Manglicmot v Commonwealth Bank Officers Superannuation Corporation Pty Ltd

B W Rayment QC & M Bleazel - Appellant A Bell SC & J English - Respondent Firths - Appellant Henry Davis York - Respondent File Number(s): CA 2008/282210 Decision under appeal Citation: [2010] NSWSC 363; (2010) 239 FLR 159; Date of Decision: 2010-04-28 00:00:00 Before: Rein J File Number(s): 2008/282210

Judgment 1GILES JA: The respondent is trustee of the Officers' Superannuation Fund ("the Fund") established for the benefit of employees of Commonwealth Bank of Australia Ltd ("the Bank"). It annually obtains from an insurer cover under a group policy providing benefits upon, inter alia, total and permanent disablement ("TPD"). 2The appellant was employed by the Bank as a teller and in other capacities from 1998 to 2003, and was a member of the Fund. 3During 2000 the appellant suffered separate injuries whereby from November 2002 he was able to work for the Bank only part time. In circumstances later more fully considered the Bank offered him redundancy, and on 25 August 2003 he accepted redundancy. 4In late 2004 the appellant applied to the respondent for TPD benefits. The then insurer, CommInsure Pty Ltd ("CommInsure") declined to provide the benefits. The respondent in turn determined that the appellant was not entitled to TPD benefits.

The appellant's proceedings 5For many years prior to 30 June 2003 the respondent had held a group policy with NRG Victory Australia Ltd, later taken over by Hannover Life Re of Australasia Ltd ("the Hannover policy"). In 2003 it negotiated and entered into a group policy with CommInsure ("the CommInsure policy"), replacing the Hannover policy with effect from 1 July 2003. 6The appellant contended that the Hannover policy provided TPD benefits where the member was unfit for full time work but fit for part time work. The CommInsure policy provided TPD benefits only where the member was unfit for any work. 7The appellant alleged that the respondent was in breach of a fiduciary duty owed to members of the Fund to act in their best interests, and of a similar duty pursuant to the covenant implied by s 52(2)(c) of the Superannuation Industry (Supervision) Act 1993 (C'th) ("the SIS Act") to ensure that its powers were exercised in their best interests, because the CommInsure policy was "onerous to members including the plaintiff and not customary in the industry usage at the relevant time" (statement of claim, para 25). He alleged also that the respondent was in breach of the covenant implied by s 52(2)(b) of the SIS Act to exercise the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with the property of another for whom the person felt morally bound to provide, on the ground that such a person would not have entered into the CommInsure policy because it was "onerous in relation to members such as the Plaintiff" (statement of claim, para 27). 8On the appellant's case, the CommInsure policy was onerous to members including himself, and not customary in the industry, because it did not provide TPD benefits where the Fund member was fit for part time work. The appellant was unfit for full time work but was fit for part time work. He contended that CommInsure had declined to provide TPD benefits because he was fit for part time work, and claimed damages to compensate for not receiving the TPD benefits which he said would have been provided under the terms of the Hannover policy. 9The trial judge, Rein J, held against the appellant: Manglicmot v Comonwealth Bank Officers Superannuation Corporation Pty Ltd [2010] NSWSC 363. 10The trial judge doubted that the Hannover policy provided TPD benefits where the Fund member was able to engage in part time work, but did not decide that matter. 11His Honour regarded the negotiation of and entry into the CommInsure policy as a discretionary matter for the respondent, open to challenge on grounds such as good faith and genuine consideration but not on grounds of fairness or reasonableness per se. He considered that the provisions of the SIS Act did not impose on a superannuation fund trustee higher duties than the general law or greater liability in relation to the exercise of its discretions. 12His Honour was not satisfied that the terms of the Hannover policy were commonly found in the industry and then available. He considered that error in the exercise of the respondent's discretion, and breach by the respondent of its general law or statutory obligations, had not been shown. 13His Honour also found against the appellant on causation, in the manner I will later describe.

The Fund 14At material times the Fund was conducted under a consolidated Trust Deed dated 1 April 2003, with lengthy rules. 15Rule A4 in Part A of the rules included - " A4.1 Powers of Trustee Except to the extent that this Deed provides otherwise, either expressly or by necessary implication: (a) absolute discretions : the Trustee has in the exercise, non-exercise or partial exercise of each Power of the Trustee an absolute and uncontrolled discretion and is not bound to give to any person any reason for or explanation of the exercise, non-exercise or partial exercise of a Power; (b) general Powers in relation to Fund : the Trustee has complete management and control of all proceedings, matters and things in connection with the Fund and in addition to the Powers vested in a trustee by law, the Trustee's Powers include all Powers which the Trustee considers necessary, desirable or expedient for the proper administration, maintenance and preservation of the Fund and in order to give effect to this Deed in accordance with its terms;" 16Rule A4.1 also conferred specific powers, including a power to obtain insurance in relation to members' benefits - "(c) specific Powers of a Trustee : without limiting the preceding provisions of this Rule A4.1, the Trustee may: ... (6) insurance: generally insure or re-insure any risks, contingencies or liabilities of the Trustee in relation to the Fund and, without limiting the preceding words, enter into any contracts with any insurance or re-insurance company or make arrangements with the trustees or administrators of any superannuation or like scheme to provide for all or any part of the benefits that become or may become payable under this Deed and pay from the Fund all payments to be made under those contracts or arrangements. ... " 17The appellant's TPD entitlement was under Part F of the rules. The definition of "Total and Permanent Disablement" in rule F1.2 was relevantly that it - " ... has the same meaning as that phrase (or a corresponding phrase having the same purport) has under a policy of insurance effected or acquired by the Trustee for the purpose of providing a benefit in respect of the Member of, if there is more than one policy, the policy nominated by the Trustee ... ". 18Rule F6 provided for payment of benefits, relevantly - " F6.2 Death or Total and Permanent Disablement (a) Death or Total and Permanent Disablement before age 65: Subject to Rule F6.7, if an Ordinary Member: (1) dies while an Employee before attaining age 65; or (2) ceases to be an Employee before attaining age 65 on account of Total and Permanent Disablement; there is payable to or in respect of the Member a benefit of an amount equal to the sum of: (3) the Member's Accrued Benefit; and (4) subject to Rules F8.4, F8.5 and F8.5A, if the Member is eligible for a Supplementary Benefit on death or Total and Permanent Disablement, the Supplementary Benefit, if any, applicable to that Member's death or that Member's Total and Permanent Disablement, as the case may be. ... " 19A member's Accrued Benefit was in substance the member's contributions to the Fund. The member's Supplementary Benefit came from the applicable group policy, as to which the respondent's power in rule A4.1(c)(6) was supplemented by a qualified obligation in rule F8.4 - " F8.4 Supplementary Benefits: General (a) Insurance of Supplementary Benefit : The Trustee must use all reasonable endeavours to effect or seek to effect insurance in respect of Supplementary Benefits, on terms and conditions acceptable to the Trustee, in respect of Members who are eligible for Supplementary Benefits as provided for in Rule F8.4(e) and to the extent of such eligibility, except to the extent of any part of a Supplementary Benefit that the Trustee elects to self insure in the circumstances provided for in Rule F8.4(d)." 20If the respondent could not effect insurance on terms and conditions acceptable to it, it could elect to self-insure, but if it did not elect to self-insure, no Supplementary Benefits were payable: rule F8.4(b). By rule F8.4(c)(1), if the respondent effected insurance "the terms and conditions of the relevant policy or policies of insurance will apply in determining whether and to what extent the Supplementary Benefit is payable". 21The detail of the TPD benefits need not be gone into. The appellant claimed $122,284, plus interest, as the amount of TPD benefits which he had not received. I do not understand the amount to have been disputed.

