Robinson v Pett

Duke of Norfolk's Settlement Trusts, In re [1982] Ch 61 CASES CITED : Queensland Coal and Oil Shale Mining Industry (Superannuation) Ltd, Re [1999] 2 Qd R 524 Robinson v Pett (1734) 3 P Wms 249; 24 ER 1049

3280/09 Cuesuper Pty Ltd (ABN 79 065 018 868) a.t.f. Cuesuper (ABN 22 500 823 949)

1 The Plaintiff is the trustee of a superannuation fund ("Cuesuper") which is regulated by the Superannuation Industry (Supervision) Act 1993 (Cth) ("the SIS Act"). 2 Cuesuper was established by a Trust Deed dated 28 August 1970 in order to provide superannuation benefits for the employees of the Association of New South Wales Credit Unions. There were originally four trustees of the fund, all individuals employed by the Principal Employer, as that term was defined by the Trust Deed. It was not a large fund. In 1970 it had sixty members, nineteen participating employers and assets under management of $33,600. Today, Cuesuper has 6,836 members, 274 participating employers and assets under management of $288M. 3 When Cuesuper was established, the Trust Deed made no provision for the trustees to be remunerated for carrying out their duties. This was doubtless because the duties of the trustees at that time were not very onerous having regard to the size of the fund, and there was a widespread adherence to the old principle of equity that a trustee is expected to act gratuitously: see e.g. Robinson v Pett (1734) 3 P Wms 249; 24 ER 1049. 4 The increasing use of trustees in a commercial context has modified that general expectation. It would be unknown today that a trustee of a large managed investment scheme or superannuation fund would act gratuitously. 5 Nevertheless, the Trust Deed in the present case not only makes no provision for the trustee to be remunerated, it expressly states in Clause 3.23 that the trustee shall not be remunerated. 6 In these circumstances, the Plaintiff applies to the Court for the amendment of the Trust Deed to provide for its remuneration. The application is made on three bases. 7 First, the Plaintiff seeks an order pursuant to s 81 of the Trustee Act 1925 (NSW) to confer power on it to remunerate itself from the trust fund. Second, the Plaintiff invokes the inherent jurisdiction of the Equity Court to order remuneration of a trustee. Third, the Plaintiff seeks a direction from the Court that it is justified in using the power of amendment conferred on it by the Trust Deed to amend the Deed to provide for its remuneration. Parties

8 There is no defendant in the proceedings. The only persons directly affected by the application are the members of Cuesuper. They have not been given notice of the application but the Plaintiff submits that such notice is unnecessary because the interests of the members are represented by three of the six directors on the Board of the Plaintiff, all of whom support the application. 9 The Plaintiff has, however, given notice of this application to APRA, which has regulatory supervision of the superannuation industry. APRA has no objection to this application. 10 Bearing in mind the cost of giving notice of these proceedings to a large number of members, the fact that members' interests are represented by fifty percent of the Board's membership and the fact that APRA has no objection to the application, I consider it appropriate for the application to proceed without joinder of any other party or notification to any other person. I note that a similar course was followed by Williams J in a case which bears a very close resemblance to the present, namely, Re Queensland Coal and Oil Shale Mining Industry (Superannuation) Ltd [1999] 2 Qd R 524. The facts

11 The Trust Deed originally executed in 1970 has been amended several times. The current deed relevantly provides: "3.9 The Trustee shall have power generally to do all acts matters and things as the Trustee may consider necessary or expedient or desirable for the administration maintenance and preservation of the Plan in its performance of its obligations under the Deed.

3.23 Subject to Clause 3.24 the Trustee shall not receive any salary or remuneration from the Plan but nothing herein contained shall preclude any firm corporation company or partnership of which the Trustee is a partner director shareholder employer or employee from being paid out of the Plan any proper fees or remuneration for professional services rendered by such firm corporation company or partnership in connection with the Plan and the Trustee shall not be called upon or required to account for any such fees or any part thereof.

3.24 Nothing in this Clause 3.24 shall prevent the payment of a fee to any independent Trustee appointed to the Plan whether a trustee company or otherwise or whether appointed at any time to the Plan pursuant to any law or regulation governing the operation of superannuation funds in Australia

