SAYSENG v. KELLOGG SUPERANNUATION P/L & ANOR [2003] NSWSC 945

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5048/02 - DIOSADADO SAYSENG v KELLOGG SUPERANNUATION PTY LIMITED & HANNOVER LIFE RE OF AUSTRALASIA LTD

JUDGMENT 1 HIS HONOUR: These proceedings relate to the plaintiff's claim for Total & Permanent Disablement benefit from the Kellogg Retirement Fund. The first defendant is the Trustee of the Fund. The second defendant is the insurer in a Group Life Contract entered into by the Trustee to cover entitlements against the fund. 2 The plaintiff Mr Sayseng was born in the Philippines on 22 December 1948. He came to Australia as an immigrant in 1988 and on 30 March 1988 he made an application in writing to Kellogg (Aust.) Pty Ltd for factory employment. In the application he gave a number of personal particulars relating to himself and his family. He gave a history of his employment in the Philippines. He said he was prepared to do shift work. He actually started employment with Kellogg (Aust.) the employer, on 9 or 12 December 1988 and on 16 December 1988 he applied in writing to be admitted as a member of the Kellogg Retirement Fund and asked the employer to make deductions of 5 percent of his base salary. He was treated as having joined the fund on 9 January 1989. 3 The plaintiff's earlier and general employment experience appears from admitted facts in Exhibit 3. These establish that the plaintiff worked as a designer for an enterprise referred to as "Standard" in the Philippines from 1973 to 1974, he assisted in running a variety store business in the Philippines but denies that he worked in the management or running of a retail business; the business was his family's variety store business, and he worked in it from 1974 to 1979. The plaintiff worked as a draftsman for an enterprise referred to as "Fil-Asia" in the Philippines from 1979 to 1988 and had some training and experience in drafting, but not in architecture. Exhibit 3 was admitted without objection. Challenges to opinion-based decisions of both defendants fall to be decided on the material which was or should have been considered by the defendants in making their decisions, and not on the objective facts as now to be determined by the Court. 4 Mr Sayseng continued in employment with Kellogg (Aust.) until he applied in writing for voluntary redundancy on 9 September 1998, accepted redundancy and finished work on 21 September 1998. He was paid redundancy benefit in accordance with the Kellogg (Aust.) Pty Ltd Botany (NUW) Consent Award 1996. The first defendant (the Trustee) gave him a written statement dated 5 November 1998. In an elaborate calculation, it was stated that his leaving service benefit or withdrawal benefit was $46,372.42 at 21 September 1998, and with interest the amount paid to him on 5 November 1998 was $46,880.87. 5 The parties agreed at the hearing that if Mr Sayseng is entitled to Total & Permanent Disablement benefit the amount is $232,069.28. It appears that he would also be entitled to interest. I was not told whether the entitlement would be additional to the withdrawal benefit which has already been paid to him, or whether credit would be sought for that. Further consideration will have to be given to these matters if they arise. 6 On 18 October 1998 Mr Sayseng wrote to the Trustee. He said "I would like to apply for a disability benefit" and asked that the Trustee let him know what was required. This initiated a course of consideration over some years and led eventually to the present litigation. 