Plaintiff v Defendants

31 March 2006

1 The triennial actuarial valuation of the Invensys Australia Superannuation Fund ("the Fund") as at 30 June 2002 showed that the Fund had a substantial surplus of assets over vested benefits. This surplus was of the order of $89.2M. The ratio of assets to vested benefits was 3.22. The audited financial statements of the Fund as at 30 June 2005 show a surplus of $93.6M and the ratio 2.56. The Trustee of the Fund has been advised by the Fund Actuary and by its lawyers that it should take steps to reduce the surplus to a size more appropriate to achieve the objects of the Fund and it has accepted this advice. It proposes to distribute some $85.8M of that surplus, $36M to members and $49.8M to the company, leaving a surplus of $7.8M and a ratio of 1.13. The Trustee approaches the Court seeking its advice as to legal aspects of this proposal and its implementation.

2 The history of the Fund and the background to the proposal is complicated. It is set out in a series of affidavits sworn by Stanley Graeme Belcher, the Acting Chairman of Directors of the Trustee, and by Craig Michael Tenace, its then Fund Secretary. The summary which follows is the briefest outline of such of those matters as appear to be most significant for my purposes.

THE FUND

3 As its name suggests, the Fund is a superannuation fund; it is a regulated superannuation fund within the meaning of s. 19 of the Superannuation Industry (Supervision) Act 1993 ("SIS Act").

4 The Fund was first established as a managed fund insurance policy by a proposal dated 15 December 1964 with the National Mutual Life Association of Australasia Ltd. It was held by Apex Belting Pty Ltd as an indefinitely continuing fund for the purpose of providing superannuation benefits for individuals specified within its terms. In general terms, these individuals were employees of Apex Belting and, perhaps, associated companies. In 1981 Apex Belting changed its name to BTR Properties Pty Ltd and transferred its business and employment contracts to another company within the BTR Group. Sometime in the 1980s, BTRA Nominees Pty Ltd became the proposer under the policy, acting as a corporate trustee and custodian for several Australian superannuation funds in the BTR Group.

5 In 1989 the Fund was converted into a superannuation trust and a Trust Deed dated 10 May 1989 was executed with BTRA Nominees as Trustee of the Fund. In order to satisfy the requirements of the SIS Act, the plaintiff was appointed in 1995 as Trustee. At this time the plaintiff was called BTR Nylex Superannuation Fund Pty Ltd. In September 1998 its name was changed to BTR Australia Superannuation Fund Pty Ltd. Finally, when, in February 1999, the UK parent, BTR plc, merged with Siebe plc it became known as Invensys plc. In due course, many of its Australian subsidiaries took on the name Invensys and, in June 2000, the plaintiff became Invensys Australia Superannuation Fund Pty Ltd.

6 By cl. 2 of the Trust Deed the Trustee holds the Fund[1] "upon the terms and conditions and subject to the trusts powers authorities and discretions contained in the Trust Deed". An object of the Fund was and is to pay benefits to the members of the Fund. A member is defined in cl. 1 as an employee who has been accepted by the Trustee as a member and who remains a member at the time of determination. Given the definitions of employee and employer in cl. 1, a person who is employed by any of a number of employers which participate in the Fund may become a member, subject to certain qualifications. A member continues to be a member until the Trustee's liability to pay benefits to them is discharged[2] or until transfer of the member to another superannuation fund.[3] For present purposes, this means that a person may remain a member notwithstanding that they are no longer an employee of a participating employer. The Trust Deed contemplates the payment of benefits calculated on different bases: by reference to the salary of the member, and by reference to the accumulated contributions of the member. Those members whose entitlement is calculated by reference to salary were referred to as Defined Benefit Members and those whose entitlement is calculated by reference to their contributions, as Accumulation Members. Some members are both Defined Benefit Members and Accumulation Members. There is also another small group of members whose entitlement is to receive a dollar amount described in the Trust Deed.

7 The position of the Fund is considerably complicated by reason of the fact that the BTR Nylex Group undertook in the 1980s and the 1990s a program of expansion and diversification. This involved the acquisition of a number of businesses and companies which brought into the BTR Nylex Group their employees and often their own superannuation funds. In certain cases, these employees joined the Fund and the assets of their superannuation funds were added to the assets of the Fund. In all, some 30 stand-alone funds came into the BTR Nylex Group and some 20 funds were transferred into the Fund.

8 In 1997 and 1998, BTR Nylex commenced a divestment program which involved selling off certain businesses and companies. This had the consequence of removing from the membership of the Fund those employees who ceased to be employed within the BTR Nylex Group as the companies or businesses which employed them were divested. A further consequence was that assets of the Fund were transferred out to the fund of the divested company or business or, perhaps, to that of a purchaser of the company or business, in order to protect the entitlements of those departing employees.

9 An incidental consequence of these programs of acquisition and divestment was that some of the incoming funds had surpluses of assets over vested entitlements. Upon divestment, the assets transferred out of the Fund with the departing members were of an amount sufficient to protect their entitlements under their own fund. This meant that the surplus which came with them into the Fund remained with the Fund. Until the year 1996-7 this surplus was not regarded as significant. In that year, however, the transfer of some members into the Fund, together with an unusually good investment return, meant that the net assets of the Fund increased from $170.4M to $293.3M in that year, laying the foundation for the present surplus in the Fund. The surplus in that year of $68.2M was seen by the Trustee as significant and from 1998 it increased following transfers in and out of the Fund until it reached $93.6M in 2005.

10 Members make contributions to the Fund by deduction from their salary of an agreed portion of salary. A participating employer is required by cl. 2 of the First Schedule of the Trust Deed to make contributions, expressed as a percentage of the salaries of all members or another amount, the amount of which contribution is that recommended by the Fund Actuary.

11 Because the Fund has enjoyed a substantial surplus, participating employers have not, since August 1993, been required to make contributions. This was referred to before me as "a contributions holiday". This holiday is likely to continue until the surplus falls to a point where the Fund Actuary, having formed the opinion that the Fund assets are or are likely to be insufficient, recommends that the employers resume contributions pursuant to cl. 2 of the first schedule. The employers have not been the only beneficiaries of the surplus: the Fund itself has, since January 2002, borne the 15% contributions tax in respect of employer or salary sacrifice contributions for members and has also, in most situations, borne the employees' burden of the superannuation contributions surcharge tax.[4] Those members, too, who were Defined Benefit Members as at 1 July 2003 have received further benefits as from July 2002, but it is not necessary that I detail these.[5]

12 The assets in the Fund, therefore, represent the result of contributions by members, contributions by participating employers, investment returns on the Fund assets and other sums such as those generated by the acquisition and divestment of businesses and companies, as I have mentioned.

13 A further consequence of the introduction into the Fund of the superannuation funds of companies and businesses acquired during the BTR Nylex expansion program is that the rights of members of those funds who became members of the Fund had to be preserved. This has led by numerous variations to the Trust Deed and to the creation of some 35 different classes of members, which classes are identified by their origin and have differing rights under the Trust Deed. As will be seen, these class rights are protected by the imposition of various limits upon the power to vary the Trust Deed insofar as it affects those classes of members.

