaintiff reasons for its decisions, then in my view it would be contrary to the interests of justice to permit the defendant to defend the plaintiff's application on an erroneous basis.

32. I have now considered the content of Miller's affidavit and the documentary material exhibited to it. In my opinion it establishes that the defendant did not give to the plaintiff any reasons for its decisions. In its letter to the plaintiff of 11 May 1994 the defendant has stated:

"The Trustee of the Telecom Superannuation Scheme has considered your application for a Total and Permanent Invalidity benefit and the determination of the Trustee was that your claim be denied."

36. The letter then deals with other matters not relevant to the present dispute but nowhere does it contain reasons for the defendant's decision.

39. In the minutes of the meeting of the Trustee held on 13 December 1994 there appears the following item:

"13.2 Glenda Flegeltaub Mr. Slack (the operations manager of the Trustee) tabled a letter from Mrs. Flegeltaub's solicitor together with a letter from a treating doctor which were reviewed this morning. The Directors considered all the papers and unanimously resolved to deny a total and permanent invalidity benefit to Mrs. Flegeltaub."

43. Again the minutes contain no reason for the decision.

46. It is convenient now to refer to the observation of McGarvie, J. in Karger concerning the reasons of trustees for their decisions. At p.165 his Honour said:

"It is an established general principle that unless trustees choose to give reasons for the exercise of a discretion, their exercise of the discretion can not be examined or reviewed by a court so long as they act in good faith and without an ulterior purpose: Re Beloved Wilkes' Charity [1851] EngR 375; [1851] 3 Mac & G 440; 42 ER 330; Duke of Portland v. Topham [1864] EngR 339; (1864) 11 HLC 31; 11 ER 1242. For reasons given above, I would add the further requirement, so obvious that it is often not mentioned, that they act upon real and genuine consideration. In the context, it was in that sense that Lord Truro, LC used the expression 'with a fair consideration' in Re Beloved Wilkes' Charity, at (42 ER) p.333. In the case of an absolute and unrestricted discretion such as the discretion in the present case, the general principle is given unqualified operation: Gisborne v. Gisborne (1877) 2 App.Cas. 300, at p.305, per Lord Cairns, LC; Tabor v. Brooks (1878) 10 Ch.D. 273; Craig v. National Trustees Executors and Agency Company of Australia Ltd. [1920] VicLawRp 101; [1920] VLR 569. The operation of the principle is discussed in Jacobs' Law of Trusts in Australia, 4th ed., pp.300-2. The policy which underlies the principle was discussed by Lord Truro, LC in Re Beloved Wilkes' Charity. In Re Londonderry's Settlement [1965] Ch. 918, at pp.928-9; [1964] EWCA Civ 6; [1964] 3 All ER 855, at p.857, Harman, LJ. explained the principle as follows: '... trustees exercising a discretionary power are not bound to disclose to their beneficiaries the reasons actuating them in coming to a decision. This is a long-standing principle and rests largely, I think, on the view that nobody could be called upon to accept a trusteeship involving the exercise of a discretion unless, in the absence of bad faith, he was not liable to have his motives or his reasons called in question either by the beneficiaries or by the court. To this there is added a rider, namely, that if trustees do give reasons, their soundness can be considered by the court.' In the same case Salmon, LJ. said, at ([1965] Ch.) pp.936-7; ([1964] 3 All ER) p.862:

'Whether or not the court, if it knew all the facts known to the trustees, would have acted as they did, again I do not know - nor is it material. The settlement gave the absolute discretion to appoint to the trustees and not to the courts. So long as the trustees exercise this power ... bona fide with no improper motive, their exercise of the power cannot be challenged in the courts - and their reasons for acting as they did are, accordingly, immaterial. This is one of the grounds for the rule that trustees are not obliged to disclose to beneficiaries their reasons for exercising a discretionary power. Another ground for this rule is that it would not be for the good of the beneficiaries as a whole, and yet another that it might make the lives of trustees intolerable should such an obligation rest on them'."