7 The Kellogg Retirement Fund was created by a trust deed dated 1 October 1976. Under a power of amendment a further deed dated 29 January 1998 between Kellogg (Aust.) and the Trustee substituted a consolidated trust deed and rules for the earlier provisions. Kellogg Superannuation was the Trustee of the Fund, employees could be admitted as members, and both the employer and the members made contributions to the Fund. Under the terms of the trust in 1988, a member had an obligation to pay contributions. However after 1 December 1993 it was no longer obligatory for members to contribute to the fund and members were required to elect either not to contribute or to contribute 5 percent of salary; see Rule 2. Upon retirement at the Normal Retirement Date meaning the member's 65th birthday, after at least 25 years of eligible service, a normal retirement benefit was payable. Benefits were also payable in other contingencies. Rules in the Schedule of the Deed provided among other things for normal retirement benefits, additional benefits, early retirement benefits, late retirement benefits, death benefits, total and permanent disablement benefits and leaving service benefits. The amounts of benefits are the subject of elaborate calculations, in which the contributions paid by the member and the employer are elements. 8 Clause 10 of the Deed POLICIES OF INSURANCE contained provisions which enabled (but did not require) the Trustee to obtain insurance policies. Clause 10 provided as follows:

10. POLICIES OF INSURANCE 10.1 The Trustee may in its absolute discretion invest the whole or any part of the amount standing to the credit of a Member in the books of the Fund in the payment of premiums of a policy or policies of life, disability or accident insurance in which the Trustee has a legal or equitable interest. 10.2 The Trustee may effect such policies with such company on such terms and conditions and for such periods as the Trustee thinks fit. The Trustee shall also have the power to accept an assignment of a policy of life, disability or accident insurance on such terms as the Trustee in its absolute discretion determines. 10.3 The Trustee shall have power to continue such policies for such periods as the Trustee thinks fit and to discontinue, surrender or borrow money on the security of such policies. 9 The Deed did not provide to the effect that the Trustee was to obtain insurance on behalf of or as agent for members. Opportunities were given to members to keep alive the benefit of an insurance policy after they retired. However that is not dealt with by Clause 10. If some contingency happened in which a retirement benefit was payable and there was an entitlement under the policy of insurance, the proceeds of the policy would be part of the Fund, and would not belong to the member; presumably the proceeds of the policy would enable or assist the Trustee to pay benefit. The Trustee had powers of investment and was not limited to insurance to cover benefits. 10 Clause 20 of the Deed dealt with MEMBERS' RIGHTS TO BENEFITS. 20 MEMBERS' RIGHTS TO BENEFITS

20.1 A member shall have no right to interest in his or her Member's Benefit except as provided in this Deed. 20.2 Without limiting the generality of Clause 16, the Trustee: (i) must not pay a Preserved Benefit to a Member prior to that Member's Deferral Date; (ii) must pay or commence to pay a benefit to a member when that Member attains the Required Payment Date, and on payment of that benefit the Member shall cease to be a Member; (iii) may pay a benefit to a Member who has attained age 65 on the request of that Member notwithstanding that the Member remains an Employee and on payment of that benefit the Member shall cease to be a Member. 11 Clause 23 deals with POWERS OF TRUSTEE 23. POWERS OF TRUSTEE 23.1 Subject to the Relevant Law, the Trustee shall have complete management and control of the Fund and shall in addition to the powers otherwise granted in this Deed and conferred upon trustees by statute and general law exercise the following powers:

(e) To delegate (by power of attorney or otherwise) to any person any of the powers duties and discretions vested in the Trustee on such terms and conditions as the Trustee considers appropriate and the Trustee shall not be responsible for any loss incurred as result of such delegation;

23.2 Subject to Relevant Law, the Trustee in the exercise of the authorities powers and discretions hereby vested in it shall have an absolute and unfettered discretion and may exercise or enforce or delegate (by power of attorney or otherwise) all or any of such authorities powers or discretions from time to time or at any time or may refrain from exercising all or any of such authorities powers and discretions from time to time or at any time.