14 Finally, I make mention of the participating employers. The Trust Deed uses the expression "the Company". This is defined as the Principal Company, together with any company associated with it and any other company which has agreed to participate in the Fund and to make contributions in respect of any member. "Employer" is defined as employer which has adopted the plan or is admitted into the plan. Employment by one such employer is a pre-condition to membership in the Fund. As counsel for the Trustee put it in their outline, "The Fund exists to provide superannuation benefits to employees of participating current and former employer companies within the Invensys Group of companies". The Principal Company is identified in cl. 22C of the Trust Deed as Austrac Investments Ltd, the firstnamed defendant. This party is said by Mr Belcher to have been in 1998 a direct subsidiary of BTR Australia Ltd and the holding company for the retained companies of BTR Nylex Ltd which were not included in the disposals of the packing and building products group.

THE PROPOSAL

15 In mid-2003 the Invensys Group management formed the view that the surplus assets in the Fund should be distributed and they set in train investigations with a view to achieving this. On 16 July 2003, the solicitors for Austrac sent to the solicitors for the Trustee a proposal for the repatriation of the surplus. This was the subject of some discussion and, on 23 October 2003 Invensys Australia Ltd on behalf of Austrac submitted to the Trustee a proposal for its distribution. This proposal was not acceptable to the Trustee but it determined to prepare its own proposal to effect a distribution of the surplus. This involved the obtaining of legal, actuarial and tax advice and a consideration of these matters by the board as a part of the process of formulating its own proposal. The Trustee's proposal was also submitted to Invensys Australia Ltd which ultimately agreed to support it. This process and the evolvement and development of the Trustee's proposal is described in Mr Belcher's affidavit of 23 February 2005 and in the affidavit of Paul Bernard Curtis, a director of Austrac, sworn 29 April 2005.

16 The Trustee's proposal is to distribute the surplus in the manner indicated above: broadly speaking, by paying about $49.8M to Austrac Investments Limited and by the setting aside of about $36M which is to be dealt with in due course as part of the members' final entitlements as a bonus benefit equal to 70% of the members' entitlements at 30 June 2003. I should add that the proposal, in its detail, is somewhat more complicated than this. For example, it was necessary to set out with some particularity in the proposal the precise entitlement upon which the bonus benefit is to be calculated. Furthermore, the bonus benefit is to be by way of fully vested allocation in a surplus distribution account held by the Trustee in the name of the member which, together with interest, will be paid to the member upon entitlement to the basic benefit under the Trust Deed. There is too a cap of $200,000 upon the allocation to any member.

17 It is not necessary that I descend further into detail of the proposal except for one matter. In its formulation in late 2003 it was necessary to fix a cut-off date: that is, a date upon which those persons who were then members were entitled to an allocation of the surplus. Those persons who ceased to be members before that date would take no share. The proposal also speaks of the scheme date: that is, the date upon which the scheme contained in the proposal comes into effect. This date is defined in the proposal to be the last moment on Sunday 30 April 2006. Those persons who became members after the scheme date are, likewise, ineligible to take a share. The Fund Actuary recommended that the cut-off date be 30 June 2003. This date was selected for a number of reasons. First, it was about this time that some of the directors of the Trustee became aware of facts which led to the proposal and that the Trustee commenced formulating the proposal. Second, there were a number of members who had left the Fund on 30 June 2003, a significant number who had left between that date and October 2003 and a large number of members who, as employees of Global Transmissions Pty Ltd, were retrenched in that period. It was thought fair to include all of these departing members. Third, it was an administratively convenient date since 30 June 2003 was an annual review date for the Fund and a date as at which membership listings were readily available. Accordingly, the Trustee incorporated this cut-off date in its proposal.

18 Since an employee who left the employ of a participating employer remained a member until all entitlements were paid, this meant that even persons who were no longer employees on the cut-off date might share in the surplus where their entitlements had not been paid in full on the cut-off date.

19 Since the commencement of this proceeding there have been modifications to the proposal. One such modification was the introduction of a provision whereby the allocation was to carry interest from 1 July 2005. This, I was told, was because of delays in bringing the matter before the Court. The current proposal and the one which I am to consider is that which is exhibit SGB7 to the affidavit of Mr Belcher sworn on 30 March 2006. It is proposed that this be achieved by making a variation to the Trust Deed pursuant to cl. 20.

20 Clause 20 is in the following terms:

"20 Variation

The Trustees may at any time and from time to time by instrument in writing or resolution amend delete from and add to these Trust Provisions including the provisions of this clause. Any amendment deletion or addition so made

(1) shall take effect as from the date on which the instrument in writing is executed or the resolution is made or as from such earlier or later date as is specified for that purpose in such instrument in writing or resolution and

(2) shall be of the same validity as if it had been originally contained in these Trust Provisions and

(3) may in like manner be amended deleted from and added to..."

Then follow eleven provisos which are directed to limiting the power of variation generally or insofar as it may affect members of specific classes of membership.

21 The Trustee proposes to exercise this power by the execution of an amending deed to which it and Austrac are to be parties. The deed will insert in the Trust Deed a new cl. 36 and a new Twenty-Fifth Schedule which sets out the proposal as a scheme for the reduction of surplus.

22 By cl. 3 of the First Schedule to the Trust Deed, the Trustee is permitted in certain circumstances to augment the amount of any benefit to which a member is or may become entitled. The Trustee however is not minded to exercise this power, if it be available, in order to distribute part of the present surplus to members.

23 Section 117 of the SIS Act regulates the circumstances in which amounts may be paid out of a fund such as the Fund to an employer. By s. 117(3) such a payment is unlawful except as provided by the section. The provision relied upon by the Trustee as permitting the distribution to the employer is sub-s. (5) which sets out five requirements which must first be satisfied. First is that the governing rules of the Fund permit the payment. The proposed exercise by the Trustee of the power of variation under cl. 20 would enable it to satisfy this requirement. Other requirements concern the resolutions of the corporate Trustee, the receipt from the Fund Actuary of a certificate that the Fund would, after the payment be in a satisfactory financial position, and the giving of notice to members. These requirements have or will be satisfied.

24 The final requirement, that contained in s. 117(5)(c)(ii) is that, before the Trustee has determined to make the payment, it was satisfied -

"...that the payment of the amount and the making of the changes (if any) to the governing rules were reasonable having regard to the interests of the employer-sponsor and of the beneficiaries in the fund;"

The evidence before me shows that the Trustee is so satisfied.

25 The Trustee has been advised, nevertheless, that it would be prudent for the proposal to be placed before the Court for approval and the amending deed contemplates that this approval has been given.

THE APPLICATION OF APPROVAL

26 The application before the Court is brought by originating motion filed by the Trustee on 30 September 2004. The motion has been amended from time to time, most recently by leave granted on 16 February 2006. This, the third further amended originating motion, seeks five groups of orders, the first of which is to make representation orders so as to place before the Court all those persons who might have an interest in the proposal and its implementation. It is convenient that I identify those persons.

Employers

27 The first defendant, Austrac Investments Limited, the Principal Employer, has been selected to represent all of the employers participating in the Fund on the date upon which final orders in this proceeding are made - in all, nine companies.

Current Defined Benefit Members

28 The second defendant, Adam John Silva, has been selected to represent all persons who are, on the date upon which final orders in this proceeding are made, Defined Benefit Members. As at 31 January 2006, there were about 80 members in this group.

Current Accumulation Members

29 The thirdnamed defendant, Michael Robert Donald, has been selected to represent all persons who are, on the date upon which final orders in this proceeding are made, members other than the Defined Benefit Members. This group includes Accumulation Members (other than Accumulation Members who are also Fixed Benefit Members) It also includes members who are entitled to a fixed dollar sum, and former employees who have left all or part of their entitlement in the Fund. The members of this last group were referred to before me as Retained Benefit Members. As at 31 January 2006 the total group comprised approximately 977 members.

