Nottingham v Australian Financial Complaints Authority

INTRODUCTION 1 The appellant is the executor of the estate of the late Stephen Matthew Beere (deceased). He brings an appeal under s 1057(1) of the Corporations Act 2001 (Cth) against the decision of the first respondent (Authority) dated 22 April 2022 affirming the decision of the second respondent (trustee) not to pay an insured death benefit in respect of the deceased on the basis that the insurance cover had been cancelled by operation of law. 2 Section 1057 of the Corporations Act provides that a party to a superannuation complaint may appeal to this Court, on a question of law, from the Authority's determination of the complaint.

BACKGROUND 3 The deceased joined the AustralianSuper superannuation fund (Fund) on 31 October 2001 and received default insurance cover through the Fund, including death cover. He ceased to pay any amount in respect of his fund on 13 July 2012. 4 On 12 March 2019, the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) was amended by the Treasury Laws Amendment (Protecting Your Superannuation) Act 2019 (Cth) (PYS Act) as part of a package of reforms which included, in s 68AAA(1), a provision which relevantly provided that the trustee of a regulated superannuation fund must ensure that it only provides insurance to a member with an "inactive" account where the member has elected to obtain or maintain the insurance cover. The trustee was required by s 68AAA(2) to ensure that each member was invited to elect in writing to take out or maintain insurance cover. Section 68AAA applied from 1 July 2019 and transitional provisions under Item 3 of Part 2 of Schedule 2 of the PYS Act required the trustee to notify members who might be affected by the new measures to provide them with an opportunity to elect for their insurance to continue. 5 As he had not made a contribution since July 2012, the deceased's account was deemed under s 68AAA to be inactive. He was given notice on 23 April 2019 that he needed to notify the trustee by 30 June 2019 if he wanted his insurance cover to continue. By 30 June 2019 the deceased's account in the Fund remained inactive. The trustee formed the view that, having not received an election from the deceased, his insurance cover must be cancelled in accordance with the requirements of s 68AAA(1) of the SIS Act. 6 The deceased died between 3 and 5 August 2019. The trustee declined to pay the $80,000 death benefit that would otherwise have been payable in respect of the deceased. 7 The appellant complained to the Authority about the failure to pay. He contended that the deceased had signed and sent a form electing to maintain his insurance cover, a copy of which was found in his personal papers. The Authority affirmed the decision of the trustee not to compromise the appellant's claim by paying him $80,000. 8 In the present appeal, the appellant challenges the decision of the trustee. The appellant represented himself at the hearing. The Authority was represented by Mr Di Stefano of counsel. The trustee was represented by Mr Wolahan of counsel. The parties all filed written submissions in advance of the hearing.

RELEVANT LEGISLATION 9 Section 68AAA of the SYS Act relevantly provides: Benefits provided by taking out insurance--inactive accounts (1) Each trustee of a regulated superannuation fund must ensure that a benefit is not provided by the fund to, or in respect of, a member of the fund under a choice product or MySuper product held by the member by taking out or maintaining insurance if: (a) the member's account is inactive in relation to that product for a continuous period of 16 months; and (b) the member has not elected under subsection (2) that the benefit will be provided to, or in respect of, the member under the product by taking out or maintaining insurance, even if the member's account is inactive in relation to that product for a continuous period of 16 months. Note: This section does not apply in relation to regulated superannuation funds with no more than 6 members (see section 68AAD). (2) Each trustee of the regulated superannuation fund must ensure that each member of the fund who holds a choice product or MySuper product offered by the fund may elect, in writing, that a benefit specified in the election is to be provided to, or in respect of, the member under the product by taking out or maintaining insurance, even if the member's account is inactive in relation to that product for a continuous period of 16 months. (2A) A member's election: (a) that: (i) is given under subsection (2); or (ii) because of a previous application of this subsection, is taken to have been given under subsection (2); to the trustee of a regulated superannuation fund (the original fund ); and (b) that is in force immediately before the transfer of the benefits of the member from the original fund to another regulated superannuation fund (the successor fund ); continues in force (and may be dealt with) as if it had been given under subsection (2) to the trustee of the successor fund, if: (c) the successor fund confers on the member equivalent rights to the rights the member had under the original fund in