23.3 Subject to Relevant Law, any authority power or discretion vested in the Trustee hereunder may be exercised on its behalf by its directors as a board and to the extent to which the exercising of any such authority power or discretion may have been lawfully delegated by such directors or Trustee to any committee or other person or company by such committee or other person or company. 12 In Rules 3 to 8 normal retirement benefit, additional benefit and early retirement benefit, late retirement benefit and death benefit are entitlements on tests of which an opinion or discretionary decision of the Trustee is not an element. (Discretion is an element for application of death benefit to dependents). So also with leaving service benefit in Rule 12. By contrast the opinion of the Trustee is an element in entitlement to Total & Permanent Disablement benefit, dealt with in Rule 10 in the Schedule to the Deed. 10 TOTAL & PERMANENT DISABLEMENT (1) Where, in the opinion of the Trustee, a Member becomes totally and permanently disabled while in service prior to the Normal Retirement Date and where the Trustee has effected a policy of insurance to secure part or all of the benefits payable in accordance with this Rule 10 and the Member becomes totally and permanently disabled within the meaning of the definition of such disablement in that policy, a benefit of the amount specified in sub-rule (3) of this Rule shall be payable in accordance with sub-rule (4) of this Rule. (2) If part or all of the benefit referred to in sub-rule (1) of this Rule is arranged by means of policies of insurance pursuant to Clause 23.1 and the insurer refuses to insure at standard premiums rates or for any reason refuses to insure or to pay any part of the required sum the Trustee in its discretion may reduce the benefit payable pursuant to sub-rule (1) of this Rule by part or all of the sum insured refused. (3) The amount of the benefit payable pursuant to sub-rule (1) of this Rule to or in respect of a Member shall be equal to the benefit which would have been payable had the Member died on the day which is deemed by the Trustee to have been the day on which the Member became totally and permanently disabled. (4) The Trustee shall pay or apply the benefit payable pursuant to sub-rule (1) of this Rule to or for the benefit of the Member in such shares and proportions and in such manner as the Trustee in its absolute discretion shall decide PROVIDED THAT: (a) if the Member dies before the whole of the benefit has been paid or applied in accordance with this Rule 10 the benefit or any balance thereof shall be payable in accordance with Rule 9; and (b) while the Member is still in the employment of the Employer no payment shall be made except for the maintenance or support of the Member or the Dependants of the Member and for the purpose of relieving hardship. 5(a) If, in the case of the particular Member, insurance of his or her benefit under Subrule 10(1) is not required, the Trustee may exercise its discretion to pay a benefit in the event of the total and permanent disablement of the Member. (b) The benefit will become payable if the opinion of the Trustee after obtaining such medical advice as it deems necessary, the benefit would otherwise have been payable had the Member been covered by the policy of insurance referred to in Rule 10(1) and currently applicable to other Members of the Fund at the date of total and permanent disablement PROVIDED THAT the amount of benefit payable pursuant to this sub-Rule to a Member shall not exceed the benefit calculated in accordance with sub-Rule (3) of this Rule. (6) No benefit from or by the Fund under any other Rule (with exception of Rule 4, if applicable) shall be payable to or in respect of any Member who becomes entitled to a benefit in accordance with this Rule 10. 13 I make several observations about conditions in Subrule 10(1). One of the conditions for payability of benefit is that the member become totally and permanently disabled while in service prior to the normal retirement date. Whether a member became totally and permanently disabled is not established by what the objective facts are, but it is established by an opinion of the Trustee. 14 There is a second condition in Rule 10 on which entitlement depends, and the second condition applies where the Trustee has effected a policy of insurance relating to benefits payable in accordance with Rule 10. That happened in this case. The condition is that "the member becomes totally and permanently disabled within the meaning of the definition of such disablement in that policy …". 15 Whether a member becomes totally and permanently disabled for the purpose of the first condition depends upon the opinion of the Trustee applied to the words "a member becomes totally and permanently disabled" without any further definition of what is meant by the "totally and permanently disabled". For the purpose of the second condition, which applies where there is insurance, whether a member becomes totally and permanently disabled depends on the definition in the policy. Whether or not the second condition is fulfilled depends on whatever the policy provides. 16 If the plaintiff is to have an entitlement to payment of Total and Permanent Disablement benefit within Subrule 10(1) the plaintiff must succeed on both those conditions; that is to say, he must successfully impugn the opinion of the Trustee, and because the terms of the policy refer to the opinion of the insurer, he must impugn the opinion of the insurer. The opinion of the Trustee is only significant for the first condition. When as in this case there is a policy, whether or not the Trustee has formed an opinion that the member became totally and permanently disabled while in service, the conditions for payability of benefit are not fulfilled unless the member becomes totally and permanently disabled within the meaning of the definition in the policy. The opinion of the Trustee does not determine what the policy means, nor does it determine whether or not anything is payable under the policy. And vice versa. 17 Rule 10 does not make the definition of Total & Permanent Disablement in the policy applicable to the decision which the Trustee is to make. The Trustee is to decide whether the member has become totally and permanently disabled while in service prior to the Normal Retirement Date on the ordinary meaning of those words. The decision is an opinion of the Trustee, as Subrule 10(1) says. It is the duty of the Trustee, which its directors perform, actually to consider what its opinion should be, and to form an opinion; the directors would not act in accordance with that duty if they simply followed or endorsed an opinion of the insurer. An opinion of the insurer is also relevant to the workings of Subrule 10(1), but not because of any reference to an opinion in Subrule 10(1). 18 The insurance contract between the Trustee and Hannover is Group Life Contract No. VGL 8034, at Exhibit 2, pp11 to 21. The parties to the Group Life Contract were Hannover and the Trustee, referred to as the proponent. The language of the Contract takes the form of an extended statement by Hannover to the Trustee opening:- Conditional on payment of Premium, we hereby agree to extend cover and to pay benefits with respect to Insured Persons on the basis as set out and subject otherwise to the terms and conditions of the Contract.