Former Members

30 The fourth defendant, Gary William Riordan, has been selected to represent those persons who were members any time on or after the cut-off date but who are not members on the date upon which final orders in this proceeding are made. This group includes those persons who were members on the cut-off date but who left the Fund before the date upon which final orders in this proceeding are made and those who became members on or after the cut-off date and who left the Fund before the date upon which final orders in this proceeding are made. As at 31 January 2006 there were approximately 405 persons in this group.

Contradictors

31 Each of the second to fourth defendants represents persons who are to take a share of the surplus under the proposal. A less specific group of persons comprises those who might arguably have an interest in taking a share but who do not do so, and any person who, for some other reason, may have an interest in impugning the proposal. The fifthnamed defendant, Martin Frank Horan, has been selected to represent these persons. Counsel on his behalf listed the following who might be included in this representative group:

(1) former members of the Fund who are not otherwise represented in this proceeding. These are those persons who have been members but who were no longer members on the cut-off date;

(2) former employers who had made contributions into the Fund;

(3) persons who will become members after the date upon which final orders in this proceeding are made and who are not otherwise represented in this proceeding;

(4) trustees of any funds to which members were at any time or are hereafter transferred from the Fund on a successor fund basis;

(5) trustees of any funds from which members and assets were at any time or are hereafter transferred to the Fund; and

(6) the Crown, in the case of bona vacantia.

32 As I indicated in the course of argument, I will make representative orders in respect of the first to fourth defendants. I was, however, troubled by the terms of the representative order sought for those comprising the contradictors.

33 I invited counsel to submit a memorandum or memoranda on this matter and counsel for the Trustee have done so by memorandum dated 9 March 2006. In this memorandum they include as contradictors those persons who are referred to in sub-paragraphs (1), (3), (4) and (5) of paragraph [31] above, subject to minor terminological changes. They omit those in sub-paragraphs (2) and (6) and include as a further class of representatives the following:

"all persons not otherwise represented in this proceeding who after the making of this Order make claims against the assets of the Fund."

34 Having given the matter further consideration, I will make a representative order for this group. I will not, however, at this stage determine the terms of the representative orders until I have heard further argument. In particular, I would like to hear counsel as to what is intended by the word "present" in the expressions such as "present employees" or "present members". Does this refer to employees as at the date of the order or as at the scheme date or at some other date?

The Role of the Court

35 Paragraph 2 of the originating motion seeks answers to a series of questions relating to the power of the Trustee to exercise its power to amend the Trust Deed in the manner proposed. I see no difficulty in the Court considering this relief. Likewise, the orders sought in paragraph 3 are for declarations that it has power under the Trust Deed to amend the Trust Deed and to implement the scheme contained in the amendment. These are all matters which is proper for the Court to entertain.

36 Order 4 seeks an order that the Court approve the Trustee executing the amending deed and implementing the scheme contained in it. It will be apparent from my brief summary of the proposal that it contains a number of provisions which depend upon the judgment and discretion of the Trustee. These may be matters which depend upon commercial considerations which have been negotiated with the Invensys Group or with certain members or groups of members. These include matters such as the fixing of the cut-off date. Insofar as these involve matters which are for the discretion or judgment of the Trustee, the Court does not express any view upon them. The role of the Court is primarily that of passing judgment upon the lawfulness of the course which the Trustee is minded to pursue. That is not to say that the Court will in every case decline to entertain a consideration of these discretionary matters, for the manner of the exercise of the Trustee's discretion may indicate some legal shortcoming in the exercise itself. But this is not such a case.

37 In Re Green deceased[6] Crockett J was asked to answer a question whether a particular course of conduct by the trustees of a deceased estate was a proper exercise of their power under the will. His Honour decided that the Court might make an answer to the question because what was involved was not a decision as to the wisdom of the proposed course of conduct; the Court was asked to consider whether there was no impropriety. In so concluding his Honour relied upon the following dictum of Buckley J in Re Allen-Meyrick's Will Trusts; Manganall v Allen-Meyrick and Ors[7]:

"... if the trustees were to apply to the court indicating that they were anxious to exercise the power in a particular way, and sought directions of the court as to whether that proposed exercise was an exercise within their powers, the court would enlighten them if they were in any doubt in that sort of respect; or if they were to come to the court and ask whether a particular exercise of power was the proper one for them to embark upon, having regard to the attending circumstances, again the court would be able to say whether or not, in the judgment of the court, that was a proper thing for the trustees to do."

38 This authority persuades me that I should entertain the application sought in paragraph 4 of the originating motion.

THE POWER TO AMEND

39 The terms of cl. 20 quoted above,[8] on their face give to the Trustee a wide power of amendment - sufficiently wide to make the proposed amendment. I have heard argument addressed to the possibility that the exercise of this power might be affected by one of the provisos to cl. 20, by statute, by implication or by some general principle of law.

40 I preface my consideration of these matters by observing that none of the first to fourth defendants advanced any submission against the proposed exercise of the power of amendment. Even counsel for the contradictors accepted that the interests of any of the persons who were identified as being represented by his client were remote. This meant that I did not have the benefit of a full adversarial argument. I mention this, not by way of criticism of any party or their legal representative, but by way of explanation for my determination to deal in this judgment with the essential issues only and, even then, in short compass.

The provisos

41 There are in cl. 20 eleven provisos which limit the power of amendment in the circumstances to which they apply. No argument has been presented that any of these apply to the present amendment. Indeed, counsel for the Trustee and counsel for the Defined Benefit Members addressed argument with respect to each of the provisos, to the effect that none of them stands in the way of the proposed amendment, including the protection afforded by the seventh proviso to APV Plan members.

42 I was referred to proviso 1 which is in these terms:

"PROVIDED THAT no such amendment deletion or addition shall adversely alter a benefit entitlement if this is contrary to the Applicable Requirements."

Applicable Requirements is defined in cl. 1 of the Trust Deed. These requirements are, for present purposes, those in the SIS Act and the regulations made under that Act. In particular, reg 13.16(1) prohibits an adverse alteration in "a beneficiary's right or claim to accrued benefits". As I have mentioned, no party contended that the proposal would offend this regulation or proviso 1, although they offered different reasons for this. In short, it was contended by counsel for the Defined Benefit Members that the expression accrued benefit should be given a wider meaning than that contended for by counsel for the Trustee or for Austrac. But they all accepted that, whatever meaning be given to this expression, the present proposal did not attract the prohibition in the regulations.

43 Proviso 2 prevents an amendment "if in the opinion of the Trustee it would detrimentally affect the benefits which have already been provided..." unless the amendment meets the requirements of the Applicable Requirements. Counsel for the Trustee argues that this proviso did not bar the amendment because it operates where the Trustee has formed a particular opinion which, in this case, it has not. Further, the amendments, as a matter of fact, do not detrimentally affect benefits which have already been provided. Finally, the amendment meets the requirement of the applicable requirements. Counsel for the Defined Benefit Members took issue with these contentions but did not raise the proviso as an obstacle to the proposal. I accept that this is correct on the basis that the amendment does not adversely affect provided benefits.

44 With respect to the remaining provisos, I accept the submissions of all parties who address them that they do not bar the amendment for the reasons offered on behalf of the Trustee.