51. That decision has been consistently followed by Judges of this Court, see for example the decision of Nathan, J. in Meat Industry Employees Superannuation Fund Pty. Ltd. v. Petrucelli (unreported 28 February 1992) where at p.5 his Honour said:

"In my view Karger v. Paul [1984] VicRp 13; [1984] VR 161 proffers the most assistance, although it does not deal with the ambit of the court's review powers when trustees voluntarily waive their immunity from having their unfettered discretion examined. In Karger's Case, McGarvie, J. accepted the principle of law that trustees, exercising unfettered discretionary powers, are not bound to disclose to beneficiaries the reasons which actuate their decisions. He recited with approval, as I do, Re Londonderry Settlement [1965] Ch. 918, particularly Harman, LJ. pp.928-9 and Salmon, LJ. pp.936-7. In the case before McGarive, J. it was contended the trustees' discretion became examinable because the reasons for its exercise were elicited during cross-examination of the trustee. It was contended this amounted to waiving the absolute immunity from examination, an argument rejected by him."

55. However, in Petrucelli Nathan, J. did find that the trustee had given reasons for its decision in that when the plaintiff's solicitor asked the trustee for the reasons why their client's claim was denied, the trustee responded by saying "medical opinion no permanent disability" and proceeded to examine its decision. That is not the situation in the present case.

58. During the course of the hearing before me counsel for the plaintiff referred to a number of New South Wales authorities (in the main, unreported) in which interrogatories had been delivered to trustees of superannuation funds seeking to elicit from the trustees reasons for their decisions. But once again in those cases the trustees had given reasons for their decision.

61. However, the case upon which counsel for the plaintiff placed the greatest reliance was the decision of Young, J. in Maciejewski v. Telstra Super Pty. Ltd. (unreported 17 August 1998). Again it is arguable that in that case the trustee gave reasons for its decision namely that the plaintiff did not satisfy the criteria under the trust deed for the payment of total and permanent invalidity benefit at the time she ceased employment with Telstra. Nevertheless at p.3 his Honour said:

"Mr. Johnson for the defendant, kept urging the view that the trustee was not bound to give reasons. This was an insufficient defence. As Robert Walker, J. said in Scott v. National Trust [1998] EWHC 318; [1998] 2 All ER 705, 719, 'If a decision taken by trustees is directly attacked in legal proceedings, the trustees may be compelled either legally (through discovery or subpoena) or practically (in order to avoid adverse inferences being drawn) to disclose the substance of the reasons for their decision'."

65. In Scott, Robert Walker, J. was dealing with a decision of the National Trust not to renew licences to hunt red deer on certain parts of its Devon and Somerset estates. It is clear from the report that the Trust had given reasons for its decision but not the substance of those reasons. At p.718 his Honour said:

"The other general point that I want to mention is as to the statement of reasons for trustees' decisions. The minutes of the meeting on 10 April (which were no doubt drafted and considered with exceptional care) record that there was a long discussion by the council (with an added reference, in the corrected minutes, to the impact of the decision on the local community), but there are no details. This probably reflects a widely held view that trustees need not, and if well advised, should not, give reasons. There is probably a lot of good sense in that, in the general run of cases, but I think the true position was put succinctly by Lord Normand in the Dundee Hospitals case [1952] 1 All ER 896 at 900, when he said:

'It was said for the appellants that the courts have greater liberty to examine and correct a decision committed by a testator to his trustees, if they choose to give reasons, than if they do not. In my opinion, that is erroneous. The principles on which the courts must proceed are the same whether the reasons for the trustees' decision are disclosed or not, but, of course, it becomes easier to examine a decision if the reasons for it have been disclosed. Lord Truro's judgment in Re Wilkes's (Beloved) Charity ((1851) [1851] EngR 375; 3 Mac & G 444, 42 ER 330) ought not to be construed as going beyond that.'

If a decision taken by trustees is directly attacked in legal proceedings, the trustees may be compelled either legally (through discovery or subpoena) or practically (in order to avoid adverse inferences being drawn) to disclose the substance of the reasons for their decision. Mr. Prideaux has already, in his affidavits, provided quite a lot of detail about the decision-making process. If these matters proceed, further evidence about it is likely and it seems likely that there will be cross-examination. But council members need not fear that everything said in the hurly-burly of debate will be taken as a ground of decision. In R. v. London CC, ex p. London and Provincial Electric Theatres Ltd. [1915] 2 KB 466 at 490-491 Pickford, LJ. said:

'... probably hardly any decision of a body ... could stand if every statement which a member made in debate were to be taken as a ground of decision. I should think that there are probably few debates in which someone does not suggest as a ground for decision something which is not a proper ground'."