The Policy contains these definitions: TOTAL AND PERMANENT DISABLEMENT means: (a) suffering the loss of two limbs or the sight of both eyes or the loss of one limb and the sight of one eye (where limb means the whole hand or the whole foot), or (b) having been absent from work through injury or illness for an initial period of six (6) consecutive months and in our opinion being incapacitated to such an extent as to render the Insured Person unable ever to engage in or work for reward in any occupation or work which he or she is reasonably capable of performing by reason of education, training or experience. WE/OUR/US means Hannover Life Re of Australasia Ltd of Level 7, 70 Phillip Street, Sydney NSW 2000. YOU/YOUR means the Proponent for this insurance shown in the Schedule. 19 It will be seen that the definition in para.(b) is fulfilled partly by facts as they objectively exist and partly by facts determined in the opinion of Hannover. 20 Insured Persons in respect of whom Hannover agreed to pay benefits were not intended to be parties to the Group Life Contract, although their interests are closely involved in it. The agreement to pay benefits is an agreement to pay benefits to the Trustee; this is made clear by Condition 9, which says: All Agreed Benefits shall be paid by us to you or in accordance with your written direction to us, which direction shall be in a form that is acceptable to us. Such payment shall be a complete discharge of our liability to you under this Contract with respect to any Insured Person, and we shall not be responsible in any way for the application of the monies so paid to you or in accordance with your direction. 21 Upon the language used in the Group Life Contract, Hannover does not agree to hold Insured Persons (including Mr Sayseng), insured themselves, and does not agree to pay benefits directly to Insured Persons. Under the heading "EXTENT OF COVER" the contract provides: "If an Insured Person dies or suffers Total and Permanent Disablement during any period for which premium has been paid for that Insured Person, we shall pay the agreed benefits." When read with Condition 9, this must be understood as an agreement to pay the agreed benefits to the Trustee. In some respects, not bearing on entitlement to benefit for Total and Permanent Disablement, the Group Life Contract does purport to confer entitlements on Insured Persons; these appear under the heading "Option to Continue Cover" and, according to their terms, give an Insured Person a right to effect an individual policy of life insurance with an insurance company nominated by Hannover, after the Insured Person ceases employment. 22 Hannover did not, by the terms of its policy, insure or purport to insure Mr Sayseng. In this respect the Policy is unlike the policy considered in Trident General Insurance Co. v. McNeice Bros Pty Ltd (1988) 165 CLR 107. Nor is Mr Sayseng entitled to recover under the insurance by subs.48(1) of the Insurance Contracts Act 1984, as he is not specified or referred to in the policy whether by name or otherwise as a person to whom the insurance cover extends; notwithstanding his being one of the class of persons referred to in the Policy as Insured Persons the policy overall makes it clear that payments are to be made only to the Trustee. It is also doubtful whether the Group Life Contract falls within the class of general insurance referred to in s.48. 