respect of the benefits; and (d) before the transfer, the trustee of the successor fund had agreed with the trustee of the original fund that the successor fund will confer such equivalent rights on the member. (3) For the purposes of this section, a member of a regulated superannuation fund has an account that is inactive in relation to a choice product or MySuper product for a period if the trustee, or trustees of the fund, have not received an amount in respect of the member that relates to that product during that period. (4) The prohibition in subsection (1) ceases to apply to benefits provided to, or in respect of, a member of the fund under a choice product or MySuper product held by the member if the trustee, or trustees of the fund, receive an amount in respect of the member that relates to that product after the account has been inactive in relation to the product for 16 months. (5) However, the prohibition in subsection (1) applies again if the member's account is again inactive in relation to the product for a period of 16 months. … 10 The Corporations Act provides that a person may make a complaint to the Authority relating to superannuation under the Australian Financial Complaints Authority scheme, established under Pt 7.10A (see the definitions in s 761A). Relevantly, if the complaint is that the trustee of a regulated superannuation fund (such as the trustee here) has made a decision relating to a particular member or former member of the fund that is or was unfair or unreasonable (s 1053(1)(a)), the Authority has, subject to s 1055, all of the powers, obligations and discretions conferred on the trustee who made the decision to which a complaint relates. 11 Section 1055 of the Corporations Act relevantly provides: 1055 Making a determination (1) In making a determination of a superannuation complaint, AFCA has, subject to this section, all the powers, obligations and discretions that are conferred on the trustee, insurer, RSA provider or other person who: (a) made a decision to which the complaint relates; or (b) engaged in conduct (including any act, omission or representation) to which the complaint relates. Affirming decisions or conduct … (3) AFCA must affirm a decision relating to the payment of a death benefit if AFCA is satisfied that the decision, in its operation in relation to: (a) the complainant; and (b) any other person joined under subsection 1056A(3) as a party to the complaint; was fair and reasonable in all the circumstances. Varying etc. decisions or conduct … (5) If AFCA is satisfied that a decision relating to the payment of a death benefit, in its operation in relation to: (a) the complainant; and (b) any other person joined under subsection 1056A(3) as a party to the complaint; is unfair or unreasonable, or both, AFCA may take any one or more of the actions mentioned in subsection (6), but only for the purpose of placing the complainant (and any other person so joined as a party), as nearly as practicable, in such a position that the unfairness, unreasonableness, or both, no longer exists. (6) AFCA may, under subsection (4) or (5), do any of the following: (a) vary the decision; (b) set aside the decision and: (i) substitute a decision for the decision so set aside; or (ii) remit the decision to the person who made it for reconsideration in accordance with any directions or recommendations of AFCA; … Limitations on determinations (7) AFCA must not make a determination of a superannuation complaint that would be contrary to: (a) law; or (b) subject to paragraph (6)(c), the governing rules of a regulated superannuation fund or an approved deposit fund to which the complaint relates; or (c) subject to paragraph (6)(d), the terms and conditions of an annuity policy, contract of insurance or RSA to which the complaint relates. 12 By s 1055A, the Authority must give written reasons for its decision. 13 This Court's jurisdiction in relation to a determination under s 1055 arises under s 1057 which relevantly provides: 1057 Appeals to the Federal Court from determination of superannuation complaint (1) A party to a superannuation complaint may appeal to the Federal Court, on a question of law, from AFCA's determination of the complaint. (2) An appeal by a person under subsection (1) is to be instituted: (a) not later than the 28th day after the day on which a copy of the determination of AFCA is given to the person, or within such further period as the Federal Court (whether before or after the end of that day) allows; and (b) in accordance with rules of court made under the Federal Court of Australia Act 1976 . (3) The Federal Court is to hear and determine the appeal and may make such order as it thinks appropriate. (4) Without limiting subsection (3), the orders that may be made by the Federal Court on an appeal include: (a) an order affirming or setting aside the determination of AFCA; and (b) an order remitting the matter to be determined again by AFCA in accordance with the directions of the Court. (5) The Federal Court must not make an order awarding costs against a complainant if the complainant does not defend an appeal instituted by another party to the complaint.