The SIS Act 22The respondent's exercise of its duties and powers was subject to the SIS Act. The Fund was a superannuation entity as referred to in the SIS Act, s 52 of which provided - "(1) Governing rules taken to contain covenants If the governing rules of a superannuation entity do not contain covenants to the effect of the covenants set out in subsection (2), those governing rules are taken to contain covenants to that effect. (2) The covenants The covenants referred to in subsection (1) are the following covenants by each trustee of the entity: (a) to act honestly in all matters concerning the entity; (b) to exercise, in relation to all matters affecting the entity, the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide ; (c) to ensure that the trustee's duties and powers are performed and exercised in the best interests of the beneficiaries ; (d) to keep the money and other assets of the entity separate from any money and assets, respectively: (i) that are held by the trustee personally; or (ii) that are money or assets, as the case may be, of a standard employer-sponsor, or an associate of a standard employer-sponsor, of the entity; (e) not to enter into any contract, or do anything else, that would prevent the trustee from, or hinder the trustee in, properly performing or exercising the trustee's functions and powers; (f) to formulate and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following: (i) the risk involved in making, holding and realising, and the likely return from, the entity's investments having regard to its objectives and its expected cash flow requirements; (ii) the composition of the entity's investments as a whole including the extent to which the investments are diverse or involve the entity in being exposed to risks from inadequate diversification; (iii) the liquidity of the entity's investments having regard to its expected cash flow requirements; (iv) the ability of the entity to discharge its existing and prospective liabilities; (g) if there are any reserves of the entity-to formulate and to give effect to a strategy for their prudential management, consistent with the entity's investment strategy and its capacity to discharge its liabilities (whether actual or contingent) as and when they fall due; (h) to allow a beneficiary access to any prescribed information or any prescribed documents. (3) Covenant referred to in paragraph (2)(e) A covenant referred to in paragraph (2)(e) does not prevent the trustee from engaging or authorising persons to do acts or things on behalf of the trustee. (4) Covenant referred to in paragraph (2)(f) An investment strategy is taken to be in accordance with paragraph (2)(f) even if it provides for a specified beneficiary or a specified class of beneficiaries to give directions to the trustee, where: (a) the directions relate to the strategy to be followed by the trustee in relation to the investment of a particular asset or assets of the entity; and (b) the directions are given in circumstances covered by regulations made for the purposes of this paragraph. (5) Regulations may prescribe other covenants The regulations may prescribe a covenant to be included in the governing rules of a superannuation entity and, if the governing rules of such a superannuation entity do not contain a covenant to the effect of the prescribed covenant, those rules are taken to contain a covenant to that effect. (6) Prescribed covenants may overlap with other requirements Without limiting the generality of subsection (5), the regulations may prescribe, for the purposes of that subsection, a covenant that elaborates, supplements, or otherwise deals with, any aspect of: (a) a matter to which a covenant in subsection (2) relates; or (b) a matter to which a provision of this Act (other than this section) relates. (7) But prescribed covenants must be capable of operating concurrently with other requirements However, a covenant prescribed for the purposes of subsection (5) must be capable of operating concurrently with: (a) all the covenants referred to in subsection (2); and (b) this Act other than this section. (8) Covenant by corporate trustee has effect as covenant by trustee's directors A covenant by a corporate trustee of a superannuation entity that is to the effect of a covenant referred to in subsection (2), or to the effect of a covenant prescribed by regulations referred to in subsection (5), also operates as a covenant by each of the directors of the trustee to exercise a reasonable degree of care and diligence for the purposes of ensuring that the trustee carries out the first-mentioned covenant, and so operates as if the directors were parties to the governing rules. (9) Reasonable degree of care and diligence The reference in subsection (8) to a reasonable degree of care and diligence is a reference to the degree of care and diligence that a reasonable person in the position of director of the trustee would exercise in the trustee's circumstances." (emphasis added) 23I have emphasised the covenants on which the appellant relied. 24Section 55 of the SIS Act relevantly provided - "55(1) A person must not contravene a covenant contained, or taken to be contained, in the governing rules of a superannuation entity. (2) A contravention of subsection (1) is not an offence and a contravention of that subsection does not result in the invalidity of a transaction. (3) A person who suffers loss or damage as a result of conduct of another person that was engaged in contravention of subsection (1) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention. ... " 25It is convenient to note at this point s 323 of the SIS Act - "Proceedings to which this section applies. 323(1) This section applies to: (a) eligible proceedings (within the meaning of section 221); and (b) proceedings under subsection 55(3). Defences (2) Subject to subsection (4), in proceedings against a person (the defendant) in respect of a contravention, it is a defence if the defendant establishes: (a) that the contravention was due to reasonable mistake; or (b) that the contravention was due to reasonable reliance on information supplied by another person; or (c) that: (i) the contravention was due to: (A) the act or default of another person; or (B) an accident; or (C) some other cause beyond the defendant's control; and (ii) the defendant took reasonable precautions and exercised due diligence to avoid the contravention. Meaning of another person (3) For the purposes of the application of subsection (2) to the defendant, a reference to another person does not include a person who was, at the time when the contravention occurred: (a) in any case - a servant or agent of the defendant; or (b) if the defendant is a body corporate - a director, servant or agent of the defendant. Notice to be given about reliance on defence (4) If a defence provided by subs (2) involves an allegation that a contravention was due to: (a) reliance on information supplied by another person; or (b) the act or default of another person; the defendant is not entitled to rely on that defence unless: (c) the court grants leave; or (d) both: (i) the defendant has served on the person by whom the proceedings were instituted a written notice giving such information: (A) that would identify, or assist in the identification of, the other person; and (B) as was then in the defendant's possession; and (ii) that notice is served not later than 7 days before the day on which the hearing of the proceedings begins." 26The respondent did not rely on a defence under s 323, but the appellant submitted that the provision for defences was relevant to the scope of the covenants in s 52(2).

The Hannover policy 27The Hannover policy commenced on 1 September 1993, and was subject to annual review on 1 July 1994 and on 1 July in each year thereafter. Its most recent endorsement was dated 16 November 2000. 28Under the Hannover policy the insurer agreed to provide TPD benefits "[i]f an Insured Person ... suffers Total and Permanent Disablement during any period for which Premium has been paid for that Insured Person." The definition of Total and Permanent Disablement was - " Total and Permanent Disablement means: (a) suffering the loss of two limbs or the sight of both eyes or the loss of one limb and the sight of one eye (where limb means the whole hand or the whole foot), or (b) having been absent from work through injury or illness for an initial period of six (6) consecutive months and in our opinion being incapacitated to such an extent as to render the Insured Person unable ever to engage in or work for reward in any occupation or work which he or she is reasonably capable of performing by reason of education, training or experience." 29I will refer to this definition as the Hannover TPD clause.

The CommInsure policy 30I will return to negotiation of and entry into the CommInsure policy. It took effect on 1 July 2003, although entered into some time later. 31Clause 1.2 of the CommInsure policy provided - " 1.2 Total And Permanent Disability Benefit If we have agreed in writing to provide this type of cover for a member , we will pay a benefit on the total and permanent disablement of the member . However, the member must be employed on a permanent basis at all times for at least the minimum hours to have cover for total and permanent disablement under this policy." (italics in original) 32The appellant had been employed on a permanent basis for the minimum hours, being 10 hours per week. 33The definition of total and permanent disablement in the schedule to the CommInsure policy was - " total and permanent disablement (or totally and permanently disabled) A member is totally and permanently disabled if, as a result of sickness or injury he or she: (a) suffers the total and permanent loss of the: (i) use of two limbs ; (ii) sight of both eyes; or (iii) use of one limb and the sight of one eye; OR (b) has been absent from all employment for 6 consecutive months from the date of disablement and we consider, on the basis of medical and other evidence satisfactory to us, the member will not ever be able to resume any occupation , whether or not for reward. where limb means the whole hand below the wrist or whole foot below the ankle; date of disablement means the later of:

• the date on which the sickness or injury that was the principle cause of the member's disablement commenced or occurred; and
• the date the member ceased all work. However, where a member participates in a rehabilitation program and this is unsuccessful within 12 months from the date he or she was last at work , the date of disablement will be the date that would have applied if the member had not participated in the rehabilitation program. The date of disablement must occur while the member is covered under this policy. Occupation means an occupation that the person can perform, on a full time or part time basis, based on the skills and knowledge the person has acquired through previous education training or experience. Without limiting this definition, an occupation of the member will also include any alternative occupation the member engaged in for 6 months or more at any time." (italics in original) 34I will refer to this definition as the CommInsure TPD clause.

The refusal to pay TPD benefits 35The appellant was unemployed after accepting redundancy in August 2003. He applied for work, but without success. 36In a fax dated 14 September 2004 the appellant asked the respondent "that consideration be given to payment of benefits for total and permanent disability". The respondent replied with information about entitlement and claims procedures, including about completion of a claim form for CommInsure. The claim form was completed and provided in late November 2004. 37By a letter dated 11 September 2006 CommInsure informed the respondent that "after a thorough investigation of all the evidence supplied, our decision is that this claim for Total & Permanent Disablement benefits in regard to [the appellant] be denied". The letter said that a full report outlining the reasons for the decision would be provided in due course, and invited any additional medical information if the appellant wished reconsideration. 38The report was provided on 18 September 2006. After some pages, it was said - "CONCLUSION: In order to qualify for CommInsure benefits for Total and Permanent Disablement, Mr Manglicmot must satisfy the policy definition: Total and Permanent Disablement means a member is totally and permanently disabled if, as a result of sickness or injury, he or she has been absent from all employment for 6 consecutive months from the date of disablement and we consider, on the basis of medical and other evidence satisfactory to us, the member will not ever be able to resume any occupation, whether or not for reward. CommInsure note the following: There are discrepancies between the surveillance video/report and medical reports. Mr Manglicmot was seen shopping, carrying shopping bags and driving, for example, without any signs of hesitation or demonstration of discomfort. Mr Manglicmot was made redundant due to a review of the structure and he accepted the redundancy on 8 August 2003. Mr Manglicmot completed a Redeployment Opportunity Form on 23 July 2003 for the CBA to continue to search for suitable roles when he was made redundant. It appears that Mr Manglicmot did not cease work due to an injury/illness/inability to carry out his duties. The balance of evidence suggests that Mr Manglicmot has a capacity to return to work in his usual occupation or any occupation he may be suited to and if he obtained further appropriate treatment, he would gain further pain relief. Therefore, on the basis of probabilities, it would be fair and reasonable to state that on the weight of medical evidence, Mr Manglicmot has not satisfied the definition of Total and Permanent Disablement as contained in the contract between CommInsure and the Commonwealth Bank Officers Superannuation Fund. We are therefore declining the claim." 39The report repeated the invitation to submit further information, with expression of willingness to reassess the claim. 40The respondent's Claims Committee considered the appellant's claim. It noted that the appellant "does not intend to submit further evidence at this time", and that since CommInsure's report a Dr Johnston "has reviewed the reports and supports the decision that [the appellant] is not totally and permanently disabled". The Committee - " ... recommended that the Trustee determine that, on the basis of medical and other evidence, [the appellant] is not totally and permanently disabled in terms of the definition in the policy of insurance effected by the Trustee for the purpose of providing a benefit on total and permanent disablement." (emphasis in original) 41On 23 October 2006 the respondent wrote to the appellant in care of his solicitors - "We wish to advise that on 19th October 2006 the Trustee determined that you did not cease to be an Employee before attaining the age of 65 years on account of Total and Permanent Disablement. The Trustee made its decision based upon the medical evidence available. The items put before the Trustee were: [a number of documents were listed] The decision means that you are not eligible for a benefit on the grounds of total and permanent disablement." 42The letter then informed the appellant of his entitlement to initiate complaints procedures concerning the decision. 43In July 2007 the appellant by his solicitors requested that CommInsure and the respondent reconsider his claim. The solicitors submitted statements of the appellant and a great many medical reports. The respondent replied that CommInsure required that the appellant be independently (medically) examined. There was then rather lengthy disputation over further medical examination. 44On 10 December 2007 CommInsure wrote to the respondent, referring to its earlier reasons for denying the claim and saying - "To be fair and reasonable, and to evaluate the claim further, we also had the Insured's file independently reviewed by Dr Macauley (Rheumatologist Musculoskeletal Specialist). In Dr Macauley's subsequent report dated 9 October 2007, the following opinion is given: I belief that Mr Manglicmot has the capacity for employment in clerical and sedentary occupations. He was working on restricted duties at the time he was terminated. He has been certified fit for three hours per day through vocational assessment and would be able to undertake a graduated return to work leading up to a full time basis. He should not undertake tasks that involve repetitive lifting of more than 5 kg with his left arm. As there is no further evidence to consider and given the opinion of Dr Macauley , we wish to confirm that we continue to deny liability of this claim. We trust that this information clearly states our position." (italics in original) 45The respondent asked that the appellant be medically examined by another doctor specialising in chronic pain. The appellant declined. 46On 18 April 2008 the respondent wrote to the appellant in care of his solicitors - "We refer to your letter of 24 July 2007 requesting reconsideration of your client's claim. On 17 April 2008, the Trustee determined that Mr Roy Manglicmot was not Totally and Permanently Disabled, and thus his claim has been declined." 47The letter again referred to a complaints procedure. The procedure does not appear to have been taken up. 48The appellant brought proceedings against the respondent in December 2008.

