Jennifer Jovic v SAS Trustee Corporation

Jennifer Jovic v SAS Trustee Corporation - [2007] NSWIRComm 102 - NSWIRComm 2007 case summary — Zoe

[20]

a. whether the appellant should be required to pay interest on the difference between her contributions and the R55 rate as a condition of being permitted to change her contributions status from R60 to R55 and b. if so, at what rate/basis should such interest be calculated. 4 The factual position asserted in the Superannuation Appeal document is different in one material and vital aspect to that which is contained in the agreed statement of facts. The Appeal document was based on an assertion that the applicant made a positive election to contribute on the basis of retirement age 55. The agreed statement of facts puts this matter on the basis of belief as contained within [4] and [5] set out above. That is, the applicant believes that she did elect to retire on full benefits at age 55. However, the evidence is that she has no particular recollection of completing any particular documentation that reflected such an intention. Nor does the applicant have any documentation or other evidence which would tend to prove that she did so elect. Neither the respondent superannuation fund nor any of the applicant's employers hold any documents or other information which would tend to prove that the applicant made a positive election to retire on full benefits at age 55. 5 Evidence adduced in the proceedings by Mr Leslie John Howe, employed in connection with the administration of the superannuation scheme, is to the effect that annual statements have been sent to members since 1991. However, copies of those statements have not been retained on the scheme's computer system prior to 1998, although the data that was included is available for the period 1992 - 1998. A copy of the data retained by the respondent for the applicant for the years 1992 - 1998 does not contain any particular reference to any designated retirement age. 6 There was adduced in evidence a copy of a sample annual statement for 1992 that is reconstructed from data held by the respondent. There is contained within that statement a list of benefit entitlements calculated at 30 September 1992. Under a heading "Benefit Type" there is a reference firstly to "Normal Retirement at Age 60 years" and then "Early Retirement at Age 55 years." There are differential fortnightly pension benefit amounts with respect to each of these retirement ages. However, there is, as I read the document, nothing in it that was indicative that the early retirement, at age 55 years, specifically applied to the applicant. The applicant's evidence was to the effect that on looking at documents of this kind, she assumed that the reference to the early retirement age would apply to her because she believed she had made that election. However, it seems from the totality of the evidence that the respondent has always regarded the applicant as not having made an election for early retirement at age 55 and as having agreed to contribute on the basis that she would retire at age 60. 7 None of this material assists the applicant in establishing that she had made an election to contribute to age 55 and the highest that it can be put, as is revealed in the statement of agreed facts, is that the applicant believed that she had done so. I add the qualification that in my opinion, the applicant has not established that she has done so or that it is more likely than not that she did so. In reaching this conclusion, I am mindful that the Court is not bound in the circumstances of these proceedings by the rules of evidence. Nevertheless, the respondent as trustee, and therefore the Court, in determining whether to approach the matter in a manner different from that adopted by the trustee respondent, needs to establish some degree of comfort in terms of the underlying factual situation. In determining that the applicant has not established that she made the election to contribute to age 55 or that it is more likely than not that she did so, I bear in mind the observations concerning the difficulty in proving what occurred many years ago made by the New South Wales Court of Appeal in McMurtrie v Commonwealth of Australia [2006] NSWCA 148. At [5] the Court said: "5. The difficulties in proving the precise terms or effect of a conversation that occurred a long time ago are well expressed by McLelland CJ in Eq. in Watson v. Foxman (1995) 49 NSWLR 315 at 318-9 as follows: Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as "misleading") within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

[23]

