4.4 Construction of s 24(3)(b) of the DFR Act
42 In my view, properly construed, an election to commute does result in a permanent reduction in the annual amount of retirement pay to which that member is owed as the respondent contends. Mr McKenzie's construction of s 24(3)(b) of the DFR Act cannot be accepted.
43 First, applying the principles explained above, the task of construction must commence and end with a consideration of the statutory text: see also Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 250 CLR 503 at [39] (the Court). In this case, the respondent's construction accords with the ordinary and natural meaning of the words of s 24(3)(b) of the DFR Act. The text of s 24(3)(b) is unqualified, providing simply that where a member elects to commute, the amount "per annum" of retirement pay is reduced "on and after" the date on which the election takes place. In its ordinary meaning, the term "after" means simply "later in time than" (Macquarie Dictionary, online edition, at 1 May 2023). Thus, as the respondent submits, the plain text of s 24(3)(b) is clear and unambiguous. No temporal limitation on the reduction in retirement pay is discernible from the text of s 24(3)(b).
44 While Mr McKenzie accepts that the ordinary meaning of the words "on and after" refers to an unlimited period, he submits that the ordinary meaning cannot apply with respect to s 24(3)(b) of the DFR Act, because those words must be subject to at least some form of implied temporal limitation. By way of illustration, Mr McKenzie observed that the entitlement to reduced retirement pay clearly ceases in circumstances where a commuting member has died, even though that constraint is not specified in the text of s 24(3)(b) itself.
45 However, while it is correct that the member's retirement pay under the DFR Act ceases upon their death, that loss of pay does not arise because of an implication sourced within s 24 of the DFR Act. If the member has died, it is simply no longer possible to speak of the member being "entitled … to retirement pay" for the purposes of s 23 or s 24. The member no longer exists and has no need of a retirement benefit. Instead, the DFR Act makes separate provision for a surviving spouse and children. For example, s 39(1) provides for a pension to be paid to a surviving spouse which is calculated by reference relevantly to the rate at which retirement pay "was payable to the deceased member immediately before the member's death".
46 More fundamentally, Mr McKenzie's construction requires additional words to be written into s 24(3)(b), such that the provision would read that a commuting member's retirement pay is reduced "on and after the day on which the election takes effect unless and until the member reaches the age on which the applicable expectation of life factor in sch 3 of the DFR Act is based ". So understood, this is not a case where the applicant has identified the existence of a true constructional choice between different meanings of particular words in the Act. Rather, with respect, the applicant asks the Court to "make an insertion which is 'too big, or too much at variance with the language in fact used by the legislature'": Taylor v Owners - Strata Plan No 1564 [2014] HCA 9; 253 CLR 531 at [38] (French CJ, Crennan and Bell JJ). As the respondent submits, had Parliament intended to impose such a limitation, it would have been a simple matter for it to have provided so expressly.
47 Secondly, while ss 39, 41, 42 and 43 of the DFR Act refer to the commutation provisions in s 24 of the DFR Act, none of those provisions refer to any temporal constraint on the reduction in a member's retirement pay following commutation.
48 For example, as the respondent submits, s 39(1) assumes that a commutation decision will reduce a member's retirement pay until their death, irrespective of whether or not they exceed their expectation of life factor specified in sch 3 of the DFR Act. So much is apparent from the wording of s 39(1), which provides that, in circumstances where the member had commuted a portion of her or his retirement pay under s 24(1), the spouse's pension is calculated "at a rate equal to five-eighths of the rate at which retirement pay … would have been payable to the member immediately before the member's death if the member had not commuted a portion of the member's retirement pay …" As such, s 39(1) proceeds on the assumption that the member's retirement pay will have been reduced as a consequence of their election to commute a portion of their retirement pay in all cases where the member has made such an election. Section 39(1) of the DFR Act, and the similarly worded provisions in ss 42(3) and 43(3) concerning children's pensions, are therefore consistent with the respondent's construction and inconsistent with that for which Mr McKenzie contends.
49 Thirdly, I am unable to accept Mr McKenzie's contention that his construction of s 24(3)(b) is supported by the express wording of s 23(2) of the DFR Act.
50 As noted above, s 23 of the DFR Act sets out the general principles relating to a member's entitlement to retirement pay. Relevantly, s 23(2) provides:
Subject to subsection (3) and to sections 25 and 75, the rate at which retirement pay is payable to a recipient member is an amount per annum that is equal to such percentage of the annual rate of pay applicable to him immediately before his retirement as … is ascertained under Schedule 1.
(Emphasis added.)