Negotiation of and entry into the CommInsure policy 49The Fund had some 15,000 members, increasing to 18,000 members, in the relevant period. For the year ended 30 June 2003 the premium payable to Hannover was in the order of $6 million. 50In response to an inquiry from the respondent, by a letter dated 19 March 2003 Hannover advised that "the claims experience of this fund has been extremely poor and is of great concern to us". Claims (paid, pending and an IBNR estimate) were more than twice the premium. Hannover indicated a premium increase effective on 1 July 2003 of either 130 per cent on the present basis or 100 per cent with exclusion of a premium rebate payable in years of good experience. Hannover further said that it was unwilling to guarantee the new premium rates for three years, as had occurred in the past, and that the guarantee would only be until 30 June 2004. 51At the time the Bank was in the process of merging with Colonial Limited ("Colonial"), and the superannuation fund operated by Colonial was to be amalgamated with the Fund. The Colonial fund was insured with CommInsure, at that time owned by Colonial but also to be brought within the Bank's group. 52The respondent gave consideration to inviting CommInsure to quote. It was invited, and it provided a quotation on 28 May 2003. There were further discussions, and it provided a revised quotation on 3 June 2003. The premium was significantly lower than Hannover's proposed increased premiums. 53The respondent's company secretary, Mr Gerard Parlevliet, prepared a paper for a meeting of the respondent's board on 12 June 2003. The recommendation was to retain Hannover at its lower premium, and to defer changing insurers and address any change as part of an insurance review following the proposed merger and because "in a practical sense it would be extremely difficult to change insurers before 1 July in any event". 54The board decided on a different course. The minutes of the meeting recorded that additional background information was provided, with reference to a letter from a director responding to the paper in which the view was expressed, amongst other matters not to do with a change of insurers, that the board "could not responsibly adopt the Hannover proposal in the knowledge that there were lower rates available". The minutes included that it was resolved - " To provide in-principle support to change the Fund's group life insurance provider from Hannover Life Re to Comminsure from 1 July 2003 subject to the Member Services Committee being satisfied with the final terms and conditions (including takeover terms) of the new insurance policy with Comminsure; That further discussion to be held with Comminsure to determine whether the premium rates offered can be further reduced; ... To delegate to the Member Services Committee the authority to finalise the proposed appointment of Comminsure without further reference back to the Board." 55There were further discussions between the respondent and CommInsure, including a request that the CommInsure premium be no more than an 80 per cent increase over the then current Hannover premium. By a letter dated 18 June 2003 CommInsure agreed to that request, and to a three year premium guarantee period and a foreshadowed reassessment of the risk in twelve months to see if claims experience could justify a further premium reduction. The letter included that the CommInsure officer had made a comparison with the Hannover policy and there were no significant differences. 56Mr Andy Chan of the respondent "had a detailed look at" the CommInsure policy and noted a number of differences from the Hannover policy. They did not include a difference as to TPD benefits. Mr Chan suggested that Ms Lyn Thomas, who was a lawyer in the Bank's Legal department, "has a look at the CommInsure policy to ensure consistency with the current Division F Member booklet and the Hannover policy". There was no direct evidence that Ms Thomas did so, but see below. 57CommInsure provided a further quotation dated 19 June 2003. Mr Parlevliet prepared a paper for the meeting of the Member Services Committee to be held on 23 June 2003. He recommended that the Committee resolve to appoint CommInsure as the new group life insurer for the Fund, replacing Hannover, commencing on 1 July 2003. The paper referred to the reduced premium increase compared to Hannover's proposed premiums, and to the three year undertaking and the foreshadowed review, and it was said - "4.1 Broad agreement has been reached with Comminsure that the terms and conditions of the new insurance contract will either match or better the current terms and conditions in the Hannover contract. 4.2 To ensure that the Comminsure contract terms and conditions meet the requirement outlined in paragraph 4.1, both management and Comminsure have reviewed Comminsure's standard terms to those applying in the current contract with Hannover. 4.3 Following this review both management and Comminsure are confident that on the whole the terms and conditions of the two contracts are equivalent. Several small differences have been identified and management is currently working with Comminsure to ensure that our requirements are met (initial discussions in this area have been successful and representations have been made by Comminsure that additional issues will be satisfactorily resolved)." 58At the meeting of the Committee on 23 June 2003 the paper was discussed, and it was resolved in accordance with the recommendation. 59On 25 June 2003 the respondent wrote to CommInsure - "COMMONWEALTH BANK OFFICERS' SUPERANNUATION FUND GROUP LIFE COVER: LETTER OF APPOINTMENT Further to discussions held, we hereby advise acceptance of Group Life cover as per the Comminsure quotation dated 24 June 2003 submitted to the OSF. Accordingly, Comminsure will be on risk effective from midnight 30 June 2003. This acceptance is subject to your written confirmation of the conditions outlined below, which will be reflected in the special conditions component of the policy schedule. Further, we will require final review of the policy document by our Legal adviser. Please commence the drafting process as soon as possible so that we are able to progress an initial review. We would also appreciate a letter confirming the broad nature of the services you are to provide. Terms of Agreement Broad agreement has been reached that the terms and conditions of the new Comminsure contract will either match or better the current terms and conditions in the Hannover contract. In addition to the three-year no increase in premium condition offered as part of your submission, you are also prepared to review the rates within the three year period against experience and reduce the rates where the experience warrants such action. Agreement to 'mirror' the termination clauses of the Hannover contract, to ensure that there are no insurance gaps as a result of the changeover. Confirmation that current members with cover over $1 m will not be subject to further underwriting provided that these members have already been subject to underwriting through Hannover. Confirmation that accident cover would be extended beyond the 60 days should any delays in meeting underwriting requirements are due to Comminsure. Automatic approval of members on LWOP for less than 12 months, with prior written advice and up front premium payments not required. Cover for members outside Australia will not be limited by 13 weeks and advice from the Employer prior to the person on being on leave is not required. The continuation of cover option will be available to post-employment members of the Fund subsequent to leaving employment with the Bank. The eligibility of a member to the continuation option ceases after the earlier of 60 days after leaving employment with the Bank or when he/she joins another employer sponsored super fund. Should members be subject to limited cover, commencement of normal cover is to occur when the member resumes employment, and not be subject to the 2 or 6 month rule. Please indicate your confirmation of the above terms by signing below and returning the original of this letter. Attached is a letter sent to our current insurer (Hannover) advising them of termination. Please liaise directly with Hannover in relation to takeover terms. Thank you for your efforts thus far involved with your submission. I look forward to a long and successful working relationship between the OSF and Comminsure." (italics in original) 60The letter was signed on behalf of CommInsure by way of acceptance on the same day. 61On 25 July 2003 the respondent submitted to CommInsure a Group Life Application - Superannuation for the Fund, and asked for an estimation of when the draft policy document would be available for review. The letter included - "The insurance arrangements required by the Trustee are as per your normal terms and conditions modified to meet the undertaking you have previously provided to us (including the terms outlined in our letter of 25 July 2003) [sic: 25 June 2003]. We expect that we should be able to further fine-tune the terms to ensure our requirements are met once the proposed policy document has been drafted." 62The draft policy was received on 14 August 2003. Ms Kimberley Neal, from her job title part of the Bank's Staff Superannuation Fund Services in its Human Resources department, undertook a review to "reconcile these with the undertakings that were represented during negotiations", and foreshadowed sending the draft policy document to Ms Thomas "for CBA Legal's review to ensure that at least the provisions in the new policy document are equivalent to what we previously had". Ms Neal said, "After legal review it will be in a condition for final execution". There was no direct evidence of the legal review, but the inference is powerful and I would find that it occurred and that Ms Thomas was satisfied as to equivalence. 63CommInsure's undertaking was maintained; a letter dated 22 August 2003 to Mr Parlevliet concerning "administration agreements" included that, "a broad agreement has been reached that the terms and conditions of the new CommInsure contract will either match or better the current terms and conditions of the Hannover contract". Over a period Ms Neal and Mr Chan communicated more than once with CommInsure asking for changes to the draft policy document in order to fulfil the undertaking. CommInsure agreed to all the requests. None was concerned with TPD benefits. 64The external solicitors Freehills were instructed, according to their report dated 2 December 2003, "to carry out a gap analysis of standard terms of [the CommInsure policy] and [the Hannover policy] in order to identify material coverage gaps between [the respective covers]". Freehills' "detailed gap analysis of the individual claims/terms of the Hannover policy and Comminsure [sic] policy" set out the Hannover TPD clause and the CommInsure TPD clause in adjacent columns and, in a third column headed "Comments on any gaps identified", said - "The definition of 'total and permanent disablement' is similar in both policies although note, in the Comminsure [sic] policy, the retrospective date of disablement where a person has unsuccessfully engaged in a rehabilitation programme." 65It is not clear when the CommInsure policy was finally (and retrospectively) entered into. However, the trial judge found that CommInsure would have changed its TPD clause if a difference between the clauses had been seen.