THE DECISION OF THE AUTHORITY 14 In its decision, the Authority made the following findings in affirming the decision of the trustee not to compromise the claim: (1) The deceased member's account was inactive because no money had been received into the account since 13 July 2012; (2) The trustee sent a statutory notice to the deceased dated 23 April 2019 telling him he would lose his insurance cover on 1 July 2019 unless the deceased made a contribution into his account or told the trustee that he wanted to keep his cover. The statutory notice included an election form that the deceased member could complete and send to the trustee, either by email or to a post office box, informing him that, if the form was not received by 30 June 2019, his insurance cover would end on 1 July 2019; (3) The deceased completed the election form and signed and dated it 25 May 2019. The Authority accepted the evidence of a copy of the election form taken from the deceased's papers, together with an affidavit from a witness who deposed to seeing the deceased sign the election form, take a photocopy of it "and post it in an envelope, when we stopped on the way to a café"; and (4) The trustee did not receive the election form. 15 The Authority accepted the following evidence of the trustee: All correspondence received via post is reviewed and manually scanned into the relevant queue, in this case Underwriting. All correspondence received via email is identified by the member number and automatically uploaded to the relevant queue. If a member number cannot be identified in incoming correspondence, either by post or email, it will be redirected to an exceptions queue where it is manually reviewed and loaded to the correct queue based on any identifying information available. … A review of our administration systems and exceptions queue confirmed we did not receive a copy of the late member's request by either email or post. 16 The Authority determined that, as the trustee did not receive an election from the deceased to continue his insurance cover, the trustee was required by law to cancel the insurance cover. 17 The Authority concluded that the trustee's decision not to compromise the complainant's claim by paying him (as executor) an amount of $80,000, being the amount of death cover when the cover ended, is fair and reasonable in its operation in relation to the complainant in all the circumstances.

THE APPEAL 18 In his Notice of Appeal, the appellant asks the Court to make two findings of fact: first, that the trustee did not prove that the documents sent by the deceased were not received; and, secondly, that the trustee is liable for the processes that place an insured at an unacceptable risk of entitlement being invalidated by the inadequacies of the systems of the trustee, "especially where a completely 100 percent safe system was available". He sets out the ground that he relies on as follows: The Ombudsman Heather Gray accepted that the appropriate response to continue cover had been sent to the [trustee] however that response was not recorded on the insureds file. [sic] This finding lacks all considerations of positive proof as against unsubstantiated inference that a third party had failed, where a third party was not involved in relation to a reliance or obligation on the insured in what was a demand by the [trustee] on the insured, that was procedurally unsafe, where a procedurally safe process was obvious and available. In equity the [trustee] is liable. 19 The appellant identifies six separate questions which he characterises as questions of law. With no disrespect intended to the appellant, those questions are not of themselves clearly directed to questions of law. However, it sometimes is appropriate, particularly in appeals brought by self-represented litigants, to afford some latitude in relation to the precision with which the relevant question of law is identified and for the Court, in appropriate cases, to formulate the question itself when it is apparent that a question of law does arise; Reeves v Nulis Nominees (Australia) Limited (Trustee) [2022] FCA 627 at [28] (Nicholas J), citing generally Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; 233 FCR 315 (Allsop CJ, Kenny, Besanko, Robertson and Mortimer JJ). 20 The trustee in its submissions accurately summarises that, taken together, the appellant's Notice of Appeal and written submissions reveal two issues of substance from which separate questions of law may be discerned. 21 The first is whether the Authority committed an error of law in finding that the trustee had not received the deceased's election form. 22 The second is whether the Authority failed to have regard to a relevant consideration, being the reliability of the system used by the trustee to comply with the requirements of s 68AAA of the SIS Act in circumstances (a) where the trustee should have known that in adopting this system there was an unacceptable risk of insurance being cancelled for members who did not intend to do so, and (b) the trustee could have adopted a better system, that would not have resulted in the deceased's insurance cover being cancelled, or to obtain insurance to cover the risk of member elections being lost in the mail.