51 As is apparent from the express words of the provision, the operation of s 23(2) is subject to ss 23(3), 25 and 75 of the DFR Act. Each of these provisions modifies the rate of retirement pay in certain circumstances, namely: where the member has served 20 or more years and retires at their own request or on disciplinary grounds before their notional retiring age (s 23(3)); an officer in respect of whom certain provisions of the previous legislation would have applied but for the DFR Act (s 25); and persons who had retired from the ADF and made an election by virtue of which deferred benefits became applicable (s 75). In Mr McKenzie's submission, the contrasting absence of any express reference in s 23(2) to s 24 indicates that Parliament did not intend that an election under s 24(3)(b) of the DFR Act would permanently reduce a member's applicable retirement pay. In other words, in Mr McKenzie's submission "if the legislative intent had been permanently to reduce the rate of retirement pay as a consequence of commutation, the entitlement provision would have been expressed to be subject to the commutation provision … along with all the other provisions that expressly change the rate of retirement pay".
52 With respect, that submission cannot be maintained. Although s 24 is not expressly listed in the list of exceptions in s 23(2) of the DFR Act, that does not justify reading words of temporal limitation into s 24(3)(b) which simply do not appear in the plain text of that provision. In any case, the central question in this case was not whether the retirement pay provisions in s 23 were subject to an exception in s 24 of the DFR Act. The applicant conceded, correctly, that a commutation election reduces the member's applicable retirement pay. Rather, the question is whether an election for commutation under s 24 of the DFR Act results in a permanent, or only temporary, reduction in one's applicable retirement pay. That question is not answered by observing that commutation is not listed as one of the specified exceptions under s 23(2) of the DFR Act.
53 Mr McKenzie also placed considerable emphasis on the purpose of the DFR Act as a basis for his preferred construction. With respect, I do not consider those arguments persuasive.
54 First, Mr McKenzie submitted that s 24(3)(b) must be construed by reference to the "consistency" and "fairness" of the provision. As I have noted above, a core tenet of Mr McKenzie's submission is that the DFR must be construed as "beneficial legislation", in the sense that the legislation was said to confer benefits "on various individuals who were members of the ADF". Mr McKenzie then submitted that the respondent's proposed reading of the DFR Act is incompatible with that beneficial purpose. Specifically in his submission, the respondent's construction of the DFR Act would have the effect of rendering an ADF member who elected to commute their retirement pay, and who lived longer than their expectation of life factor in sch 3, worse off than a "relevantly identical colleague" who did not elect to commute any portion of their retirement pay. Mr McKenzie submits that this interpretation of the DFR Act cannot be maintained, because a "consistent and fair" construction of the Act would require that "the rate of retirement pay of relevantly identical members, one of whom commutes and the other not, is identical".
55 I accept that the DFR can be described broadly as "beneficial" legislation, in the sense that it was intended both to create a simpler and more comprehensible system of retirement benefits, and to ensure that the retirement benefit scheme addressed the particular needs of service women and men. So much is apparent from the Parliament's intention to implement the recommendations of the Jess Report. However, as the Jess Report also emphasised (at [52] in a passage I have earlier quoted), reform of the defence force retirement scheme was also desirable because "[f]rom the point of view of the Commonwealth as an employer it is essential to provide a scheme which recognises these special requirements if it is to maintain recruitment at a planned level and to maintain its quality". Similarly, the then Minster for Defence explained in the Second Reading Speech (p 2708) with respect to the DFR Bill and related bills, that:
… the scheme encompassed by these Bills reflects not only the needs expressed by the Services themselves for the provision of a modern retirement benefits structure that takes account of their particular career patterns, but also it is one that is comprehensible to them. … Taken together with the series of other measures we have introduced in the area of financial conditions of service generally, there is clearly substantial inducement to become and remain a member of the armed forces.
56 In other words, the DFR Act was intended both to benefit ADF servicewomen and men, and to benefit Defence, by providing an incentive for citizens to join and remain in service. Introducing provision for members to elect to commute a portion of their pension was plainly one of the measures intended to provide that incentive. However, as was alluded to in the Jess Report (at [110]) in referring to the extent that the Commonwealth must subsidise the retirement benefit scheme, there was also a need to ensure the sustainability of the retirement benefit scheme overall. In this regard, it will be recalled that the scheme is non-funded in the sense earlier explained, and that it provides for service women and men to receive a pension for the duration of their lifetimes, as well as providing a pension on their death for surviving spouses and children. Providing for a permanent reduction in a member's pension where such an election for commutation is made can therefore be seen to strike a balance between affording members the right to commute a portion of their retirement benefits on the one hand and, on the other hand, protecting the viability of the scheme as a whole.
57 It is true that, on the respondent's construction, where a member has outlived their expectation of life factor in sch 3 of the DFR Act, a decision to commute their retirement pay will leave that person worse off than a member who has chosen not to commute, from the perspective of their ongoing pension entitlements. Nonetheless, it does not necessarily follow that, even in such a case, the member will be financially worse off overall by reason of having made the election. That will depend upon other factors, including how they have applied those monies such as through investment or debt reduction. Moreover if a commuting member passes away before they reach their expectation of life factor in sch 3, cumulatively that member will have received a greater amount in retirement benefits before their death than a person in the same circumstances who had not elected to commute under s 24(1). On its proper construction, therefore, it is thus not possible to interpret s 24(3)(b) in a manner that ensures equally fair and consistent outcomes for all members.