(1) Notwithstanding anything contained in this Act (subsection (2) excepted), an election, application or choice under this Act or any Act amending this Act: (a) shall be in writing, (b) may be made on or before: (i) the last day on which, but for this paragraph, it could be made, or (ii) the expiration of the period of 2 months after the right to make it arises, whichever is the later, but is not validly made unless received in the office of STC on or before the last day on which, pursuant to this paragraph, it may be made, (c) shall in the case of an election under section 21C take effect as from such date, or where such election is in respect of different amounts as from such respective dates, as STC determines and, in the case of any other election, application or choice, take effect and be operative where provision therefor is made by or under this Act as from the date so provided, or where no such provision is made as from the date it is received in the office of STC or such other date as STC may determine, (d) may, with the approval of STC, be amended or revoked subject to such conditions as STC may impose, including conditions as to the time or times at which, and the manner in which, the election as amended is to take effect, or the time at which the revocation is to take effect. (1A) The provisions of subsection (1) (c) and (d) do not apply to an election under section 61RB. (2) Where an election, application or choice is not made or received within the time prescribed in respect thereof by paragraph (b) of subsection (1) and STC is satisfied that in all the circumstances of the case it is desirable, that the election, application or choice should be accepted, STC may, subject to such terms and conditions as it may impose, accept the election, application or choice and deal with it as if it had been made or received within the time so prescribed. (3) Subsection (2) does not apply to or in respect of an election under section 21C. (4) The date or dates determined by STC under subsection (1) (c) as the date or dates as from which an election made under section 21C after the commencement of Schedule 6 to the Superannuation (Amendment) Act 1975 is or are to take effect shall not be later than the expiration of 7 months after the last day on which the election could have been made, but STC may determine a later date or later dates if it is satisfied that such special circumstances exist as warrant the determination thereof. (5) If an election to commute pension payable under section 28A or 28AA is made under section 21C by a contributor or pensioner who has not attained the age of 55 years, the date or dates determined by STC under subsection (1) (c) as the date or dates from which the election is to take effect must not be earlier than the date on which the contributor or pensioner attains the age of 55 years. (6) Where: (a) an election to commute pension payable under section 29 is made under section 21C by a pensioner, and (b) any employment which, on the pensioner's ceasing to be a contributor, the pensioner was entitled to count as service for the purpose of section 21 was, in total, for less than a period of 10 years, the date or dates determined by STC under subsection (1) (c) as the date or dates as from which the election is to take effect shall not be earlier than: (c) the expiration of 6 months after the day the election was made, or (d) the expiration of such time after the pensioner ceased to be a contributor as is equivalent to the balance of the period referred to in paragraph (b), whichever first occurs. 10 It will be seen that s 91(2) allows the late receipt of an election application or choice to be made "subject to such terms and conditions as (STC) may impose…." STC determined to impose the condition, as I have said, that the applicant contribute a lump sum including a component to reflect the earnings of the fund on these additional contributions over the relevant period. 11 The applicant complained that the imposition of this additional amount imposed an inappropriate and heavy burden on her. This is because at the time that the applicant eventually retired, having attained age 55, she paid an additional $60,053.56 in contributions. She paid a further $50,169.13 to represent interest on those monies at the fund-earning rate. I should add for completeness that by agreement between the parties the applicant has paid these additional monies by way of interest on the basis that if this Court upheld her appeal it would be refunded to her. 12 As against the requirement to pay these additional monies, the applicant has, however, gained some advantage because by the payment of those monies she has been able to effect retirement at age 55 with entitlement to a fortnightly pension or a lump sum payment. This is an entitlement which would not have accrued to her without payment of those monies until age 60. The evidence is that the applicant retired on 30 August 2006 when she decided to accept an offer of voluntary redundancy. It may be assumed that the ability to receive a gross pension, which as at March 2007 was $1,776.37 per fortnight on retirement, was seen by the applicant to be an advantage to her.

[26]

14 The provisions of s 88 are relevantly identical with those of s 40 of the Act which have since been repealed. In considering the provisions of s 40 of the repealed Act in Jo Gedeon v First State Super Trustee Corporation [2005] NSWIRComm 62, I concluded that the appeal to this Court constituted an appeal de novo. (See [11] to [21]). Accordingly, the matter was to be determined "by reference to such of the evidence as the parties puts before (the Court), and such other material as the Court might properly consider by reference to (s 88(5))."(At [21]) 15 S 88(4) makes it clear that the Court is to have regard to that Act and any other relevant provisions regulating the superannuation scheme together with such other matters as the Court considers to be relevant. 16 The applicant maintained that the imposition of the requirement to pay the additional amount calculated by reference to the earnings of the fund was inappropriate and/or unfair and/or inequitable and/or unjust for the following reasons: (a) Although the applicant had no specific recollection of completing any documentation electing to retire at age 55, she is sure that she must have done so and that therefore any failure to deduct contributions at the appropriate age 55 retirement rate was an error on the part of the respondent. On this basis although the applicant should bear the cost of the additional contributions, she should not bear the interest on those contributions as claimed. That is the burden should be shared between her and the respondent. (b) The respondent had established a policy of making changes in contributor status from retirement age 60 to retirement age 55 where there was a record of a contributor's original election available upon payment of a notional interest rate of 2%. Given the factual circumstances in these proceedings, it was said that the applicant should be required to pay a 2% interest rate at its highest. (c) In fact, the applicant was being treated in the same way as if she had allowed her contributions to fall into arrears as a result of some conscious decision on her part to defer contributions during a period of leave without pay or because she had withdrawn funds through financial difficulties. It was unfair, it was said, that she should be put in a comparable position. (d) The applicant had been financially disadvantaged as a result of the requirement imposed by the respondent being required at the time of her retirement when all her available funds were needed to assist in the retirement process to fund a significant payment. 17 It will be seen that the submissions of the applicant were based on what I would loosely describe as "equitable" grounds. That is, they were based on concepts of unfairness, inequity, unjustness and the like. 18 The decision under challenge is a decision made by the respondent in its capacity as a trustee of a fund. The Superannuation Administration Act 1996 contains relevant provisions that impact upon the duties, obligations and responsibilities of the respondent. By s 49, the respondent is constituted the trustee for the relevant superannuation schemes, of one of which the applicant was a member. 19 By s 50(1)(d), a principal function of the respondent is "to ensure that benefits payable to the persons entitled to receive benefits under the STC schemes are paid in accordance with the Acts under which the schemes are established or constituted." 20 S 51 sets out the duties of the respondent. This is in the following terms: 51 Duties relating to functions

[27]