Construction of the Hannover TPD clause 66A central question was whether the Hannover TPD clause provided TPD benefits where the member was unfit for full time work but fit for part time work. If it did not, and on its proper construction had the same meaning in that respect as the CommInsure TPD clause with its express reference to inability to resume an occupation "on a full time or part time basis", Senior Counsel for the appellant correctly acknowledged that "the foundation for the action fails". 67As I have said, the trial judge doubted that the Hannover policy provided TPD benefits where the Fund member was able to engage in part time employment, but did not decide that matter. His Honour said at [66] that there were "a number of reasons that undercut the argument in that the words, 'unable ever to engage in or work for reward in any occupation or work... ' must necessarily be construed as connoting full time work", and after listing them said - "[67] In my view, as at June 2003, whilst there was a prospect that the words 'full time' would have been read into the TPD clause, it is not clear that they would have been. I think that even now it is arguable that the words 'full time' should not be read into the clause generally or in its application to the plaintiff. I do not need to determine whether they ought to be, because of the conclusion I have reached on the other issues in this case." 68The appellant relied in particular on the decision of Hodgson J (as Hodgson JA then was) in Chammas v Harwood Nominees Pty Ltd (1993) ANZ Ins Cas 61-175. The rules provided that an employee "shall be entitled to a lump sum as a death or disablement benefit upon his death or disablement being incapacitated for further employment. ... ". The trustee had determined that the employee was not incapacitated for further employment. 69Hodgson J said, at 77,999 - "The first matter I need to consider is whether the defendant considered the wrong question. The crucial words in both cl 18.1 and 18.2 are the words 'incapacitated for further employment'. I do not think the existence in the rules of definitions of employer and employee do have the result that 'employment' here should be construed to mean the particular employment of the defined employer and employee. I think the whole context of cl 18 makes it clear that employment there is to be given a wider construction. However, I do think that employment must be given a reasonable construction; and I think employment must be limited to full-time employment, and to employment which is reasonably open to the member. That is, I think, the employment must be employment which the member is capable of undertaking, having regard to his education, experience and training, or at least employment of which he could become capable of undertaking with further training which it would be reasonable for him to undertake." 70A claim form had used a different form of words, similar to those in the Hannover TPD clause but not the same. It was asked in the claim form whether the member had become "incapacitated to such an extent as to render the member unlikely ever to engage in or work for reward in any occupation or work for which [he] is reasonably qualified by education, training or experience". This form of words appears with some frequency in the cases, and I will refer to it as the common form wording. A doctor had said that the words in the claim form were satisfied. 71Hodgson J said at 78,000, it seems because it had been submitted that the defendant may have been led to consider the wrong question by the words in the claim form - "Turning to the question as stated on the back of the claim form, I do not think that is, in any material respect, different from the question arising from the words as I have interpreted them. The test stated there is that the member should be rendered unlikely ever to engage or work for reward in any occupation or work for which he is reasonably qualified by education, training or experience; and I think those words sufficiently indicate that the relevant employment is full-time employment, and that the question is not merely incapacity to engage in some theoretical employment, but actual likelihood of obtaining employment. And the reference to reasonable qualification, I think, appropriately encompasses the requirement that the employment should be something that the member is capable of undertaking." 72It will be seen that Hodgson J initially construed quite different words from the common form wording, or the words in the Hannover TPD clause or the CommInsure TPD clause. His observations on the common form wording were arguably obiter, although perhaps part of considering whether by regard to the words in the claim form the defendant had considered the wrong question. His Honour began with a "reasonable construction" of the different words, limiting the "wider construction" which took the words beyond the particular employment of the defined employer and employee. When taken up for the words in the claim form, however, that "the relevant employment is full-time employment" was not limiting. It gave an extended reach to entitlement through incapacity as described in the claim form, since a member could be able to engage in part time employment although unable to engage in full time employment, but would still be entitled to TPD benefits. With respect, the reasoning to that result is not clear. 73We were referred to other cases, in which further cases were cited. Appreciating that construction of the relevant words requires that they be seen as part of the policy as whole, and that the summary lacks that context, a brief summary of the cases is as follows. 74Chammas v Harwood Nominees Pty Ltd was preceded by Riley v The National Mutual Life Association of Australasia Ltd (1986) 4 ANZ Ins Cas 60-684. The policy used the common form wording. Cosgrove J did not accept the submission that it was necessary to consider whether the member "would ever work again at all, that is to say, would ever engage in part-time temporary work". However, he upheld the employer's decision that it was not satisfied as to incapacity because the member was able to get light work in the labour market and would be likely to engage for reward in some occupation or work for which he was reasonably qualified. 75In Wyllie v National Mutual Life Association of Australasia Ltd (1997) 217 ALR 324 the policy used the common form wording. Without express consideration of its construction, Hunter J concluded that the wording was satisfied where the incapacity was such that the member was "limited to basic book keeping work which he does slowly, part-time and which is attended with mistakes", such that the member was "not capable of performing that work full-time and what work he does perform requires the sympathetic understanding of those who employ him". 76In Beverley v Tyndall Life Insurance Co Ltd [1999] WASCA 198; (1999) WAR 327 the relevant words were "incapacitated to such an extent as to render you unlikely to ever resume work or attend to any gainful profession or occupation for which you are suited by reason of education, training or experience". The only occupation for which the member was reasonably suited was that of a cook or light domestic duties. Ipp J, with whom Malcolm CJ and Anderson J relevantly agreed, posed as the critical question whether the member was "unlikely ever to be capable of doing the important duties involved in her 'work' or in carrying out full-time domestic duties". There was no more detailed consideration of the construction of the words. 77In Szuster v Hest Aust Ltd [2000] SADC 2 the policy used the common form wording. Herriman DCJ declined to follow Chammas v Harwood Nominees Pty Ltd , or to see support for Chammas v Harwood Nominees Pty Ltd in Wyllie v National Mutual Life Association of Australasia Ltd . His Honour said - "49. I was not persuaded by that argument. Chammas' case appears to have been decided on the particular wording of the insuring clause which was quite different from that in this case, and Wyllie's case makes it clear that the proper application of that test will vary from case to case and, of course, from policy to policy. It seems to me that there may be circumstances where a capacity to undertake part-time employment is in a real sense valueless, but I do not read the insuring clause in this case as being impliedly qualified by reference to any 'full-time' occupation or work." 78In Alcoa of Australia Retirement Plan Pty Ltd v Thompson [2002] FCA 256; (2002) 116 FCR 139 the relevant words were "incapacitated by reason of any physical or mental sickness, injury or infirmity to such an extent as to render the Member unlikely ever to engage or work for reward in any occupation or work for which the Member is reasonably suited by education, training or experience". R D Nicholson J considered existing authority "inconclusive" (at [69]). His Honour directed attention to the limitation of the words "any occupation or work" by the following words "for which the member is reasonably suited by education, training or experience", and suggested that in that case the work for which the member was reasonably suited "would arguably be a person wholly engaged in full-time maintenance foreman duties" (at [66]). His Honour said - "67. When the definition is applied in this way it is seen that the characterisation of the occupation or work for which the member is so reasonably suited is itself determinative of whether or not the occupation is of a full-time or part-time character. To hold that the words referred to a full-time occupation is not necessarily to imply the words 'full-time' into the definition. Rather it is to state the effect of the application of the words as they appear in the context of the factual circumstances relating to the assured." 79In Sayseng v Kellogg Superannuation Pty Ltd [2003] NSWSC 945 the relevant words were "incapacitated to such an extent as to render the Insured Person unable ever to engage in or work for reward in any occupation or work which he or she is reasonably capable of performing by reason of education, training or experience". This was materially the form of words in the Hannover TPD clause. Bryson J said at [54] that physical ability to perform work which the member did not know how to do or could not be trained to do, or to perform work which was not available, was not relevant, but that "[t]he requirement that the member be totally disabled is stringent and excludes disability from doing part-time work, again with reference to part-time work which the member can do". 80In Hay v Total Risk Management Pty Ltd [2004] NSWSC 94 the relevant words were "physical or mental disablement ... to a degree which the Trustee ... considers likely to render the Member permanently incapable of obtaining or continuing in suitable employment as determined by the Trustee having regard to the Member's qualifications training and experience". Burchett AJ said, as to a submission to the effect that the limited work the member could do could not be regarded as suitable employment, that guidance was offered by the reasoning of Hodgson J in Chammas v Harwood Nominees Pty Ltd , but (at [52]) that it was "unnecessary to reach a view as to whether the present clause could be satisfied by some forms of part time work" because it could not be satisfied by "such limited work as is in question here". 81In Nile v Club Plus Superannuation Pty Ltd [2005] NSWSC 55 the relevant words were very close to the common form wording. The reasons of Brownie AJ included - "64. As Hodgson J pointed out in Chammas , a decision that has been followed from time to time, without anyone every apparently expressing a doubt about its correctness, and the correctness of which is not challenged now, one must consider not just the theory that someone is physically fit to do particular work, but also the actual likelihood of that person obtaining employment, meaning full time employment (or I take it, substantially full time employment, generally comparable with the plaintiff's employment before his 1996 injury) that was reasonably open to the plaintiff." 82In Camilleri v Australian Casualty & Life [2006] NSWDC 77 the relevant words in a definition of total disability were "unable to perform any occupation for which he or she is reasonably suited by education, training or experience". Rein DCJ (as Rein J then was) asked whether this meant on a full time basis. There was also a definition of partial disability, and his Honour noted at [55] that total disability focussed on ability to work full time; he concluded at [59] that - "59. ... the clause makes no reference to 'part-time' and further occupation is qualified as one 'for which he or she is reasonably suited by education, training or experience' and a full time occupation is what the insured is suited for as demonstrated by the proposal. Although the context is different, I think the approach taken in Chammas to interpretation is relevant to the present problem and I respectfully adopt that approach here." 83In Baker v Local Government Superannuation Scheme Pty Ltd [2007] NSWSC 1173 the relevant words were "permanently unable ... to be engaged, or to be employed, in any remunerative occupation in which ... it would otherwise be reasonable to expect the Contributor to engage". McDougall J at [24] cited Chammas v Harwood Nominees Pty Ltd for the proposition that "incapacity for further employment should be limited to full-time employment reasonably open to the employee", and observed at [26] that "[t]hat approach is one that is plainly available on the words of cl 5.4.1(b)". 84Finally, in Halloran v Harwood Nominees Pty Ltd [2007] NSWSC 913 the policy again used the common form wording, and the reasons of Brereton J included - "47 Also like Hodgson J in Chammas , I would conclude that the reference to employment must be given a reasonable construction, limited to full-time employment reasonably open to the member, being employment which the member is capable of undertaking having regard to his education, experience and training, or at least could have become capable of undertaking with further training that it would be reasonable for him to undertake. In my view, there is significance in a context in which disability is often qualified by the adjective 'total and permanent', in the circumstance that those words do not appear in clause 18.1. The degree of disablement required by clause 18.1 is less than "total and permanent", notwithstanding that "disability" is said by some of the dictionary definitions to have a connotation of permanence. Light duties, specifically for an injured worker, would not be the type of full-time employment in a regular occupation that the provision has in mind. Insofar as in the first instance decision in Sayseng , Bryson J seems to have been of the view that total and permanent disablement would not be established if there remained a capacity for part-time employment, that does not apply in the present context of clause 18.1, because of the absence of the words "total and permanent" from the present trust deed. In any event, with great respect, his Honour's view appears to be at odds with the prevailing judicial view on this topic, to which I shall return." 85Brereton J later referred, at [76], to the words "ever to engage" meaning on a full-time regular basis; his Honour cited for that proposition Riley v The National Mutual Life Association of Australasia Ltd, Chammas v Harwood Nominees Pty Ltd, Nile v Club Plus Superannuation Pty Ltd, Wyllie v National Mutual Life Association of Australasia Ltd and Sayseng v Kellogg Superannuation Pty Ltd. This appears to have been his Honour's return to the topic. 86It will be noted that in Halloran v Harwood Nominees Pty Ltd Brereton J saw significance in the absence of the words "total and permanent" from the common form wording. Those words provide the context for the Hannover TPD clause: it expresses a definition of total and permanent disablement. There was no such context to the claim form in Chammas v Harwood Nominees Pty Ltd , and cl 18 in which the relevant words appeared was concerned with "disablement" without the epithets of total and permanent. 87It does not seem to me sound uncritically to translate what Hodgson J said about limitation to full time employment to the common form wording in different contexts, or to the Hannover TPD clause. Nor has there been a consistent course of construction or application of the common form wording or variants of it. 88The Hannover TPD clause defines total and permanent disablement . It is quite emphatic: the member must be unable ever to engage in or work for reward in any occupation or work. As further context, the member must have been absent from work for six months. Introduction of full time employment or part time employment into the wording, notions which themselves carry uncertainty (what is the standard for full time employment?) is in my view not warranted. The clause requires unfitness to work, without distinction between full time work and part time work other than by regard to the work which the member is reasonably capable of performing by reason of education, training or experience. 89There is nothing inherently unfair or unreasonable in the Hannover TPD clause as so construed. A member who can not work even part time has a need; a member who can work part time has a different need, and one which will vary according to the work the member can perform. The premium will be struck according to the need to be met, and that is found in the terms of the policy of insurance.