23 The Trustee gave attention to Mr Sayseng's claim. William M. Mercer Pty Ltd conducts some aspects of affairs relating to the Kellogg Retirement Fund for the Trustee. Among other things, Mercer provides the Trustee with advice, including advice from its legal officers. Mercer informed Hannover of the claim on 4 November 1998 and asked to know Hannover's requirements. There followed correspondence in which Hannover sought and was given information of various kinds, with correspondence between Mercer, Mr Sayseng and the Trustee. The directors of the Trustee, at a meeting on 11 March 1999, noted "… that the member has not yet supplied all the relevant information to support their claim." There are similar references in the Minutes of several later meetings. By his letter of 9 June 1999, Mr Sayseng in response to requests gave Mercer a document called a Member's Statement with an additional sheet of information, and a statement by Dr Augusto Tablante in answer to a questionnaire. These were passed on to Hannover. In the Member's Statement, which was a standard form used by Hannover, Mr Sayseng said among many other things that the nature of his illness was "L4/5 Disc Degeneration/Spinal Canal Stenonis". He said that his job title was machine operator, that he was unfit for any work, that he was educated to first year tertiary level and had no other qualifications, training or skills. He was asked at question 19 "Please list any jobs you think you may be able to do in the future" and he answered: "Apart from manual/process work - none." 24 He enclosed additional pages listing doctors whom he had seen. These were Dr Vienna Esplago, Dr Agusto Tablante, Dr Peter Giblin, Dr Daryl Salmon, Dr Tan Letian and Dr William H. Wolfenden, and also Ms Linda Barca, Physiotherapist. Question 22 asked him to add any other comments and he said: QUESTION 22 I am permanently incapacitated to resume pre-injury work like the ones I was doing at Kelloggs. I am 50 years old, and at my age and without the necessary qualification and training to do other jobs except manual and process works, it is impossible for me to find employment. I opted to resign because I don't like my condition to get worse. I have tried looking for a job since I left the company, but as soon as employers and employment agencies heard of my injury, they never called me back. I am currently taking pain killer tablets which are bad for the stomach and may cause ulcer, and undergoing pain management treatment with Dr. Daryl Salmon. I am also currently trying acupuncture treatment to ease the pain. There are also times that I am experiencing loss of libido, and my interest in sex has disappeared. Apart from these, my self-esteem is at its very low because as a primary breadwinner, I have a family to take care of. Currently, it is my wife who is now supporting me. Training is also impossible because of the problem of being able to sit or stand for long periods of time. I am spending my days alternatively sitting, standing and lying down to ease my pain. Attached also is a copy of Dr. W. H Wolfenden's report stating that he believe I would not be able to find employment anywhere, and that I will always have a bad back. 25 This material, and a copy of Dr Tablante's report and Dr Wolfenden's report dated 1 April 1999, were passed on to Hannover. Later Mercer obtained from Kellogg (Aust) an Employer Statement and passed that on to Hannover on 9 September 1999, with some other documents relating to the employment. In that statement Mr Sayseng's job title was given as "Packing Line Operator - Level 3". The employer said to the effect that the job was not still open and that the employer did not have any other jobs appropriate to Mr Sayseng's level of skill and experience, and explained his not having been offered alternative jobs by his applying for voluntary redundancy. 26 Hannover retained private inquiry agents to make observations of Mr Sayseng, which they did for four days in the week commencing Monday 27 September 1999. In the course of their observations they made two video films totalling five minutes. In the private inquiry agents' report there are the following comments and conclusion: There is no evidence to suggest the claimant is working.