(1) STC must: (a) act honestly in all matters relating to its functions relating to the STC schemes, and (b) exercise, in relation to all matters affecting the STC schemes, 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, and (c) ensure that its functions relating to the STC schemes are exercised in the best interests of persons entitled to receive benefits under the STC schemes, and (d) not enter into any contract or arrangement, or do anything else, that would prevent STC from, or hinder STC in, properly exercising STC's functions as a trustee. Note: The duties contained in subsection (1) reflect the covenants required of superannuation scheme trustees under the Superannuation Industry (Supervision) Act 1993 of the Commonwealth. (2) In exercising its functions, STC must have regard to: (a) the interests of persons entitled to receive benefits under the STC schemes, and (b) the Heads of Government Agreement, commencing 1 July 1996, relating to the exemption of certain State public sector superannuation schemes from the Superannuation Industry (Supervision) Act 1993 of the Commonwealth, and (c) the future liabilities of the STC funds, and (d) any statement in writing of the policy of the Government on any matter that is relevant to the functions of STC given by the Minister to STC. (3) Subsection (1) (d) does not prevent STC from entering into a contract or an arrangement under section 53. 21 Of course, as asserted on behalf of the applicant, it is possible to focus attention on certain of the provisions of s 51 to the exclusion of others so as to bring about a particular result. The applicant directed attention to s 51(1)(c) which emphasises that the respondent should exercise its functions in the best interests of persons entitled to receive benefits. However, in my opinion, this is a matter that needs to be looked at in a balanced way having regard to the totality of the functions, duties and responsibilities of the respondent as the trustee of a number of schemes. 22 This need to apply a balanced and objective approach by reference to the interests of members of schemes requires an assessment of circumstances in which those interests may be taken into account. That is, it is only those interests which can validly be considered as appropriate having regard to the respondent's fiduciary duties, obligations and responsibilities in the context of the superannuation schemes as a whole. If one were not to take a qualified approach in this way, this would logically result in anything to the advantage of a particular member being permitted by way of benefit in the exercise of a discretion. 23 In considering these matters I shall take into account the following: 1) In determining whether to uphold or reject the appeal, I am conscious that the Court is placed in the position of substituting its decision for that of the respondent as trustee of the fund. In normal circumstances, a trustee would have regard to the totality of the provisions of the fund and the like when making a determination as to the exercise of a discretion that might impact upon the assets of the fund. However, it is not necessary to take this matter into account in the circumstances of these proceedings as submitted on behalf of the respondent. That is because, on the basis of evidence given by Mr Geoff McRae, the cost of any shortfall in the funds of the relevant superannuation scheme, if I were to accede in whole or in part to the appeal, would be borne by the employer by way of additional contributions to make up any shortfall. 2) The rate of interest fixed by the actuary did not take into account administration expenses and the like which are borne entirely by the employer. 3) Although she has now been forced to make payments in a lump sum to fund the shortfall in contributions, these are monies of which the applicant has had use, albeit of small amounts, over a long period of time. 4) A financial advantage, albeit unquantified, accrues to the applicant as a result of her entitlement to a pension payable upon retirement at age 55. 5) The respondent established a policy to deal with change in contributor status from retirement age 60 to retirement age 55 at a board meeting on 18 March 1998. That policy was in evidence in the proceedings. Because the policy is comprehensive and because I have determined that in all the circumstances it should be applied in the determination of these appeal proceedings, I set it out hereunder in full: STATE SUPERANNUATION SCHEME

[43]

24 The circumstances that apply to the applicant in these proceedings are those set out in [1] of the above policy document. They are to be contrasted with the circumstances that apply in [2] where evidence has been provided of an election to contribute at the retirement at age 55 rate has been established. In the latter case, a compounding interest rate of 2% is fixed as opposed to the actual fund-earning rate being fixed as quantification of the interest component in [1]. 25 I am of the opinion that having regard to the totality of the objects of the scheme and having regard also to the interests of the applicant as a member, the obligations and responsibility of the applicant's employer, including an obligation to contribute to any shortfall in funding, that the policy formulated by the trustee is an appropriate one. It applies to circumstances where a member is unable to demonstrate in a positive sense that an election to contribute to retirement age 55 has been made. The policy allows such a person to make additional contributions for the purpose of acquiring the ability to become entitled to payment on retirement at age 55, having made contributions only on a lesser basis postulated on retirement at age 60. If the additional amounts required to be paid by the member did not include an interest component quantified by reference to actual fund earnings this would result in a windfall gain to the member concerned. Fairness dictates that if the applicant is accorded the opportunity to gain entitlement to benefits upon reaching the earlier retirement age, the impact on the fund should be revenue neutral. I have reached such a conclusion without having regard to the fact that any shortfall would need to be funded by the employer. Such a need creates an additional reason in justification for the conclusion that I have reached. 26 In all the circumstances, it cannot be concluded that the respondent has acted in breach of its fiduciary duty as a trustee in formulating its policy position with respect to changing contributor status and in applying that policy to the applicant. On the contrary, I would conclude that in doing so the respondent acted in conformity with its fiduciary and other obligations in the administration of the State Superannuation Scheme. 27 The result is that the appeal should be dismissed. The parties have agreed that they will each bear their own costs of the proceedings.

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