45 I have been referred to no other express provision in the Trust Deed which does or might arguably prevent the Trustee making the proposed amendment.

Statutory Limits

46 Section 117 of the SIS Act sets out the conditions which must be satisfied before a trustee may make a payment out of the fund to an employer. As I have mentioned,[9] upon the making of the proposed amendment to the Trust Deed all of the statutory requirements have or will be satisfied. No party contended otherwise and I am satisfied that this is the case.

47 Section 62(1) of the SIS Act provides that the trustee of a fund such as the Fund must ensure that the fund is maintained for one or more of the core purposes or the ancillary purposes set out in paragraphs (a) and (b) of that sub-section.

48 Both the core purposes and the ancillary purposes speak in terms of the provision of benefits for members. Counsel for the Trustee therefore raised a concern that, insofar as the proposal involved the allocation of part of the Fund for the benefit of former members, it may contravene the statutory requirement.

49 All parties who addressed this matter submitted that the inclusion in the proposal of a benefit to a former member would not contravene s. 62(1). In this context, the reference to former member would include not only those former members represented by the fourthnamed defendant, but also those persons who had been but were no longer members on the scheme date. Three arguments were offered in support of this conclusion.

50 First, it was contended on behalf of the Trustee and on behalf of the former members represented by the fourthnamed defendant, that, as a matter of construction, the word "member" in s. 62(1) included persons who had been but were at the time of the determination no longer members of the Fund.

51 I was referred to the following passage in the judgment of Millett J in In re Courage Group's Pension Schemes; Ryan v Imperial Brewing & Leisure[10]:

"...there are no special rules of construction applicable to a pension scheme; nevertheless, its provisions should wherever possible be construed to give reasonable and practical effect to the scheme, bearing in mind that it has to be operated against a constantly changing commercial background. It is important to avoid unduly fettering the power to amend the provisions of the scheme, thereby preventing the parties from making those changes which may be required by the exigencies of commercial life. This is particularly the case where the scheme is intended to be for the benefit not of the employees of a single company, but of a group of companies. The composition of the group may constantly change as companies are disposed of and new companies are acquired; and such changes may need to be reflected by modifications to the scheme."

In the case of the SIS Act, s. 62 is directed to the establishment of special rules applicable only to regulated superannuation funds. Such a fund is that where the provisions of sub-ss. 19(2) and (3) which relate to the identity of the trustee and sub-s. 19(4) under which the trustee of the funds may give to APRA notice of its election that the Act should apply to its fund. Subject to this and to any other applicable statutory provision, the terms of the trust upon which the fund is held and administered are a matter for the parties to the trust deed. For this reason, it is likely that Parliament had in mind that there would be an infinite variety of terms in the trust deeds constituting the funds. For this reason and by analogy with the reasons offered by his Lordship in the Courage case, it is undesirable that the provisions of s. 62(1) be read in any narrow way so as to impose upon funds an unduly inflexible regime. To this may be added the provisions of s. 62(2) which impose a civil penalty for non-compliance. For this further reason, s. 62(1) should not be construed in a narrow way so as to impose this risk unnecessarily.

52 Turning to the text of s. 62(1) there is in the Act no definition of member. The various core purposes and ancillary purposes are to provide benefits for members or in respect of members. In the latter case, the benefit is payable on or after the death of the member. It may be supposed that, upon death, a person ceases to be a member so that, in the case of those purposes where the benefit is to be provided in respect of a member, this must be a reference to a person who was at the time of the determination a former member.

53 Ancillary purpose (i) contemplates the provision of benefits to a member on or after the determination of the member's employment by a contributing employer. Under the terms of the Trust Deed presently under consideration, such a person remains a member. It is not difficult, however, to imagine a fund where the deed is drawn so that a member ceases to be a member upon retirement. In such a case, this purpose would not apply unless "member" included former members.

54 This construction derives support from the observations of the Privy Council in Bank of New Zealand v Board of Management of the Bank of New Zealand Officers' Provident Association[11] that in construing a pension scheme there is a readiness to include ex-employees when the benefit is directed by the scheme to be paid to employees.

55 I accept therefore the submission that a former member is included in the expression "member" in s. 62(1).

56 The second argument focuses attention upon the introductory words of s. 62(1): "Each trustee... must ensure that the fund is maintained solely..." for one or more of the core purposes and ancillary purposes there specified. The direction is not as to how a payment from the fund may or may not be made, but rather as to the only purposes for which the fund is to be maintained.

57 I would prefer not to base my decision on this submission. Section 62(1A) appears to link the Trustee's obligation to maintain the fund for a purpose, with its obligation to maintain the fund so that a particular benefit will be provided. This appears, too, to be the thrust of s. 62(1). Moreover, it is difficult, otherwise, to understand how s. 62(1) is to operate and what is its objective.

58 The third argument was that presented by counsel for the former members. They argued that the scheme contained in the proposal speaks from the cut-off date. It deals with the rights of those persons who were members on that date. In that sense, the persons whom the fourth defendant represents were all members; there is, therefore, in the proposal no provision affecting the rights of former members. I would prefer to express no view upon this.

59 The conclusion which I have reached following my acceptance of the primary submission, means that s. 62 raises no obstacle to the proposed amendment and to its implementation.

Other Limits on the Amendment Power

60 Counsel for Austrac contended that, notwithstanding its unqualified terms, the power to amend might be exercised only with the consent of his client. This was because such consent was required under the basic trust. This submission which was not accepted by other parties is said to arise from the presence of a proviso or provisos in the original deed. Since Austrac is consenting and will do so by its execution of the amending deed, this issue does not require resolution. I say nothing further about it.

61 A further argument founded upon a similar contention was advanced by counsel for the Defined Benefit Members. This was that in the original proposal of 15 December 1964 and in the policy amendment dated 23 March 1989, cl. 24(a) permitted an amendment with the consent of Austrac provided no such amendment should detrimentally affect benefits already secured. It was put that, notwithstanding its deletion from the Trust Deed, this qualification on the amendment power continued to bind the Trustee. The debate then moved to the familiar ground as to the width and meaning of the expression "benefits already secured". As before, all counsel were agreed that, whatever be its width, the present proposal was not barred by the old cl. 24(a). I do not dissent from this conclusion.

Implied Duties of Trustee

62 It is well established that a power such as the power under cl. 20 to amend the deed of trust is subject to general restrictions imposed by law. An example is that the Trustee should exercise the power in good faith[12] and that the Trustee should act in a way which appears to it fair and equitable in the circumstances[13] and in accordance with the purposes for which the power was conferred.[14]

63 In order to persuade me that none of these duties would be breached by the Trustee's proposed exercise of the power of amendment, I was pressed by various parties as to how the amendments would impact upon different classes of members. I will not rehearse the various submissions, all of which were directed to the conclusion that there was nothing in the point. I am satisfied on the material before me that the Trustee's decision to amend the trust deed in the manner proposed was arrived at after a careful consideration of various competing interests and in good faith. I find that the Trustee's proposal is, in its view, fair and equitable in the circumstances and was arrived at in accordance with the purposes for which the power was conferred. Inevitably, any proposal for the distribution of surplus will be more favourable to one or more classes of member or to the employers rather than another proposal which might then attract criticism from other quarters. The duty of the Trustee is to make these hard decisions and the Court will interfere with them only in limited cases. In the case of the present proposal, the process whereby the Trustee reached its decision was not the subject of any criticism. The Trustee had regard to all of the matters which it was required to have regard to and to none which it ought not to have had regard to. In particular, it dealt with the employers and the Invensys holding company at arm's length and it was not suggested that the will of the Trustee was overborne by the wishes of any of those parties. It consulted with the various classes of members and had regard to the interests of former members. In some cases it introduced modifications to its proposal to accommodate the contentions of those parties, but it made its own decisions.