When observed there was no obvious signs of restriction in relation to the claimant's alleged back injury, however he was not seen to partake in any strenuous activity. 27 Hannover then sought reports from Dr Peter Giblin and Dr Daryl Salmon. These doctors had treated Mr Sayseng and were asked to report on the basis of their notes. Through Mercer, Hannover obtained some formal information from Mr Sayseng - copies of his birth certificate and passport. After receiving reports from Dr Giblin and Dr Salmon, Hannover asked Dr P.D. Funnell, who had not previously seen Mr Sayseng, to examine him and report. Doctor Funnell saw the film and among other things, in his report he said: I strongly suspect that Mr Sayseng's physical capabilities are far greater than he states, and this opinion appears to be supported by video surveillance evidence which I have seen which shows him moving in and out of his car, lifting his garage door, and reaching forward into his letter box, all without apparent pain or restriction. 28 When Hannover had Dr Funnell's report Hannover arranged for a physical capacity assessment of Mr Sayseng to be carried out by Professional Rehabilitation Associates Pty Ltd. The assessment was carried out on 14 March 2000 by Ms Lyn Gosling, an Occupational Physiotherapist, who gave a report to Hannover. Hannover sent copies of Dr Funnell's and Ms Gosling's reports to Mercer. 29 Hannover declined the claim in a letter to Mercer dated 27 April 2000 in these terms: We refer to the above claim and advise that after carefully reviewing all available evidence, we are unable to deem Mr Sayseng totally and permanently disabled within the policy definition. Firstly, to ensure an accurate assessment was made, we arranged for Mr Sayseng to be independently examined by Dr Funnell, Rehabilitation Specialist. "I strongly suspect that Mr Sayseng's physical capabilities are far greater than he states, and this opinion appears to be supported by video surveillance evidence which I have seen which shows him moving in and out of his car, lifting his garage door, and reaching forward into his letter box, all without apparent pain or restriction. From the evidence before, I see no reason why Mr Sayseng could not for the most part return to his previous full-time employment as a machine operator. Even allowing for the possibility of a minor low back injury in 1996, I feel he should still be able to fulfil such work duties up to a manual handling limit of 15kgs. His Employer's Statement indicates that lifting and carrying occupied only 20% of his work day and, this being the case, I see no reason why he could not cope with his previous duties with this lifting limit." However, as we had conflicting medical evidence, we then arranged for Mr Sayseng to undergo a Functional Capacity Evaluation by Professional Rehabilitation Associates. It was concluded in their report dated 14 March 2000 that: "The results of the assessment have, despite Mr Sayseng's exaggerated self limiting behaviour, demonstrated that Mr Sayseng is capable of working. Due to his disc pathology "discogenic pain at L4/5 level" it would be appropriate for him to perform semi sedentary work or work where he can vary his posture between sitting and standing and where he was not required to lift heavy weight repetitively." Therefore, based on current specialist opinion, Mr Sayseng is fit to work and accordingly this claim is declined. Attached for your perusal are copies of relevant medical reports. Should you have any queries, please do not hesitate to contact this office. 30 By letter dated 22 May 2000 Mercer gave advice to the Trustee on the claim. The letter was signed by Marie Sullivan described as Principal Legal Group. The letter opened "I have been asked to advise in relation to Mr Sayseng's claim for Total & Permanent Disablement. As you are aware, the insurer, Hannover Life Re, has denied Mr Sayseng's claim. I have been asked to comment on the reasonableness or otherwise of the insurer's decision and to provide general legal advice with respect to this claim." Among many other things, the letter gave a summary of the views of Doctors Wolfenden, Tablante, Giblin, Salmon and Funnell and of Ms Gosling. In the summary Dr Funnell was referred to as an Orthopaedic Surgeon; this was incorrect as his specialist qualifications are in Rehabilitation Medicine. 31 Mercer said of the private investigator's report: It is my view that this report is unsound and inconclusive and that it should not influence any decision that the Trustee makes about this particular claim.

With other comments this observation meant that Mercer advised against relying on the private investigator's finding which was: This company's finding was that when observed there was no obvious signs of restriction in relation to Mr Sayseng's alleged back injury. 