Breach of fiduciary duty or covenants 90It is clear that the respondent intended that the CommInsure policy should provide no less benefits than the Hannover policy. It gave considerable attention to equivalence, and thought it had obtained it. As to TPD benefits, it had the support of Freehills' review. 91In these circumstances, it seems to me preferable to address whether the respondent was in breach of its general law or statutory obligations through whether the respondent did obtain cover for no less TPD benefits under the CommInsure policy, rather than whether it may not have done so but nonetheless was not in breach. 92It follows from my consideration of the Hannover TPD clause that there was no material difference, in relation to fitness for work, between that clause and the CommInsure TPD clause. The foundation for the action does fail, and there was no breach as alleged by the appellant. 93That is sufficient to dispose of the appeal in relation to breach of fiduciary duty or the covenants. I will nonetheless say something of breach on the assumption that the Hannover TPD clause did materially differ from the CommInsure TPD clause in relation to fitness for time work.

(a) Fiduciary duty 94The trial judge recorded at [20] that the respondent accepted that it owed to its members a number of duties. They were stated, and included a duty to act in members' best interests (referring to Cowan v Scargill (1984) 2 All ER 750 at 760) and a duty to exercise reasonable care (citing Speight v Gaunt (1883) 9 App Cas 1 at 19 and other cases). 95His Honour referred at [21] to principles on which the exercise of a trustee's powers, including those of a superannuation fund trustee, could be challenged. He recorded at [24] that the respondent "relied on the fact that the power conferred on it was one it could exercise in its absolute and uncontrolled discretion", see rule A4.1(a). 96The appellant accepted on appeal that the powers to insure in rules A4.1(b) and A4.1(c)(6) were discretionary powers within rule A4.1(a), but said that there was a duty to insure under rule F8.4(a). The respondent acknowledged the qualified duty, but said that the discretion remained because the insurance was on terms and conditions acceptable to it. 97The trial judge then returned to principles on which the exercise of a trustee's powers could be challenged. He said at [28] that where no reasons were given "the test is whether there has been a failure of the trustee to act 'with an absence of indirect motive, with honesty of intention, and with a fair consideration of the issues'." After extensive consideration, he concluded at [34] - " ... that where reasons are given, the Court can have regard to those reasons in forming a view as to whether the trustee has: (1) acted for an indirect motive; (2) acted without honesty of intention; (3) acted without fair or real and genuine consideration of whether and how the discretion should be exercised; and (4) acted for a purpose beyond that for which the power and discretion were bestowed on it." 98His Honour said at [36] that he did not understand the appellant to argue that the respondent's decision to enter into the CommInsure policy was one which no trustee acting reasonably could have arrived at, and that he did not have to consider "whether such a formulation ... is one which should be applied to the exercise of a discretion of the kind in question". 99The trial judge came to the conclusions - "40 In my view, there is nothing to indicate that the trustee's decision was not exercised in good faith, or that it was not exercised upon a fair or real and genuine consideration, or that it was not exercised for the purposes for which the power was conferred. I did not understand the plaintiff to contend otherwise. The material put before the Court by the trustee does not show that the trustee did not exercise the power in an appropriate way, or that there was an indirect motive, or that there was an absence of honesty of intention, or that there was not a fair consideration of the subject. For completeness, I would add that nor does the material evidence the exercise of a discretion in a manner that no trustee acting reasonably could have adopted, or that the trustee reached a result that no trustee acting reasonably could have arrived at. 41 The trustee was bound not only to have regard to the benefits provided by any particular policy, but also to the premiums payable, which came out of the Fund. By entering into the CommInsure policy, the trustee not only obtained a 20 per cent (or better) reduction in the premium from that offered by Hannover, but it also obtained a freeze on premiums for three years. In addition, it obtained a commitment from CommInsure to match the terms of the Hannover policy. In my view, the only possible breach of duty by the trustee was a failure to discern that the TPD definition in the Hannover policy was more favourable to members than the CommInsure definition (a matter I discuss below), but even assuming that is correct, the trustee sought legal advice from a reputable firm of solicitors, and apparently no difference was discerned by that firm or drawn to the trustee's attention. 42 I am not persuaded that the trustee has breached any duty owed to the plaintiff under the general law." 100I do not think it appropriate to express any view on the trial judge's reasons and conclusions as to breach of fiduciary duty. That is because the appellant's submissions scarcely addressed the principles on which the trial judge acted, or his findings on their application. The appellant's submissions were directed to s 52(2)(b) and (c) of the SIS Act, and particularly the covenant in s 52(2)(c) that the trustee "ensure" that the trustee's duties and powers were performed and exercised in the best interests of the beneficiaries. He submitted that "ensure" meant make certain, and that the covenant was "a covenant of strict liability" looking to the result of the trustee's activity or, if to the process, not to the trustee's "motives" or the things it did or did not take into account. 101Senior counsel for the appellant was invited to address on the trial judge's reasons as to breach of general law duty, but did not meaningfully do so. The written submissions included that the general law duty was breached because the CommInsure policy did not serve the bests interests of members. In oral submissions reference was made to the "general law duty of diligence" and it was said that "you don't satisfy an obligation of due diligence by having the interests of the members in mind in principle, you've got to manage it". Putting aside that the appellant had not sued on a general law duty of diligence, nothing more of substance was put. 102In the absence of meaningful challenge by the appellant, the Court should not enter upon whether or not there was error in the trial judge's approach to breach of the general law obligations or in his conclusions. This does not suggest either that there was or that there was not.