64 I mention, by way of example and because these members put forward their views with some force, the representations made on behalf of a group of 64 Retained Benefit Members employed by a participating employer, Thomson Kelly & Lewis Pty Ltd. These members were referred to as the TKL Members and they are included among the members represented by the thirdnamed defendant. These members raised certain respects in which they contended and still contend that the Trustee's proposal was and is unfair. These include the selection of 30 June 2003 as the cut-off date and the fact that the members who receive an allocation under the proposal receive no interest on their allocation until the scheme date and the actual allocation of their bonus entitlement. It was said to be unfair that the employers should receive this interest benefit. The response of the Trustee has been to accommodate the criticism to the extent that it modified the proposal to include in the allocation interest calculated from 1 July 2005 until the scheme date. The Trustee considered the submissions of the TKL Members as to the cut-off date and their other criticisms but determined to make no change. The thirdnamed defendant who represents the Accumulation Members including the TKL Members does not object to the proposal on the basis of the issues raised by the TKL Members.

65 I draw two conclusions from the TKL Members' objections. First, it is clear that the Trustee considered them and, having done so, made the decisions to which I have referred. Secondly, both of these objections are matters which are proper for the discretion and judgment of the Trustee. Even if the Trustee had considered and wholly rejected their submissions, this would not be a basis for a conclusion that the determination to amend was outside the power conferred by cl. 20, or that the amendment, if made, was unlawful or improper in the sense that I have used this term. The Court does not interfere with the lawful exercise of a discretion by the Trustee.

THE CONTRADICTORS' ARGUMENTS

66 Counsel for the contradictors presented an argument upon three or perhaps four aspects of the proposal. I shall deal with each in turn. He accepted that there was no statutory obstacle to the amendment and that there had been no failure on the part of the Trustee properly to address any of the matters raised in the provisos to cl. 20.

The Cut-Off Date

67 I was taken to the various considerations which it appears prompted the decision of the Trustee to fix the cut-off date which it did fix. My attention was also drawn to other matters which might have led the Trustee to fix a different date. Nevertheless, it was accepted on behalf of the contradictors and, if I may say so, properly accepted, that these did not demonstrate that the decision on the point was legally flawed or that it was an improper exercise of the Trustee's discretion. These are matters for the judgment of the Trustee and, absent some other vitiating factor, it is beside the point that another person acting reasonably might have reached a different conclusion. In this sense, counsel accepted that the Trustee's decision on this matter was a proper one.

Former Employers

68 The point here is that part of the Fund is represented by the accumulated contributions of employers to their own fund which were subsumed into the Fund. When, upon the divestment process, those employers left the BTR Nylex Group or their businesses were sold off, their employees left the Fund, leaving behind the surplus which was brought into the Fund with them. Under the proposal, these employers which are no longer participating employers receive no part of the surplus to which they contributed.

69 I bear in mind that my concern is only with the legal rights of these former employers and with the legal obligations of the Trustee. I put to one side, since no argument was addressed to the point, the possibility that the right of the Trustee to make a payment to a former employer is not permitted by s. 117.[15] Having raised the point, counsel for the contradictors then provided two answers to it. First is that, on the authorities there is no clear entitlement of an employer to the surplus. This is correct but the answer may depend upon the class of member. In the case of an Accumulation Member it is difficult to speak of a surplus. From time to time the member makes contributions or the employer makes contributions in respect of the member, or both, and these are added to the Fund which is invested. Upon entitlement, the member receives back contributions together with accretions by way of capital improvement or interest or otherwise and less tax and operating costs. The question of surplus really arises only in respect of Defined Benefit Members. As Millett LJ points out in Courage Group's Pension Schemes; Ryan v Imperial Brewing & Leisure[16] the structure of a fund such as the present is that members are required to make contributions from salary each year whether the fund is or is not in surplus. The obligation of the employer, on the other hand, is essentially to prop up the fund to a level which the Fund Actuary determines is necessary and desirable to ensure that benefits may be paid. In the case of the Fund this is achieved by the recommendation by the Fund Actuary as to the percentage of salaries of all members that the employer must contribute.[17]

70 In Davis v Richards & Wallington Industries Ltd[18], Scott J concluded from this that the surplus should be considered as derived from the employers' contributions and that the surplus so derived is held upon resulting trust for those employers. In Courage Group's Pension Schemes; Ryan v Imperial Brewing & Leisure[19] Millett LJ expressed the same view. The surplus due to over-funding is held for the employer alone to the full extent of its past contributions and only subject thereto for the employees.

71 The uncertainty which attends this conclusion in the present case arises from two considerations, one factual and one legal.

72 As to the factual consideration, it is by no means clear in the case of the Fund, that the surplus is the consequence of employer over-funding, whether this be by the employers in the Fund or employers in funds which have been transferred into the Fund. The Trust Deed in the first schedule permits the employer to reduce to nil its contributions where the Fund Actuary so recommends. This has been the case since 1993. It is during this period of the employers' contribution holiday that the surplus has built up. Little is known of the origin of the surpluses which came into the Fund during the period of the BTR Nylex expansion and diversification program. It is known, however, that the present surplus is in part the product of the Trustee's prudent investment program. This part is not referrable to employer over-funding.

73 The legal consideration arises from the expression in later cases of judicial views which, in principle, sit uneasily with the views expressed in the Davis case and the Courage case. It is not necessary that I enter upon this debate which is referred to by the Australian Industrial Relations Commission in Amalgamated Metal Workers' Union v Shell Refining (Australia) Pty Ltd[20] and in New Zealand in Re UEB Industries Ltd Pension Plan[21].

74 The consequence of all of this is, as counsel for the contradictors properly accepts, that it is not possible to conclude with any confidence that there is a resulting trust in favour of former employers even of that part of the surplus brought into the Fund which originates from the Defined Benefit component.

75 The second answer to a possible claim by former employers is the practical one that, when BTR Nylex acquired the company or business which carried with it the superannuation fund, the value of the surplus would be taken into account in determining the purchase price paid to the company or its shareholders, as the case may be.

76 I conclude from this that the right of former employers is uncertain so that they cannot credibly complain that they are not included in the distribution of any part of the surplus.

Future Members

77 The concern here was the interest of those persons who will become members after the scheme date. This interest, it seems, arises from the prospect that some time in the future there may be a distribution upon termination pursuant to cl. 22. The difficulty with this part of the submission is that the evidence shows that it is intended that the plan should continue. There is no prospect of termination. Moreover, as things stand, future members will be Accumulation Members with the rights to share in the Fund as such. The member has no right to the Fund beyond that. In these circumstances such a future member cannot criticise the proposal.

The Crown

78 The interest of the Crown is also on the basis that, upon termination, the Fund or part of it might pass to the Crown as bonavacantia. Again, the prospect of termination is not realistic on the evidence before me.

79 I am satisfied, therefore, that none of the persons whom the fifth defendant represents has an argument which seriously calls into question the legal validity of the proposal or its implementation.