58 Given these considerations, any unfairness or inconsistency in outcomes for individual members following an election for commutation does not suggest that the ordinary meaning of s 24(3)(b) must be departed from in order to best give effect to Parliament's intention in enacting the DFR Act.
59 In any event, the fact that legislation might be considered remedial or beneficial does not mean that the Court is at liberty to depart from the text and structure of the legislation. Rather, as Gageler J observed in New South Wales Aboriginal Land Council v Minister Administering the Crown Lands Act [2016] HCA 50; 260 CLR 232 at [92]:
The principle that beneficial legislation is to be construed beneficially is a manifestation of the more general principle that all legislation is to be construed purposively. Application of that more general principle to New South Wales legislation is mandated by the requirement of s 33 of the Interpretation Act 1987 (NSW) that a construction that would promote the purpose or object underlying the Act is to be preferred to a construction that would not. Neither in its general application nor in its particular manifestation can that principle be applied other than on the understanding that legislation "rarely pursues a single purpose at all costs" and that "[u]ltimately, it is the text, construed according to such principles of interpretation as provide rational assistance in the circumstances of the particular case, that is controlling".
(Citations omitted.)
(I note that s 33 of the Interpretation Act 1987 (NSW) to which Gageler J refers is in substantially similar terms to s 15AA of the Acts Interpretation Act 1901 (Cth) outlined above.)
60 For the reasons already given, there is no foothold in the text or structure of the Act to read into s 24(3)(b) the temporal limitation for which Mr McKenzie contends. The fact that the legislation has a beneficial purpose overall does not mean that additional words can be read into the DFR Act to limit the consequences of making a commutation election, where Parliament has already prescribed those consequences in plain terms.
61 Secondly, I do not agree with Mr McKenzie's submission that the legislative history of the provision requires the adoption of his preferred construction of s 24(3)(b) of the DFR Act.
62 As I have outlined above, the DFR Act was enacted with the intention of giving effect to the recommendations of the Jess Committee Report. Relevantly those recommendations included the following:
14 COMMUTATION
(a) That provided that the option is exercised within twelve months from date of retirement a recipient member should be entitled to commute an amount not exceeding four times the amount of the annual retired pay entitlement payable to him in the first year of his retirement.
(b) That retired pay proportionately reduced in relation to commutation remain payable after commutation.
…
(Emphasis added.)
63 In Mr McKenzie's submission, the Jess Committee's recommendation that a member's retirement pay be "proportionately reduced" following commutation indicated that Parliament's intent in enacting s 24(3)(b) was to reduce a member's retirement pay only until that person reached the age on which their expectation of life factor in sch 3 is based. According to Mr McKenzie, if s 24(3)(b) was read as permanently reducing a member's retirement pay, that provision would authorise a disproportionate reduction in pay - that is, a member who had elected for commutation and outlived their expectation of life factor would have a disproportionate reduction in their annual retirement benefits, as compared to an equivalent member who did not elect for commutation.
64 While the recommendation may be read in the way for which Mr McKenzie contends, ultimately that does not assist his construction of the relevant provisions of the DFR Act. As I have previously explained, it is not possible to construe s 24(3)(b) in a manner that ensures proportionate outcomes overall for all members. More fundamentally, however, this submission seeks impermissibly to use extrinsic materials to displace the otherwise clear meaning of the statutory text. Whilst a Court construing a statute must consider the context in which a provision was enacted and may have regard in so doing to extrinsic materials, those materials are relevant only insofar as they shed light on the text itself. As the High Court unanimously held in Consolidated Media Holdings (at [39]):
"This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text" [quoting Alcan at [47]]. So must the task of statutory construction end. The statutory provision must be considered in its context. That context includes legislative history and extrinsic material. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text. Nor is their examination an end in itself.
(Emphasis added.)
65 Accordingly, it is not to the point that the respondent's construction may not align with a recommendation in the Jess Committee Report. Nor is it to the point to construe the Jess Committee Report as an end in itself in interpreting s 24(3)(b). Rather, the question is whether the Jess Committee Report can shed light on s 24(3)(b) of the DFR Act.
66 For the reasons already given, construed according to its ordinary meaning, s 24(3)(b) provides that an election for commutation has the effect of permanently reducing that member's applicable retirement pay. That ordinary meaning is consistent with the language and structure of the Act viewed as a whole which, applying established principles, is the surest guide to legislative intent. By contrast, the temporal limitation which the applicant seeks to write into s 24(3)(b) has no foothold in the language and structure of the DFR Act. Even if, therefore, the authors of the Jess Report had some other consequence in mind with respect to an election to commute, their recommendations cannot overcome those otherwise clear textual and contextual considerations. To reiterate the words of French CJ and Hayne J in Certain Lloyd's Underwriters at [25] in the passage earlier quoted, "[t]he purpose of a statute resides in its text and structure. Determination of a statutory purpose neither permits nor requires some search for what those who promoted or passed the legislation may have had in mind when it was enacted."