(b) The SIS Act 103The trial judge held, with reference in particular to the judgment of Byrne J in Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd [2006] 15 VR 87 at [102]-[107] and Jacob's Law of Trusts in Australia , 7th ed, at [2921]-[2922], that s 52(2) did not "impose a higher standard on a trustee than the general law" (at [53]). Since his Honour had held that the general law standard had not been infringed, the appellant had failed to establish breach of the SIS Act covenants. 104I have partly described the appellant's submissions as to s 52(2)(b) and (c) of the SIS Act. The two covenants were rather run together in submissions, with the s 52(2)(c) covenant more prominent. In summary, it was submitted that the trial judge was in error in concluding that the covenants did not enlarge the general law position; that because the CommInsure TPD clause cut down members' TPD benefits (which for present purposes is assumed), the prudent person's degree of care had not been exercised and the respondent had not ensured that it exercised its powers in the best interests of members; and also that there was breach in those respects in the process of negotiating and entering into the CommInsure policy because the respondent had taken inadequate steps to make sure that the TPD benefits were not cut down. 105It may be that this last submission was not open to the appellant. His particulars had specified breach because of the terms of the CommInsure policy, not because of the process of negotiation and entry into the CommInsure policy. Distinction between the process and the result may not matter, since the complaint as to the process had effect only in the result, and this need not be taken further. 106It is convenient to begin with the judgment of Byrne J in Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd . The trustee proposed to amend the trust deed in a way permitting distribution of part of a surplus to non-beneficiaries. His Honour was particularly concerned with s 52(2)(c) of the SIS Act. He held that the amendment would not be a failure to perform and exercise the trustee's duties and powers in the best interests of the beneficiaries, essentially because in the circumstances distribution to the non-beneficiaries could reasonably be regarded as in the interests of beneficiaries. 107His Honour said as to s 52(2)(c) - " [102] The scheme of s 52 is to insert in the trust deed eight covenants. It was not suggested that the trust deed already contained a covenant such as that in para (c). The Parliamentary Secretary to the Treasurer informed the House of Representatives in the course of the second reading debate of the SIS Bill that these provisions were intended as codification of the existing law: 'to make nice and clear the way in which we expect these people [presumably trustees of superannuation funds] to act'. The difficulty with this brave statement, in so far as it concerns para (c), is that it is not altogether clear what is here being codified and whether the drafter of the code has accurately stated the existing law. [103] Unlike the surrounding paragraphs, para (c) is introduced by the words 'to ensure that'. This means that the statute is inserting into the trust deed a covenant whereby 'the Trustee agrees to ensure that the Trustee's duties and powers are performed and exercised in the best interests of the beneficiaries'. Elsewhere in the SIS Act, the word 'ensure' is employed to impose an obligation upon a director to cause a company to act in a particular way or upon a person or company to achieve a stipulated objective. It is difficult to see how these words add anything to a covenant by a trustee simply to perform and exercise its duties and powers in the best interests of the beneficiaries. [104] This becomes even more obscure when the covenant is read as extended by s 52(8) to the directors. This has the consequence that the director covenants 'to exercise a reasonable degree of care and diligence for the purpose of ensuring that the Trustee ensures that the Trustee's duties and powers are performed and exercised in the best interests of the beneficiaries'. [105] Perhaps the best that can be made of these apparently superfluous words 'to ensure that' in para (c) is that Parliament intended that they emphasise the seriousness of this covenant and the requirement that it be strictly observed. [106] It is worth noting at the outset that the insertion by s 52(2) of particular covenants into the trust deed does not affect the other obligations imposed upon trustees whether by the deed of trust or by the general principles of law except, perhaps, to the extent of some inconsistency. [107] The covenant inserted into the trust deed appears to be an amalgam of two distinct obligations said to be imposed by law upon trustees of a superannuation fund. The first, which is sometimes referred to as the duty of loyalty or the duty of fidelity to the trust, is that to act in the interests of the beneficiaries; that their interests are paramount and must certainly be placed ahead of the trustee's own interests. Nor may the trustee have regard to considerations which are extraneous to the trust. The second is to pursue to the utmost with appropriate diligence and prudence the interests of the beneficiaries. This will commonly come into play where it is a question whether the trustee of a trust whose objective is to confer financial benefits on beneficiaries has sufficiently pursued these financial interests. And so, in Cowan v Scargill , Megarry V-C said this: ' ... The starting point is the duty of trustees to exercise their powers in the best interests of the present and future beneficiaries of the trust, holding the scales impartially between different classes of beneficiaries.' and later: 'Trustees must do the best they can for the benefit of their beneficiaries and not merely avoid harming them.' It is not altogether clear whether para (c) is intended as a codification of one or other or both of these principles. As will appear, it is not necessary that I unravel this." 108The appellant submitted that, so far as Byrne J considered that "to ensure" added nothing, his Honour had not had the benefit of submissions from a contradictor, see [99]-[101], and that his Honour had not been referred to s 323 of the SIS Act. By providing defences of mistake or other matters to proceeding brought under s 55(3), he submitted, s 323 indicated that the s 52(2) covenants (or at least that in s 52(2)(c)) should be given a wide operation. He submitted that they imposed strict liability, subject to relief through one of the defences. 109The SIS Act dealt with much more than including covenants in the rules of a superannuation entity. However, the objects in s 3 included "to make provision for the prudent management of certain superannuation funds ... ". 110The origin of s 52 can be seen in the Report of the Law Reform Commission ALRC 69 and the Companies and Securities Advisory Committee, "Collective Investments: Superannuation", published in 1992. 111The introduction to Chapter 9 of the Report read - "9.1 This chapter identifies the principal fiduciary duties owed by responsible entitles to members of superannuation schemes. The Review recommends that they expressly be included in a statute as obligations from which a responsible entity cannot be excused by the governing document of the superannuation scheme." 112There was a brief account of the trust structure of most superannuation schemes and the trust concept and its key features, and of some distinctive features of some superannuation trusts. There were then identified the "principle" (sic) duties of a trustee, and it was said - " Trust deed can not derogate from duties 9.10 Trustees cannot depart from or act inconsistently with these fiduciary duties unless especially permitted to do so by the trust deed. The Review considers it to be of great importance that the deed not permit derogation from the proper duties of trustees and that those duties ought to be clearly identified. This is especially important for those trustees who are unfamiliar with their duties. All employees will in future be required to be members of a superannuation scheme. As such, they require the full protection of the fiduciary duties imposed by equity upon superannuation scheme trustees. The presence in deeds of clauses that permit acts which would otherwise be prohibited by the general rules of equity are, however, commonplace." 113This immediately led to - " Proposal 9.11 The Review is firmly of the view that it is inappropriate for the trust deed to contain clauses that allow a significant reduction of the duties imposed upon the responsible entity. It proposed in DP 50 that a minimum set of fiduciary responsibilities of the responsible entity be clearly identified and, where appropriate, included in legislation applying to superannuation schemes with a requirement that the deeds or other instruments constituting a superannuation scheme would not be able to derogate from these obligations. This was supported by submissions." 114It was said that the proposal on which submissions had been received was not intended to codify or alter the underlying equitable principles", but rather that it was "limited to the inclusion in legislation of a minimum set of duties that could not be derogated from by the deed or other constituting document" (9.16), and - " Recommendation 9.17 Accordingly, the Review recommends that the law should include a set of fiduciary obligations for responsible entities of superannuation schemes, ADFs or PSTs. The duties should be paramount. To the extent that they conflict with other provisions of the governing document, the other provisions should be void. Recommendation 9.1: Fiduciary obligations of responsible entities to be set out in legislation. The law should set out the basic fiduciary obligations owed by responsible entitles of superannuation funds, ADFs and PSTs to members. This provision should not affect any other duty that may be imposed on the responsible entity by the deed or other instrument constituting the fund, ADF or PST, or by some other law, if the other duty is not inconsistent with the basic obligations set out. Any provision of a deed or other agreement that purports to modify or exclude these basic obligations should be of no effect." 115Then there were described "The essential duties of responsible entities", ending with the recommendation - "Recommendation 9.2: Basic fiduciary obligations of the responsible entity.