THE TRUSTEE'S ISSUES

80 I return now to the four issues which counsel for the Trustee raises in paragraph 33 of their outline.

(1) Whether the proposed distribution can include Accumulation Members as well as Defined Benefit Members

81 I accept that the Fund is a single entity; it is not a fund for Defined Benefit Members and a separate fund for Accumulation Members. All members have a right to have their interest taken into account by the Trustee in determining how to deal with the surplus. The Trustee's decision to provide a benefit for all cannot be criticised from a legal standpoint. I conclude, as did all parties, that it is not unlawful for the Trustee to include Accumulation Members in the distribution of the surplus.

(2) Whether the proposed distribution can include former members, that is, whether the Trustee has power to make an amendment in favour of any person who is not a member of the Fund at the date the amendment takes effect

82 I have concluded that it is not unlawful for the Trustee to include persons who were, at the scheme date, former members.

(3) Whether the Trustee is required to formulate an amendment scheme which benefits all former members or, alternatively, some group of former members beyond those presently proposed.

83 This raises the question of the cut-off date. In my view, it is not unlawful for the Trustee to include in the proposal a cut-off date so that persons who were no longer members on that date are excluded from taking a share of the surplus.

(4) Whether the amendment can provide for the payment of part of the surplus to the principal employer company

84 For the reasons mentioned, I do not consider it unlawful to make payment to an employer provided the requirements of s. 117 are satisfied.

The Employers' position

85 Counsel for Austrac supported the proposal. He did not present any submission other than those I have already considered.

The Current Defined Benefit Members' Position

86 Counsel supported the proposal. In a number of matters which I have considered the secondnamed defendant's position differed from that of the Trustee and perhaps other parties. Counsel for the second defendant submitted, and I accept, that their client and the members he represents have no interest in the assets of the Fund; the Fund is merely security for their entitlements. Their interest lies in the proper exercise by the Trustee of its powers under the trust deed. Upon termination of the Fund they may take a share under cl. 22, but the evidence does not raise this as a prospect.

The Current Accumulation Members' Position

87 These are members for whom it is difficult to speak of a surplus. Counsel for the third defendant raised the question of his client's rights to a share in the assets which is conferred upon termination of contributions by participating employers[22] or by temporary participating employers.[23] What may be the entitlements of the accumulation members upon such an event is very uncertain and, in any event, contingent upon the happening of an event which is not expected to occur. Likewise, upon termination under cl. 22.

88 Accepting the limited rights of those members represented by the third named defendant, counsel nevertheless contended that the Trustee's general obligation to act fairly means that its decision to treat those members in the same way as the defined benefit members cannot be criticised on any legal basis. I agree.

Former members

89 I have already considered and accepted the proposition that there is no legal impediment to the inclusion in the proposal of those former members whom the fourth named defendant represents.

CONCLUSION

90 I am now able to deal with the orders sought in the originating motion.

91 I will answer in the affirmative the part (b), (c), (d) and (e) questions posed in paragraph 2. I decline to answer the part (a) question. It is too wide. The answers which I shall give to the remaining questions will suffice for the purposes of the present proposal.

92 I will make the declarations sought in paragraph 3.

93 As to paragraph 4, I will propose to make a declaration in the following terms.

It is not improper for the plaintiff to execute the amending deed and, after the amending deed comes into effect, to implement the scheme contained in the deed.

94 The fifth order seeks the payment of costs. I will hear counsel further as to this matter.

1 May 2006

95 Under the SIS Act certain functions and powers of a supervisory or regulatory nature are conferred upon an entity described as "the Regulator". For the purposes of those provisions of the Act with which this application is concerned the regulator is the Australian Prudential Regulation Authority ("APRA")[24] and so, although it is not a party to the proceeding, the Trustee was concerned to ensure that any concerns or objections of APRA should be addressed. Accordingly, APRA was provided with the various drafts of the proposal for its consideration and comment, and, when the proceeding was commenced, it was provided with copies of the material filed in the Court. A representative of APRA was present in Court for much but not all of the hearing in February.

96 Furthermore, in an attempt to avoid the difficulties which might be posed by s 62(1)[25] the Trustee asked APRA to give approval to the proposal pursuant to s 62(1)(b)(v) and to waive the requirements of s 117, pursuant to s 117(6). After a lengthy consideration of the matter APRA declined to grant or withhold its approval saying that it would await the decision of the Court.

97 The decision of the Court upon this and other matters put forward in argument was given in my judgment of 31 March 2006. The matter was then stood over to 7 April for final orders. On 6 April 2006 APRA wrote to the solicitors for the Trustee a letter which included the following:

Not withstanding the above, it is APRA's view that section 62 is not the only issue which faces the Trustee. Our preliminary reading of the judgment suggests that His Honour may not have considered the propriety of the proposed amendments in the light of the statutory and fiduciary requirement that a Trustee act in the best interests of its members. This requirement is expressed in paragraph 52(2)(c) of the SIS Act. It is also expressed by, amongst others, Beach J in Asea Brown Boveri Superannuation v Asea Brown Boveri [1999] 1 VR 144 at pp 159-161 in the following terms:

'In my opinion trustees of a superannuation fund owe a duty of loyalty exclusively to the members. It does not follow from that, however, that a trust deed can never be altered to meet the interest of the employer. Trustees are free to negotiate with an employer for a package of amendments that may include benefits to the employer if in the opinion of the trustees that would benefit the members' (emphasis added).

The Trustee's obligations under section 52 have to be addressed before a decision is made to disburse the funds in the manner provided.

2.1 Given this requirement the Trustee should now indicate how it was acting in the best interest of members when it:

(a) decided to make a payment of in excess of one-half of the surplus in the Fund to the employer; and

(b) decided to amend the Trust Deed of the Fund in the terms proposed so that the provisions of section 117 of the SIS Act could be enlivened?

2.2 The Trustee should also indicate how it has taken into account the interests of past members who, having brought with them from other funds the benefit of a surplus, subsequently left or were required to leave the Fund?"

98 Section 52, so far as is here relevant provides as follows:

"SECTION 52 COVENANTS TO BE INCLUDED IN GOVERNING RULES

52(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.

52(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:

(ii) that are money or assets, as the case m ay 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;

52(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."

99 Needless to say this was a matter of concern to the Trustee which had come to the Court seeking its endorsement of the proposal. There was some discussion before me as to the joining of APRA at this late stage so that it may raise and argue this and any further concerns which it might have with respect to the proposal. Accordingly, on 7 April I gave leave to the Trustee to join APRA if it be so advised and gave directions to enable the s 52 point to be argued on 24 April 2006.

100 Following further correspondence APRA on 11 April 2006 wrote to the solicitors for the Trustee as follows (omitting formal parts):

"In your correspondence dated 23 March 2006 and 29 March 2006, you requested that the Australian Prudential Regulation Authority ("APRA") gives its approval to what the Court has indicated that it is willing to acknowledge may properly be undertaken by the Trustee. In response, by its letter dated 6 April 2006, APRA indicated that it had reservations and concerns about the judgment and the orders proposed.

1. In respect of your letter of 10 April 2006, in which you reply to our letter of 6 March 2006, I am instructed that your comment that 'this is the first time APRA has raised the section 52 issue' is both factually incorrect and, with respect, disingenuous. APRA's comments in its letter did nothing more than alert the Trustee to a fact which must have been at the forefront of the Trustee's considerations over the entire history of this matter. The Trustees obligations pursuant to section 52 of the Superannuation Industry (Supervision) Act 1993 ("the Act") are a matter of law. The purpose of APRA making the observations in the letter of 6 April was to ensure that the Trustee has considered it's obligations under section 52 as well as its exhaustive review of its responsibilities under the general trust law and other provisions of the Act.