10.1 The Trustee except where provided for in Clause 10.2 with the approval of the Principal Employer or the Principal Employer with the approval of the Trustee may at any time by deed or resolution make any alteration or amendment to the provisions of the Deed (including this Clause) and may add new provisions thereto or delete provisions therefrom PROVIDED THAT such alteration addition or deletion shall be made only if the Trustee is satisfied that the value of the benefits of each Member and his or her Dependants secured by contributions paid up to the time of making such alteration addition or deletion is not reduced thereby or if the Superannuation Authority or the Members detrimentally affected give their consent in writing thereto." 12 The circumstances giving rise to, and said to justify, this application are set out in an affidavit of the Chairman of the Board, Mr Taylor, as follows: "The question of the need for remuneration of the directors of the Trustee has been discussed by the directors following a governance review undertaken in 2007 by an external governance expert and at subsequent strategic planning workshops in 2007 and 2008. I know from those and subsequent discussions that it is the unanimous view of the Board that it has become essential for the proper conduct of the Fund that remuneration be provided for the directors of the Trustee. In essence, the reasons for this view is as follows: (a) The Trust Deed (and in particular clause 3.23) was framed some 20 years ago, in a totally different environment to the present. Over that period, the whole superannuation landscape has changed so dramatically that it now appears to be an anomaly that the Trust Deed does not provide for the remuneration of directors;

(b) The obligations of superannuation trustees (and their directors) have increased significantly since the Trust Deed was originally framed. It is now necessary for directors of trustees to devote very substantial time in the performance of these obligations. It is no longer practical for the directors to do this without remuneration;

(c) The changes to superannuation law and practice have led to increased personal exposure for directors of superannuation trustees;

(d) The changes to superannuation law and practice have led to more stringent requirements in terms of the education, training and continuing professional development of directors of superannuation trustees;

(e) The Fund is now a substantial fund with assets under management of $288m, 6836 members and 274 participating employers as at 30 June 2008. This represents a very significant increase in the size of the Fund since 1970. The increase in the size of the Fund imposes greater responsibility on directors of the Trustee;

(f) It is important, in the interests of the members and other beneficiaries of the Fund, for the directors to spend an appropriate amount of time attending to their duties as directors of the Trustee;

(g) Due to the significant time which directors need to devote in performing their obligations, and their increased responsibilities, unless remuneration is provided, it is likely that one or more of the present directors will resign;

(h) Similarly, unless remuneration is provided, it is likely that it will become very difficult to attract persons of suitable background and experience to act as directors of the Trustee;

(j) In view of the complexity of managing the Fund in accordance with prudential standards and the value of assets controlled by the Trustee, it is imperative that suitably qualified people are, and are willing to be, appointed to the Board.

(l) Superannuation is a specialised field and the pool of people capable and willing to serve as a director is relatively small. It is important that directors be able to serve at least 2 and preferably 3 terms of 3 years on the Board. In order to be able to attract and retain directors for a period of 6-9 years, it is essential that they be remunerated.

(m) It is usual that trustees of funds similar to the present Fund receive remuneration and remunerate their directors;

(n) The Trustee has for some years participated in and been in receipt of the results of remuneration surveys in relation to the employees and trustee directors of superannuation funds. The proposed amendment to the trust deed contemplates that the levels of remuneration would be consistent with the remuneration paid to a fund of comparable size and complexity. …

(o) The board has also discussed the need to recruit independent directors to the Board but it would not be realistic to attempt to seek out potential candidates without the ability to fairly remunerate for their service, knowledge and skills.

(p) If the Trustee is unable to pay directors fair remuneration consistent with industry standards it may not be able to attract or retain persons to act as directors in future. Alternatively, the Trustee may be obliged to retire in favour of another entity. If that entity were an 'independent Trustee' within the meaning of clause 3.24 of the Trust Deed, (extracted in paragraph 48 of this affidavit) it would apparently be permitted to charge a fee and would be able to remunerate its directors accordingly.

52. The Trustee has set out the proposal to introduce remuneration for Trustee directors in the 2007 and 2008 Annual Reports provided to all members. To date there has not been any negative feedback received from members in relation to the proposal to remunerate Trustee directors. …" 13 This evidence is supported and amplified by the affidavit of Mr Noel Davis, an expert in the field of superannuation law and practice. It is also supported in APRA's response to notification of this application. 14 I accept that the size of Cuesuper and the complexity and difficulty of its administration in accordance with the requirements of the SIS Act and current best practice in the industry require that the Plaintiff be a professionally competent body, attracting and retaining directors of experience and ability who are willing to devote sufficient time to the affairs of the fund. I accept that, in accordance with contemporary commercial expectations, directors of the quality required to administer Cuesuper properly will reasonably require to be remunerated. 15 As I have earlier noted, this application is very similar to that made by the trustee of a superannuation fund in Queensland Coal and Oil Shale Mining Industry (supra). In that case, as in this, the fund had grown from relatively modest beginnings in 1988 to a very large amount under management. Williams J accepted (at 525) that: "The Fund has now grown into a major business and that has imposed major obligations and pressures on directors. Employers and unions are now under financial pressure and their ability to support the applicant through the provision of highly qualified and experienced senior officers as directors has come under review. The combination of business expansion and reduced industry support has meant that the applicant has had to consider remuneration for its directors to ensure a highly competent and experienced team of individuals forming the board of directors." 16 Unlike this case, however, in Queensland Coal and Oil Shale Mining Industry the trust deed was silent as to the remuneration of the trustee. Nevertheless, the principle of equity to which I have referred would have prevented the trustee from receiving remuneration unless the trust deed were amended to authorise it. As in the Trust Deed in this case, there was a power of amendment contained in the trust deed. However, Williams J held that the trustee was unable to utilise that power "because of the conflict of interest": at 525.50. 17 His Honour went on to hold that payment of remuneration to the trustee could be authorised either under the Queensland equivalent of s 81 of the Trustee Act (NSW) or in exercise of the inherent jurisdiction of a court of equity to authorise payment of remuneration to a trustee when the court considers it necessary for the proper administration of the trust: see e.g. In re Duke of Norfolk's Settlement Trusts [1982] Ch 61. As his Honour did in Queensland Coal and Oil Shale Mining Industry, I also conclude that payment of remuneration to the trustee in the present case is expedient and it is necessary for the proper administration of Cuesuper. However, by what precise mechanism is authorisation of remuneration to be granted? 18 Section 81(1)(a) of the Trustee Act provides: " Advantageous dealings