72. In the Dundee Hospitals case the House of Lords was required to consider the decision of trustees concerning the payment of a legacy. It is clear from the facts in that case that their Lordships had before them the trustees' reasons for their decision. At p.899 Lord Normand said:

"It is not, however, necessary to pursue this question or to go into any reasons but that connected with s.9(8), because all the other reasons argued to us are weaker, and if the appellants succeed in their attack on the reason based on s.9(8), the other reasons also will fall before their assault. On the other hand, if the appellants fail on s.9(8), it will be unnecessary to consider any of the other reasons. At this stage one other comment naturally arises. It was said for the appellants that the courts have greater liberty to examine and correct a decision committed by a testator to his trustees, if they choose to give reasons, than if they do not. In my opinion, that is erroneous. The principles on which the courts must proceed are the same whether the reasons for the trustees' decision are disclosed or not, but, of course, it becomes easier to examine a decision if the reasons for it have been disclosed. Lord Truro's judgment in Re Wilke's (Beloved) Charity ought not to be construed as going beyond that."

76. In my opinion neither the Dundee Hospitals case nor Scott are authority for the proposition that if a trustee chooses not to give reasons for his decision he can be compelled legally through interrogation to do so. If that conclusion is erroneous I decline to follow those decisions, preferring as I do to follow the decision of McGarvie, J. in Karger and the similar decisions of other members of this Court.

79. In any event there is a second objection to the plaintiff's application that the defendant be required to answer the interrogatories in question and that is that being a corporation, the defendant has no mind and cannot therefore be interrogated about its state of mind. Such a form of interrogatory was considered by Street, J. in Tooth & Co. Ltd. v. Lane Cove Municipal Council (No. 4) (1968) 2 N.S.W.R. 17. At p.19 his Honour said:

"19. Interrogatory 19 is in the following terms: 'What factors did the defendant take into account in defining the local area in respect of which the said local rate was paid and levied?' This interrogatory proceeds from the allegations in the statement of claim, upon which issue is taken in the statement of defence, charging that the defendant took into account inadmissible considerations and failed to take into account relevant considerations in connexion with the passing of the resolution mentioned in para.5 of the statement of claim. I am of the view that the interrogatory should not be allowed. It is directed in its terms to ascertaining what may have been a particular mental process on the part of the defendant. The defendant, being a municipal corporation, has itself no mind. There are, of course, many occasions on which it is necessary to attribute to a municipal corporation attitudes of mind such as purpose, opinion, intention, and the like. These attitudes of mind are, however, fictional, in that they proceed upon the assumption which is made in each instance that a municipal corporation has a mind. Where a suit raises as a relevant issue the state of mind of an individual, then a properly framed interrogatory directed to the ascertainment of ingredients in that state of mind would no doubt be allowed. Where, however, the suit concerns the act of a municipal corporation it appears to me to be unreal to direct to that corporation an interrogatory upon what matters were present to its mind in relation to a particular event. The inferences drawn and conclusions reached by courts upon purpose, intention or opinion on the part of municipal corporations are drawn and reached as a result of evidence of objective facts. But the fact that in those cases decisions are made that a municipal corporation had a particular mental state does not travel to the extent of raising the fiction that the corporation has in truth a mind, the processes of which can be examined through medium of interrogatories, as is the case with a personal party."

See also Duke of Sutherland v. British Dominion Land Settlement Corporation Limited (1926) 1 Ch. 746 and Kelly & Anor. v. Raynor (Illawara) Pty. Ltd. (1981) 1 N.S.W.L.R. 720.

84. The appeal from the orders of Master Wheeler made on 13 October 1998 is allowed and paragraphs 1 and 6 of the orders are set aside. I order that the plaintiff's summons filed 30 September 1998 be dismissed. I order that the plaintiff pay the defendant's costs of the application to the Master and of this appeal. I give to the plaintiff the appropriate certificate pursuant to the Appeal Costs Act in respect of her costs of the appeal and the costs of the appeal she is required to pay to the defendant.