2. The only purposes of APRA's letter of 6 April 2006 were to answer your question regarding the waiver under section 62 and to indicate APRA's reservations and concerns about the judgment and the orders proposed. The grounds for APRA's reservations and concerns are as follows:

2.1 Both under the general law (see Asea Brown Boveri Superannuation v Asea Brown Boveri [1999] 1 VR 144 at pp 159-161 per Beach J) and under the Act (see paragraph 52(2)c)), a superannuation fund Trustee like Invensys must act at all times in the best interests of the fund members.

2.2 Thus, when Invensys considered whether it should amend the trust deed to enliven section 117 of the Act, it should have been concerned to act in the best interest of the members of the Fund.

2.3 It does not appear, however, that Byrne J specifically addressed this issue in his judgment. His Honour simply satisfied himself that the literal requirements of clause 20 (the amending power) of the trust deed had been complied with and then concluded that, within paragraph 117(5)(a) of the Act, 'the governing rules of the Fund permit the payment. The proposed exercise by the Trustee of the power of variation under clause 20 would enable it to satisfy this requirement': [2006] VSC at para 23.

2.4 APRA is concerned that there is no express finding that, in deciding to make the amendment in question, the Trustee was acting in the best interests of members rather than merely purporting to strike a reasonable balance between members' interests and employers' interests within sub paragraph 117(5)(c)(ii) of the Act, a provision which presupposes the existence of power to repatriate notional surplus; see paragraph 117(5)(a).

2.5 APRA believes that issues of amendment should be kept separate from issues of action upon section 117 of the Act. If the Trustee failed to act in the best interest of members in deciding to amend to permit payments to be made out of notional surplus, section 117 would not have been enlivened in the present case.

2.6 APRA is concerned that superannuation trustees in like position to Invensys will read His Honour's judgment as simply permitting amendment (assuming an amendment power exists in appropriate terms) to enliven section 117 of the SIS Act other than with a view to achieving what is in the best interests of members.

3. APRA continues to believe that it is not necessary for it to be joined as a party to the proceeding for the above reservations and concerns to be addressed. However, as the Trustee has brought the issue into Argument by placing the letter before the Court, APRA notes your indication in your letter of 10 April 2006 that all APRA has to do is ask the Trustee and that will be done.

Accordingly, if APRA's reservations and concerns are conveyed to the Court, which then makes findings that the Trustee, in deciding to amend the trust deed to enliven section 117 of the SIS Act, was required to act and did act in the best interests of the members of the Fund, then APRA will accept those findings and the orders proposed to be made in the proceeding. Any further action by APRA would then seem to be superfluous."

101 As a consequence of this indication, I was told, the joinder of APRA as a defendant to this proceeding was not pursued. As I mentioned to counsel, this is not wholly satisfactory for it means that the Court is denied the opportunity to hear the s 52 point developed or to debate it with counsel for APRA. No party before the Court supported the APRA position. Furthermore, it means that if, some other concern should later occur to APRA, it will not have been addressed at all. Nevertheless, I must do the best I can in the light of the two APRA letters which I have set out above.

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 paragraph (c).[26] 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".[27] The difficulty with this brave statement, insofar as it concerns paragraph (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, paragraph (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[28] or upon a person or company to achieve a stipulated objective[29]. 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 paragraph (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[30] or the duty of fidelity to the trust[31], 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. [32] Nor may the trustee have regard to considerations which are extraneous to the trust.[33] 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[34], 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"

"Trustees must do the best they can for the benefit of their beneficiaries and not merely avoid harming them."[35]

It is not altogether clear whether paragraph (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.

108 Paragraph (c) then speaks of the interests of beneficiaries. In the SIS Act, beneficiary is a defined term:

"'beneficiary', in relation to a fund, scheme or trust, means a person (whether described in the governing rules as a member, a depositor or otherwise) who has a beneficial interest in the fund, scheme or trust and includes, in relation to a superannuation fund, a member of the fund despite the express references in this Act to members of such funds;"

It was common ground that the members of the Trust are beneficiaries. Counsel for the Trustee submitted that the employers in this case had a sufficient interest in the Fund to bring them, too, within this definition.[36] Accordingly, it was contended, the Trustee was entitled and indeed obliged to have regard to their best interests as well as to those of members.

109 Counsel for certain of the defendants argued for a different construction of beneficiary, contending that, as a matter of construction, it did not include the employers. This appears to be the view taken in the APRA letters where "beneficiaries" is treated as the equivalent of "members". This cannot be correct, if only because under the Trust Deed dependants of deceased members may be beneficiaries. Nevertheless, I was urged by all parties not to enter upon this debate and to proceed on the basis that the employers are not beneficiaries for the purposes of paragraph (c). I am content to do so without expressing any concluded view upon the matter. I will, for ease of reference, adopt the approach of APRA and treat the covenant in question as one directed for the benefit of members by which expression I include past and present and potential future members.

110 The first question for consideration is whether, having regard to the covenant inserted by s 52(2)(c), it is proper for the Trustee to make any distribution in favour of a non-beneficiary. How might such a distribution which involves the disbursement of a fund which might in other circumstances be paid to beneficiaries be in the best interest of those beneficiaries?

111 There are many answers to this. In Asea Brown Boveri Superannuation Fund No.1 Pty Ltd v Asea Brown Boveri Pty Ltd[37], Beach J concluded that the Trustee had a duty to act in the interests of the members of the fund only; it had no duty to act in the interests of the employer. This conclusion has been subject to some criticism[38] but, as a judge at first instance, I accept it as a statement of the law which I must apply. But this does not mean that the Trustee might not confer a benefit on the employers, if, in the opinion of the Trustee, this would be of benefit to the members.[39] In the present case there is no certainty that the members might do better if less than $49.8M were distributed to the employers. It may be that, if the proposal involved a reduction in this payment, the employers would withdraw their support, with the consequence that there would be no distribution of surplus to anybody or that there would be a lengthy and expensive and uncertain litigation to resolve the impasse. The evidence before me shows that the Trustee has good grounds for such an apprehension. If only for this reason, I conclude that the Trustee is entitled, consistent with its proper concern for the best interests of the beneficiaries, to make a payment of part of the surplus to the employers.

112 Second, the Trustee has formed the view that its duty to members with respect to the surplus, having regard to the nature of the trust, is to make a payment which is generous but not extravagant and that this payment would consume only $36M of the surplus. No criticism is directed to this decision.

113 Third, the covenant inserted by s 52(2)(c) is a covenant of the Trust Deed. The Deed including this covenant must accord with the legislative scheme which contemplates, in certain circumstances set out in s 117(5) that a payment might be made to employers. Nor is such a possibility seen in the statute to be inconsistent with the Trustee's obligations under s 62.

114 A further consideration which was not the subject of argument before me and upon which I express no view is that the inserted covenant does not, in terms, prevent the Trustee in the performance and exercise of the trust duties and powers from having regard to interests other than the best interests of members.