6.1 The appellant's submissions 23 The first issue centres on the findings of the Authority that the trustee had not received the election form from the deceased. 24 The appellant asks how, given that the insured complied with his obligation to send the election form, the trustee was able to benefit from the protection from the fault of others (here, the system of mail delivery) to enable it to decline cover. Put another way, he asks how the Authority could be correct to decide that the trustee did not receive the election form in the light of the evidence that it did receive. The appellant submits that the Authority erred because it had evidence under oath from a witness proving that the insured complied to the full extent with the option that was designated by the trustee by mailing the election form and inadequate, unsworn evidence as to the systems in place within the trustee's offices as to receipt of the form. As the appellant put it in his submissions, "What is the proof of the obligation having been performed as requested and the subsequent loss of cover due to no fault of the insured but at the systems design of the [trustee]". The appellant submits that there was no evidence before the Authority that enabled it to find that the trustee did not receive the document and thus could not process it, or that the mail system failed, or that a wrong address was placed on the envelope. 25 The second issue posed by the appellant may be summarised as whether the Authority failed to have regard to a relevant consideration, being consideration of the reliability of the system adopted by the trustee to receive notices from an insured. 26 The appellant submits that, prior to the introduction of s 68AAA, death cover continued unless formal notification of cancellation was received. The costs for the cover were deducted from an insured's superannuation account automatically. With the change, the trustee, in having to receive confirmation from an insured to remain insured should have made sure that the process was "if not fail safe, as fail safe as possible". He submits that equity requires a consideration as to whether the system designed by the trustee had an unacceptable risk to any insured of non-receipt of a notification.

6.2 Analysis 27 The Authority's jurisdiction and powers concern the fairness and reasonableness of a decision, not its lawfulness, although by s 1055(7) of the Corporations Act it is prohibited from making a determination that is contrary to law. 28 In QSuper Board v Australian Financial Complaints Authority Ltd [2020] FCAFC 55; 276 FCR 97 (Moshinsky, Bromwich and Derrington JJ), the Full Court said: 64 The powers conferred by CA s 1055 permit AFCA to set aside or vary a decision made by a trustee in relation to a fund member even where the decision was authorised by the trust deed and any regulating statute. The determining factor is not the lawfulness of the decision, but its fairness or reasonableness "in its operation in relation to the complainant". Such a power is more aptly applied in relation to discretionary powers which, by their nature, confer wide decisional freedom on the repository such that a broad range of decisions might legitimately be made from a single set of facts. In any event, under the scheme where a complainant is aggrieved by a trustee's decision, AFCA can consider the relevant circumstances and exercise the power or discretion of the trustee afresh so as to correct any perceived unfairness or unreasonableness arising from the original decision's operation. 65 Despite the width of AFCA's remedial powers, subsection (7) requires that it exercise the powers of the trustee or other authorised person within legal confines. It is not entitled to make a decision which is contrary to the terms of the trust or beyond the limits of any relevant statutory regulation. For instance, AFCA could not, standing in the shoes of a trustee, exercise a power in a manner which breached the trustee duty to observe the terms of the trust. 29 The statutory scheme on appeal focusses attention on whether or not the Authority erred on a question or questions of law; Corporations Act s 1057. A finding of fact may, of course, be affected by an error of law. Generally this will arise if the Authority has failed to take into account a relevant matter, or had regard to an irrelevant matter, or if the decision is unreasonable in the legal sense of the word. 30 In Sharp Corporation of Australia Pty Ltd v Collector of Customs [1995] FCA 707; 59 FCR 6 at 12-13 per Davies and Beazley JJ, with whom Hill J agreed, the Full Court said: Even so, in any particular decision, although the decision may be a factual one, all the usual grounds of review will apply for they are regarded as being illustrative of questions of law. Thus a decision-maker may have failed to provide procedural fairness or may have failed to take into account a relevant fact, or may have had regard to an irrelevant matter or the decision may have been so unreasonable that no reasonable decision-maker could have come to it. Examples where Courts have inquired under these principles into the facts found by administrative decision-makers are Commissioner of Taxation (Cth) v McCabe (1990) 26 FCR 431; Bushell v Repatriation Commission (1992) 175 CLR 408. If the decision-maker adopts a wrong approach to the task, the decision may be set aside and the matter remitted for