(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court: (a) may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, …" 19 The payment of remuneration to the Plaintiff in the present case would be an "expenditure" for the purposes of the section. There is no power under the Trust Deed to make such an expenditure, so that the section would, prima facie, apply. But this case is a little more complicated in that there is, in Clause 3.23 of the Trust Deed, an express prohibition against the Plaintiff receiving remuneration. To authorise remuneration to be paid under s 81 also requires the amendment of the Trust Deed by removal of clause 3.23, otherwise there will be a conflict between the Trust Deed and the power given to the Plaintiff by the Court. Recourse to s 81 is, therefore, only a partial solution to the Plaintiff's problem. 20 Removal of Clause 3.23 may be effected by the trustee in exercise of its power of amendment under Clause 10.1. Insertion in the Trust Deed of an express right of the trustee to receive remuneration may be effected by the same means. The "Principal Employer", as defined in Clause 10.1, has approved such amendments and the Plaintiff is satisfied that the value of Members' benefits would not be reduced by the amendments. Amendment to the trust Deed under clause 10.1, therefore, provides a complete means of securing the Plaintiff's objective. 21 The difficulty for the Plaintiff is, of course, that exercise of the power of amendment contained in the Trust Deed so as to provide for its own remuneration will give rise, prima facie, to a conflict of interest and duty. It is in the interest of the Plaintiff and its directors to receive remuneration for their services. It is the duty of the Plaintiff as trustee to administer Cuesuper with as little expense and as much profit as possible. Of course, as the Plaintiff would say - and I would agree - the present case illustrates the adage "penny wise, pound foolish": the failure to pay a relatively small remuneration in order to retain a professional and committed Board may result in less skilled administration of Cuesuper and a poorer return to its members. 22 To remove any difficulty about the Plaintiff exercising its power of amendment of the Trust Deed in a situation of conflict of interest and duty, it seeks a direction of the Court that it is justified in making the amendments. 23 As will have emerged from the foregoing discussion, I have no hesitation in giving such a direction. For the same reasons as Williams J gave in Queensland Coal and Oil Shale Mining Industry, I am satisfied that the proper administration of Cuesuper requires that the Plaintiff be appropriately remunerated. 24 The Plaintiff has sought professional advice about the level of remuneration for directors, by reference to industry standards. The amounts suggested by the Plaintiff as a result of those enquiries seem to me to be fair and reasonable. 25 A draft Deed of Amendment has been prepared which the Plaintiff and the Principal Employer propose to execute if the Court gives the directions sought. The draft Deed will be marked as Exhibit P2. The terms of that Deed include the following: "(b) The quantum of the amount payable to the Trustee (and the quantum of any amount payable to the directors of the Trustee) must be: (i) determined by a decision of a majority of the directors (or if the Superannuation Law requires a decision to be determined by a greater number of directors that number) after receiving and having given due regard to independent expert remuneration advice as to the appropriate level of remuneration; and

(c) The Trustee must, at reasonable intervals and, in any event, at least once every two years, consider whether the quantum of the fee payable to the Trustee and the quantum payable to directors remains appropriate and may amend the quantum of the fee accordingly, provided that no increase in quantum may be made except in accordance with the procedure referred to in paragraph 3.23(b) above." 26 It seems to me that these provisions enable proper consideration to be given by the Board of the Plaintiff to the appropriate levels of remuneration from time to time and for the interests of members of the Fund to be given due weight in that process. Orders

27 (1) The Court directs that the Plaintiff is justified in amending the Trust Deed of Cuesuper in the manner set out in Exhibit P2.

(2) The Court orders that the Plaintiff have its costs of this application out of the trust fund on the trustee basis.

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