115 In the present case, the Trustee has satisfied itself of the matters specified in s 117(5)(c)(ii), it has then by resolution made in accordance with s 117(b)(i) declared its intention to make the payment to the employers, and it has given notice to members in accordance with s 117(5)(d). The proposal which is before the Court is then to amend the Trust Deed in terms of the draft amending deed. These terms are not to confer upon the Trustee a power to make a payment to the employers which power might be exercised at some later stage; they impose upon the Trustee an obligation to distribute forthwith part of the surplus to the members and to the employers in the manner which I have summarised above.[40] In short, there is but one step in the amendment and the creation of the obligation to make the payments.

116 APRA takes the position that the power to amend under cl. 20 must be seen as distinct from the exercise of the power conferred by the amendment. And so, it says, the Trustee, when considering whether to amend the Trust Deed to confer upon itself power to make a payment to the employers, must comply with the inserted covenant. Then, when the Trustee comes to exercise this power to make a payment to the employers it must comply with s 117(5). In the first case, compliance with the covenant involves a consideration only of the best interests of members; in the second, it must have regard to the interests of the employers as well as those of members in reaching the conclusion required by s 117(5)(c)(ii).

117 Turning then to the separate application of the inserted covenant, it is said to operate at the point when the proposed amendment pursuant to cl. 20 is made. In these circumstances APRA in its letter of 6 April 2006 has asked the Trustee to indicate how it is acting in the best interests of members when it resolved to exercise its cl. 20 power of amendment, in the manner which is proposed. Two particular aspects of this amendment resolution are addressed in the APRA letter:

(a) the Trustee's decision to pay to the employers more than 50% of the surplus; and

(b) the Trustee's decision to amend the Trust Deed in the manner proposed so as to enliven the provisions of s 117.

118 These questions have now been passed to me. I bear in mind that APRA did not itself appear to develop its concerns. I therefore express my conclusions cautiously. Insofar as the APRA concerns are directed to the amount of surplus to be paid to the employers, I express no views upon the Trustee's decision. If it be accepted that the Trustee might, in the circumstances of this case and consistent with its obligations under the s 52(2)(c) covenant, make some payment to the employers where this is, in the reasonable opinion of the Trustee, in the best interests of the members, the Court will not enter upon a consideration of the amount of such payment. This is a matter for the discretion of the Trustee. No argument was addressed to me that the effect of the share to be paid to the employers was so disproportionate that I should conclude that there has been no proper regard for the best interests of the members. Insofar as the APRA concerns are directed to the propriety of any payment to the employers, I am satisfied that the proposed payment is not inconsistent with the s 52(2)(c) covenant. The payment is part of a package which, on the evidence, will produce a substantial benefit to members. This is a benefit with which they, through their representatives, have expressed themselves to be content. It is a benefit which is greater than their entitlement under the unamended Trust Deed. It is a benefit which, on the evidence, is greater than they might reasonably hope to extract by further negotiation with the employers. Finally, I accept that it is a benefit which the Trustee in the circumstances and after due and proper consideration has concluded is a proper one for it to confer upon the members having regard to the nature and objectives of the Trust.

119 The APRA letter has also raised its concern that the resolution of the Trustee to make the amendment might not have been made after properly taking into account the interests of past members who brought the benefit of the surplus into the Fund when they became members and left it behind when they left the Fund. For present purposes I shall assume, without deciding it, that such former members are beneficiaries within the meaning of that expression in s 52(2)(c). This was a matter which troubled me at the outset of the hearing in February and, I think, the APRA representatives were present when I raised this. They might also have heard the response of counsel for the Trustee which has allayed my concerns. I am satisfied that such members, coming into the Fund, did not, strictly speaking, bring their own surplus. A member has no proprietary interest in the assets of his or her superannuation fund; the fund represents security for the payment in due course of the members' entitlements.[41] It follows that these former members are in no better position than the present members whose position I have already considered.

120 I conclude from this that, on any analysis of the duty imposed upon the Trustee under the covenant inserted by s 52(2)(c), its resolution to make the proposed amendment to the Trust Deed and its intended implementation of the proposal do not amount to a failure to perform its duties and powers in the best interests of the beneficiaries. I will therefore make the orders proposed.

[1] Called in the Trust Deed, "the Plan".

[2] Clause 3(b).

[3] Clause 17A(b).

[4] Actuary's Report para 1.5.1.

[5] Actuary's Report para 1.5.2.

[6] [1972] VicRp 98; [1972] VR 848.

[7] [1966] 1 WLR 499 at 503.

[8] See para [20] above.

[9] See para [23] above.

[10] [1987] 1 WLR 495 at 505.

[11] [2004] 1 NZLR 577 at [23].

[12] Air Jamaica Ltd v Charlton [1999] UKPC 20; [1999] 1 WLR 1399 at 1411.

[13] Edge v Pensions Ombudsman [2000] Ch 602 at 626.

[14] ASEA Brown Boveri Superannuation Fund No 1 Pty Ltd v ASEA Brown Boveri Pty Ltd [1999] 1 VR 144 at 157, per Beach J following Karger v Paul [1984] VicRp 13; [1984] VR 161 at 164, per McGarvie J.

[15] See definition of standard employer-sponsor in s. 16.

[16] [1987] 1 WLR 495 at 505.

[17] First schedule cl. 2.

[18] [1990] 1 WLR 1511 at 1544.

[19] [1987] 1 WLR 495 at 514-5.

[20] (1993) 27 ATR 195 at 218-228.

[21] [1992] 1 NZLR 294 at 297-8 (where the trust deed included, unlike the present Trust Deed, a permanent alienation clause).

[22] Clause 21.

[23] Clause 21A.

[24] Section 6(1).

[25] See paras [47]-[59] above,

[26] There is no relevant covenant prescribed by the regulations pursuant to S. 52(5).

[27] Cth, Parliamentary Debates, House of Representatives, 27 September 1993, p 1103 (Mr Johns, Parliamentary Secretary).

[28] See, for example, s 53(2)(b)

[29] See, for example, s 62(1).

[30] Scott and Fratcher, The Law of Trusts, 4th Ed, vol IIA, p 311.

[31] Halsbury's Laws of Australia, vol 27, Trusts, para 430-4160.

[32] Scott and Fratcher, The Law of Trusts, 4th Ed, vol IIA, p 311.

[33] Esso Australia Ltd v Australian Petroleum Agents' & Distributors' Association [1999] 3 VR 642 at 652 [39], per Hayne J. See JRF Lehane, "Delegation of Trustees' Powers and Current Developments in Investment Funds Management" [1995] BondLawRw 4; (1995) 7 Bond LR 36.

[34] [1985] Ch 270 at 286-7 (a superannuation trust).

[35] [1985] Ch 270 at 295.

[36] Cf Fouche v The Superannuation Fund Board [1952] HCA 1; (1952) 88 CLR 609 at 640, per Dixon, McTiernan, Fullagar JJ.

[37] [1999] 1 VR 144 at 159.

[38] SEK Hulme, "The basic duty of trustees of superannuation trusts - Fair to one, Fair to all?" (2000) 14 Trust Law International 130; D Pollard, "Trustees' Duties to Employers: the Scope of the Duty of Pension Trustees" (2005) 20 Trust Law International 21 at 49.

[39] [1999] 1 VR 144 at 161.

[40] See para [16] above.

[41] Air Jamaica Ltd v Charlton [1999] UKPC 20; [1999] 1 WLR 1399 at 1409 (PC); Wrightson Ltd v Fletcher Challenge Nominees Ltd [2001] UKPC 23 at [28]. See, too paras [86] and [87] above.