reconsideration. … 31 The first issue raised by the appellant concerns whether or not the Authority erred in determining that the trustee had not received the election form. In this regard the Authority took into account material that it had received from the trustee. In reaching a conclusion under s 1055 of the Corporations Act, the Authority is required to make a decision as to whether or not, on the materials before it, the decision of the trustee was fair and reasonable in all of the circumstances. In so doing, as an administrative decision maker it was not obliged to comply with the rules of evidence applicable to judicial decision making: Australian Financial Complaints Authority - Complaint Resolution Scheme Rules r A.14.3. In this regard, the position is analogous to that applicable under appeals from decisions of the Administrative Appeals Tribunal, where the weighing and evaluation of various pieces of evidence is a matter for the Tribunal and is not generally susceptible to review; Tarrant v Australian Securities and Investment Commission [2015] FCAFC 8; 317 ALR 328 at [100(g)] (Rares, Yates and Griffiths JJ). 32 The Authority received information from the trustee to the effect that correspondence received via post is reviewed and manually scanned, member numbers are identified and uploaded and, if a member number cannot be identified in incoming correspondence it will be redirected to an exceptions queue, where it is manually reviewed. A review of the trustee's administration systems and exceptions queue confirmed that no copy of the deceased's election form had been received either by email or post. 33 In my view it was within the ambit of the Authority's decision-making role to receive that evidence, and weigh it against the evidence provided by the appellant. The appellant is perhaps understandably aggrieved that, faced with an affidavit from an independent third party to the effect that he had seen the deceased complete the election form and post it, nonetheless the evidence of the trustee was accepted as conclusive that the form had not been received. However, that decision involved the Authority engaging in a weighing-up process that falls within the ambit of its powers. It was entitled to form the view that there may be a disconnect between the act of posting and receipt of the letter. On the other hand, there was evidence of the system in place at the trustee's offices which was designed to ensure that mail received from an insured was properly allocated to a file. The Authority weighed one against the other and determined that the election form had not been received by the trustee. It may be noted that, even had the Authority made an error in the course of its fact finding to this effect, that of itself would not have amounted to an error of law; Corporation of the City of Enfield v Development Assessment Commission [2000] HCA 5; 199 CLR 135 at [44] per Gleeson CJ, Gummow, Kirby and Hayne JJ. 34 Nor can the conclusion that the trustee was obliged to decline cover after making a finding of non-receipt be criticised. As a matter of law, the trustee was required under s 68AAA(1) to cancel the policy upon that event. 35 Furthermore, for completeness, I add that in my view it cannot be concluded that the court should, in the exercise of its supervisory role, conclude that the outcome reached by the Authority was legally unreasonable. As the Full Court observed in BHL19 v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2020] FCAFC 94; 277 FCR 420 at [134] (White, Wigney and Bromwich JJ): … in assessing whether a particular outcome is unreasonable, it is necessary to bear in mind that, within the boundaries of power, there is an area of "decisional freedom" within which a decision maker has a genuinely free discretion. Within that area, reasonable minds might differ as to the correct decision or outcome, but any decision or outcome within that area is within the bounds of legal reasonableness. Such a decision falls within the range of possible lawful outcomes of the exercise of the power. It is only if the outcome falls outside the area of decisional freedom that it can be said to be legally unreasonable. 36 In my view the conclusion reached by the Authority was within the range of decisional freedom available to it, and therefore did not amount to an error of law. 37 In the second issue, the appellant may be taken to contend that the Authority failed to take into account a relevant consideration, namely whether the system adopted by the trustee by which it sought to comply with s 68AAA of the SIS Act was adequate in circumstances where it could have adopted a different and more reliable system. 38 In my view this ground is misconceived when considered in the context of the role of the Authority to determine whether or not the trustee's decision was fair and reasonable. The task of the Authority was not to conduct a review of the systems operating within the trustee but to form a view, based on the materials available to it, whether or not it was fair and reasonable for the trustee to decline to compromise the claim. It is not to the point that other or preferable systems may have been, or may be, adopted by the trustee in implementing the scheme. 39 Accordingly, the second issue raised must also be rejected.

7. DISPOSITION 40 The appeal must be dismissed. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Burley.