Causation 123If the definition of total and permanent disablement had been in the terms of the Hannover TPD clause rather than the CommInsure TPD clause, two issues of causation arise. One involves the construction of the Hannover TPD clause already addressed. The other involves a further aspect of that clause, absence from work through injury or illness.

(a) The construction of the Hannover TPD clause 124On the construction whereby full time work is not read into the clause, the appellant would not be entitled to TPD benefits. It does not inevitably follow that the appellant would not have received TPD benefits under the CommInsure TPD clause if it had not contained the words "part time", or that the appellant would not have received TPD benefits if the definition of total and permanent disablement had been in the terms of the Hannover TPD clause. CommInsure may have decided to provide TPD benefits on a benevolent construction of the clause, favourable to the appellant: perhaps because the proper construction was debateable, or for reasons of commercial expediency. 125The Court raised the possibility of CommInsure paying for commercial reasons, but counsel did not take the matter up. The appellant's case was not one of loss of the chance of TPD benefits under a clause in the terms of the Hannover TPD clause. Although the decision on TPD benefits would be that of the respondent, is not likely that it would decide that the appellant should receive TPD benefits if CommInsure declined to provide them. 126The construction of the Hannover TPD clause thus leads to failure on causation as well as on breach.

(b) Absence from work through injury or illness 127The trial judge's finding against the appellant on causation concerned the corresponding part of the CommInsure TPD clause requiring that the member "has been absent from all employment for 6 consecutive months ... ". 128The trial judge said - "[68] There are two limbs to the issue of causation. The first is that the plaintiff has to establish that the words "full time" ought to be read into the Hannover TPD clause, and the second is that he otherwise would have been able to recover under the CommInsure policy had that policy incorporated the Hannover TPD wording (or, alternatively, the plaintiff must establish that if the Hannover policy had remained on foot, he would have recovered under that). Given that the plaintiff does not criticise the trustee for any reason other than the failure to maintain the Hannover TPD wording, and because he claims that the Hannover policy terms would have to be read down in other respects, the more appropriate test is to consider whether, apart from the inclusion of the words "part time" in the CommInsure TPD clause, the plaintiff has established that he would recover from CommInsure. [69] We know that CommInsure has declined to indemnify the plaintiff. That refusal is based on these matters: (1) the failure to satisfy CommInsure that the plaintiff was incapacitated in the long term, and CommInsure's belief that remedial treatment would remove any impediment to a return to work (full time work, it would appear); (2) the fact that the plaintiff can work on a part time basis; and (3) the fact that the plaintiff does not meet other criteria specified in the clause. [70] I shall assume in favour of the plaintiff that he cannot work full time. This was conceded by the defendant: see para 4 of the defendant's submissions of 25 March 2010. I shall assume in favour of the plaintiff, for the purpose of considering this issue, that had the CommInsure policy adopted the Hannover wording, (2) above would not present an obstacle. [71] This then brings me to the following requirements of the CommInsure policy. Cover under that policy is expressed to end when the plaintiff ceased to be an employee of the Bank, or within 30 days thereafter: see cll 5(e) and 10 of the CommInsure policy. [72] To qualify for the TPD benefit, the plaintiff has to have been absent from work for six months due to the injury or disablement. The plaintiff was not absent for any consecutive period of six months prior to his departure on 25 August 2003. He had been working full time between 5 October 2000 and November 2002, and part time from November 2002 to 25 August 2003. He accepted redundancy on 25 August 2003. He subsequently sought work in various companies, and says that he did so on the basis that had he been offered a position, he would have accepted it and resumed work. [73] There may be situations in which an employer, by terminating an injured employee's position, is acting unfairly to that employee, indeed effectively depriving an employee injured at work of a benefit which would have accrued, because had his employment not been terminated, he would have qualified for the benefit at the end of six months. Not only did the bank not dismiss the plaintiff, it had employed him for more than two years since his injury, and he had worked both full time and part time in that period. His applications for work after he accepted redundancy indicate that he saw himself as fit for part time work (at the least). There is, in one sense, an inconsistency between the acceptance of redundancy and the assertion of total and permanent disability. The plaintiff ceased to be a member of the fund on 25 August 2003. He did so because he accepted redundancy, not because he was unable to work. [74] It follows, in my view, that the plaintiff would not have recovered under the CommInsure policy even had it not contained the words "part time", and that the plaintiff has failed to make out his case against the trustee on this basis as well." 129With these paragraphs should be read the trial judge's summary at [75], relevantly - "4. The plaintiff was not entitled to recover under the CommInsure policy because he did not have six consecutive months' absence from work as a result of his disability before choosing to end his employment with the Bank, irrespective of whether there was a 'part time' provision or not." 130It may be that it was not entirely appropriate to ask (see [68]) whether, apart from the inclusion of the words "part time" in the CommInsure TPD clause, the appellant would recover from CommInsure. That took the CommInsure TPD clause as the relevant clause, but the appellant's case was, or at least included, that his entitlement should have been under the terms of the Hannover TPD clause. 131The trial judge referred to the ending of cover under the CommInsure policy, as provided in cll 5(e) and 10. Those clauses were - " 5. End of cover Cover for a member under this policy will end as soon as one of the following happens: ... (e) the member is no longer an employee of the employer ; ... 10 Extended cover If a member who has ceased employment with the employer : (a) dies; or (b) becomes totally and permanent[ly] disabled (if that member had total and permanently disablement cover under this policy), within 30 days of his or her cover ending under this policy but before he or she exercises the continuation option or joins another employer sponsored superannuation fund, we will pay a death or total and permanent disablement benefit, as applicable. The amount of the benefit is the insured cover for the member that we have accepted under this policy at the date cover ended for the member ." (italics in original) 132With respect, there is some obscurity in the trial judge's reasons. 133The reasons began with reference to cll 5(e) and 10 of the CommInsure policy. His Honour then went to the first limb of the definition of total and permanent disablement in the CommInsure TPD clause, requiring absence from all employment as a result of sickness or injury for six consecutive months from the date of disablement as defined. He appears to have found that this requirement was not satisfied because the appellant had been working full or part time until 23 August 2003, and had not been absent from all employment for six months prior to leaving the Bank's employment. 134The appellant submitted that the trial judge was in error in holding, apparently because the appellant ceased to be a member of the Fund when he left the Bank's employment, that the six months absence from all employment had to be prior to ceasing to be an employee of the Bank. The corresponding requirement in the Hannover TPD clause would have been that the appellant had been "absent from work through injury or illness for an initial period of six (6) consecutive months", and there was a broad equivalent to cll 5(e) and 10 of the CommInsure policy in cl 6(c) of the Hannover policy. 135The respondent did not agree that his Honour had held that the six months absence had to be prior to ceasing to be an employee of the Bank, but if he had did not seek to support that view: Finch v Telstra Super Pty Ltd [2010] HCA 36; 271 ALR 236 at [18]-[26]. 136The trial judge then came to the occasion for the appellant ceasing to be an employee of the Bank. Although expressing it as cessation of membership of the Fund, he said at [73] that it was "because he accepted redundancy, not because he was unable to work". The appellant submitted that the trial judge was in error in holding that the requirement of six months absence from all employment as a result of sickness or injury was not fulfilled, apparently because the appellant's absence from all employment from 25 August 2003 was due to him accepting redundancy, not due to his inability to work as a result of sickness or injury . 137It is not clear that his Honour so held. However, there is no need to explore this further, as the parties addressed in their submissions the question of absence from work through injury or illness. 138The respondent sought to support that the appellant ceased work because he accepted redundancy, not because he was unable to work. It submitted that his absence from all employment (the CommInsure TPD clause) or his absence from work (the Hannover TPD clause) was not as a result of sickness or injury (the CommInsure TPD clause) or through injury or illness (the Hannover TPD clause). The appellant submitted that acceptance of redundancy did not preclude that the subsequent absence from all employment or absence from work was as a result of or through sickness, illness or injury, and that it was. 139The period of absence from work was a requirement distinct from the extent of the member's unfitness for work. In Finch v Telstra Super Pty Ltd at [18] it was said that the continuous absence from work for six months was a key guide to whether the member has the requisite disablement; similarly, it is a precondition tending to support the unfitness for work. By the terms of the clauses, the absence from work must be as a result of or through injury, illness or sickness, but the injury, illness or sickness need not be that ultimately bringing the unfitness for work to the requisite extent. 140By a letter dated 21 July 2003 the manager of the Castle Towers branch of the Bank, where the appellant then worked, wrote to him - "I refer to our recent discussions regarding the structure and staffing of the Castle Towers Branch. As you would be aware, as a consequence of this review of our structure, we have more staff than available positions. Unfortunately, after careful consideration of the needs of the business and your skills and experience, I am unable to offer you a continuing position within this team. I have also, as yet been unable to find an appropriate redeployment opportunity with RBS. We do, however, recognise the skills, knowledge and experience you possess and would, accordingly, like to retain your services with the Bank. To this end, we intend to examine all possible redeployment opportunities. We will continue to search for suitable roles for your within RBS and beyond during the following 6 week period. I would encourage you to take steps to complement the Bank's efforts. This would include applying for suitable positions or, where possible, drawing on your own internal network to identify appropriate opportunities. You can enlist the assistance of HR Services to complement the Bank's and your efforts in looking for suitable roles for you. I note you have completed and I acknowledge receipt of your Redeployment assistance form. If we remain unable to redeploy you at the end of the stated period above, and all redeployment opportunities have been exhausted, I will further explore with you the available options. One of these after this time is that you could be retrenched. I will provide further details on this should it be necessary. Please be assured that the Bank is committed to retention of its employees where possible. Once again, I encourage you to participate in the process." 141The appellant completed a "Redeployment Opportunity Form" dated 23 July 2003, expressing a preference for certain types of positions at certain locations. 142On 8 August 2003 the appellant wrote to the branch manager in the short terms that he "hereby accept[ed] the redundancy being offered by the Commonwealth Bank of Australia, effective immediately". Other than the letter of 21 July 2003, there was no evidence of the Bank's offer of redundancy. 143The appellant submitted that the Bank offered redundancy to him because it could not find further work for him in his incapacitated condition, and that he accepted it because of an inability to work through accident or injury. He said that this was not properly reflected in the trial judge's statement at [73] that he ceased to be a member of the Fund "because he accepted redundancy". 144The respondent pointed out that one of the matters relied on by CommInsure in declining to pay TPD benefits was that the appellant did not cease work due to injury or illness, but rather because he was made redundant: see the second, third and fourth dot points in the report of 18 September 2006. It submitted that this was correct, and in particular that if the appellant was made redundant "due to a review of the structure" as stated in the report and as indicated in the second paragraph of the letter of 21 July 2003, sickness, illness or injury played no part in his becoming unemployed. Hence, it submitted, the appellant's absence from all employment or from work after 23 August 2003 was not a result of or through sickness, illness or injury. 145The question under the clauses is not whether the appellant ceased his employment with the Bank because of sickness, illness or injury on the one hand or because of unrelated redundancy on the other hand. The answer to that question could shed light on whether his subsequent six months absence from all employment or from work was as a result of sickness or injury or through injury or illness, but the correct question under the clauses is whether the appellant's absence from all employment or from work after 23 August 2003 was because of sickness, illness or injury. 146As to cessation of employment with the Bank, the appellant gave no evidence to the effect that he was offered redundancy, or that he accepted redundancy, because he was unable to work through accident or injury. There was no other evidence to establish that position. The appellant had been working part time since November 2002. There was no evidence that he could not continue to work as he had if a position was available, or that the unavailability of a position was due to restrictions in what he could do. 147On the contrary, the appellant gave the evidence - "Q. ... Do you see, on the left-hand side of the page, there is a letter to you from the bank dated 21 July 2003; can you see that? A. Yes, sir. Q. And that is a letter that you received from the bank at about that time? A. Yes, sir. Q. And you understood when you read that letter, that the bank was inviting you to seek out redeployment opportunities with the bank? A. Yes, sir. Q. And at page 483, on the right-hand side of that page, is a redeployment opportunity form that you signed, correct? A. Yes, sir. Q. And you were telling the bank that you wanted to be considered for other positions in telling or discharges in the Bankstown or Parramatta areas, correct? A. Yes, sir. Q. Because you wanted to obtain alternative employment with the bank at that time, correct? A. Yes, sir. Q. And if you had been offered alternative employment with the bank, you would have taken it, wouldn't you? A. Yes, sir." 148In my opinion, the conclusion on the evidence is that the cessation of employment with the Bank by the offer and acceptance of redundancy was not because of sickness, illness or injury. 149Turning to the correct question, the appellant applied for a number of positions. He gave the evidence - "Q. In the period after August 2003 you applied for a range of positions with other prospective employers, correct? A. Yes, sir. Q. (Volume 1A shown) I have it open at page 37, that is a copy of a letter that you received from Integral Energy, correct? A. Yes, sir. Q. In February 2004 you applied for a position as a billings officer with Integral Energy, correct? A. Yes. Q, You were being truthful in your application, weren't you? A. Yes, sir. Q. You applied for that position because you honestly wished to be considered for that position, didn't you? A. Yes, sir. Q. And if you had been offered the position at Integral Energy you would have taken it, wouldn't you? A. Yes, sir. Q. There are a number of other jobs you applied for at about this time, weren't there? A. Yes, sir. Q. If you had been offered those other jobs you would have taken them, wouldn't you? A. Yes, sir." 150The applications were not in evidence. Letters rejecting the applications for positions were in evidence. None referred to restrictions on what the appellant could do. 151In my opinion, the appellant's absence from all employment or from work from 23 August 2003 was not shown to have been as a result of sickness or injury or through illness or injury. 152The appellant relied on Hay v Total Risk Management Pty Ltd . Under the rules benefits were payable to a member "whose services are terminated by reason of Disablement". The member took voluntary redundancy, on his case because of his inability to continue to work as a locomotive driver. The trustee submitted that his services were not terminated within the meaning of the rule, because there had to be termination by his employer. Burchett AJ considered that the termination could be by either the member or the employer. His reasons included (at [7]) that "[a] worker who resigns because some condition from which he suffers incapacitates him can be said to have terminated the contract by reason of that condition, just as much as an employer might be said to have done so if her terminated the contract for the same reason". 153The proposition last stated may be accepted. However, in the appellant's case it was not established that he resigned because of his incapacity; and as earlier indicated, the question is not why he resigned, but why he was thereafter without work. 154The precondition in either of the TPD clauses was not satisfied. The appellant would not have been entitled to TPD benefits even if the definition of total and permanent disablement had been in the terms of the Hannover TPD clause. He fails on causation independently of failure on breach.

Admissibility of the evidence of Mr Coltman 155Although it does not affect the outcome of the appeal, for completeness I go to the appellant's complaint of rejection of evidence. 156The appellant sought to read an affidavit of Mr John Coltman, who had extensive experience as a claims manager, underwriter and consultant underwriter. The affidavit included - "7. I have compared the definition contained in both Hannover Life Re of Australasia's ('Hannover') and The Colonial Mutual Life Assurance Society Limited's ('Comminsure') policies and I have formed the opinion that it is clear that the Comminsure policy is significantly more onerous than the previous Hannover policy. 8. In my opinion the definition of total and permanent disablement in the Hannover policy was of a type most commonly found in the industry at the time it was in force and such definition is still commonly used in current policies. That definition contemplates a return to full time work for reward. 9. The Comminsure policy extends the definition of occupation to include part time work and also adds the component 'whether or not for reward'. 10. In my view these changes are significant and should have been obvious to any person trained in reviewing policies. 11. The removal of the words 'for reward' and placement by the words 'whether or not for reward' together with the added embargo upon part time work would mean, for example, that a person carrying out charitable work for a church or welfare organisation one hour per week could now be precluded under the Comminsure policy whereas such activities alone could not have entitled trustees to decline a claim under the Hannover policy." 157The respondent objected to, and the trial judge rejected, para 7 from "I have formed the opinion"; the second sentence of para 8; and paras 9, 10 and 11. The appellant submitted that the trial judge erred in rejecting these parts of the affidavit. 158The written submissions were unhelpful. They were no more than a description of Mr Coltman's evidence as evidence that the definition in the Hannover policy was of a type most commonly found in the industry at the relevant time and that advice would have been available from insurance professionals as to the differences between the relevant definitions, and the assertion that it was admissible evidence. In fact, the evidence as to a type most commonly found in the industry was admitted. 159The rulings are found in the transcript, sometimes in a series of exchanges. The transcript shows the grounds on which the appellant said the parts of the affidavit should be admitted. 160Paragraph 7 was tendered as "an introduction to what follows". It was rejected because of the rejections of what followed. As next explained, those rejections were correct. In any event, whether the CommInsure policy was significantly more onerous than the previous Hannover policy, and whether that was clear, were matters for the trial judge. The rejection of para 7 from "I have formed the opinion" was correct. 161As to the second sentence of para 8, at trial the appellant accepted that it was for the trial judge to determine whether the definition in the Hannover policy contemplated a return to full time work for reward, but submitted that it was "not irrelevant" to be informed by an insurance expert how he understood it. The trial judge considered that Mr Coltman was expressing a legal opinion about the effect of the definition, and that he would not be assisted by the sentence. He took the same view of para 11. The appellant submitted on appeal that para 8 should have been admitted because it showed what advice would have been given to the respondent if it had asked. That was not the basis on which it was tendered. The rejections were correct. 162Paragraph 9 of itself was relevant only as the reason for para 10. The trial judge rejected paras 9 and 10 because Mr Coltman was not qualified to say what should have been obvious to a trustee. The appellant's submissions did not recognise this; it was submitted that all the paragraphs were interrelated and para 10 "shows the relevance of the second sentence of [para 8]". Mr Coltman was not qualified to say what should have been obvious to a trustee, it is not necessary to decide whether he could have said it had he been qualified. The paragraphs were correctly rejected.

Orders 163I propose that the appeal be dismissed with costs. 164YOUNG JA : I agree with Giles JA. 165WHEALY JA : I agree with Giles JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 July 2011