32 The letter pointed out the Trustee's duty to assess the claim and in doing so to consider the provisions of the trust deed, the definition of Total & Permanent Disablement found in the policy, and case law, and gave a summary of some recent decisions of courts in relation to trustees' duties in the context of Total & Permanent Disablement claims. The advice made it plain that the Trustee was to come to its own decision and was not simply to adopt what the insurer had decided. Various observations were made which suggested that the decision of the insurer was unsatisfactory. The advice supported making further inquiries and calling for and considering further medical evidence. The advice spelled out a series of next steps which would lead to a decision by the Trustee on further material and on consideration of its own. 33 Mercer's letter of 22 May 2000 advised that the terms of Subrule 10(1) in the Trust Deed imported the definition of Total & Permanent Disablement from the insurance policy. The advice went on: The relevant definition from the insurance policy is: " Total and Permanent Disablement": (a) Suffering the loss of two limbs or the sight of both eyes or the loss of one limb and the sight of one eye (where limb is defined as the whole hand or the whole foot); or (b) Having been absent from employment with the Company through injury or illness for six consecutive months and having provided proof to the satisfaction of [the insurer's] board of directors that the Member has become incapacitated to such an extent as to render the Member unlikely ever to engage in or work for reward in any occupation or work for which he is reasonably qualified by education, training or experience ." (Emphasis added) Whether paragraph (a) of the definition is satisfied is largely a question of fact. It is my understanding that this provision does not apply in this case, and the circumstances where it would be invoked are very limited, especially compared with the circumstances where paragraph (b) might apply. Elements of paragraph (b) of the TPD definition There are several elements to paragraph (b) of the definition of Total and Permanent Disablement, namely: · absence from employment with the Company through injury or illness for six consecutive months; · proof to the satisfaction of [the insurer's] board of directors that; · the Member has become incapacitated; · the incapacity is to such an extent as to render the Member unlikely ever to engage in or work for reward in any occupation or work for which he is reasonably qualified by education, training or experience. 34 At a meeting of the directors of the Trustee on 23 May 2000, which was attended by representatives of Mercer, the Trustee resolved: The Trustee Directors NOTED that Hannover have denied the claim for Mr Sayseng. The Trustee Directors believe that they needed further medical evidence from an Occupational Physiotherapist and an Orthopaedic Surgeon before they could reach their decision (or other suitable specialists). The Trustee Directors requested that this additional advice be received via a referral from Dr Mitchell (who is Kellogg's doctor). When this evidence has been produced the claim will be reconsidered. 35 Mercer then arranged for Dr Robin Mitchell to see Mr Sayseng and to make a doctor's report. Dr Mitchell is referred to in the Trustee's records as "Kellogg's doctor." Dr Mitchell practises as a Consultant Occupational Health Physician, and he knew Mr Sayseng as he had helped to manage Mr Sayseng's rehabilitation at Kellogg (Aust.) as Consultant Occupational Health Physician there; he had last seen Mr Sayseng on 7 September 1998. In his report of 14 August 2000 Dr Mitchell gave his own observations and comments and surveyed x-ray reports and reports of Dr Tablante, Dr Giblin, Dr Salmon, Dr Funnell, Dr Wolfenden and Ms Gosling. At the conclusion of his report Dr Mitchell said: In Summary : This man, now aged 51 has useful and transferable skills. He has been reluctant, it would appear, to pursue any form of vocational endeavour, in spite of being off work for two years and acknowledging that he could physically carry out a number of activities. Normal work, in lighter process, takes into account all of the requirements indicated by all the Doctors involved except Dr Wolfenden. Therefore Mr Sayseng does not have sufficient disease, injury or disability to comply with your requirement that "the Member has become incapacitated to such an extent as to render the Member unlikely to ever engage in or work for reward in any occupation for which he is reasonably qualified by education, training or experience. 36 Doctor Mitchell went on to recommend a consultation with an Orthopaedic Surgeon. Mercer then made arrangements for Mr Sayseng to be examined by Dr Derrick Billet who practises as a Consultant Orthopaedic Surgeon. After referring to the history, his own observations on physical examination and to x-rays which he had seen Dr Billet gave the following summary and assessment. SUMMARY AND ASSESSMENT: On a spontaneous basis without preceding trauma in January 1996, Mr Sayseng developed pain in his lumbar region, which remains on a constant daily basis, accompanied by intermittent pain down his legs to his calves, occurring either on a daily basis or during the course of the week, with paraesthesia in a similar manner. He took a redundancy package in September 1998 and he has not returned to any form of employment since that time. The physical examination has not produced any clinical evidence of an intervertebral disc prolapse or nerve root irritation in relation to his thoraco-lumbar spine. The X-rays I have viewed have shown pre-existing constitutional degenerative changes in his lumbar spine and these changes were probably aggravated during the course of his work, with repetitive bending and lifting, making these changes symptomatic. However, I consider that the effects of the aggravation have ceased and I would attribute his current symptoms to underlying degenerative changes in his lumbar spine. I do not consider that Mr Sayseng is totally and permanently incapacitated and I consider that he is capable of working. However, he should limit weight to 12 kg, control repetitive bending and he should sit or stand as the need arises. Mr Sayseng could work as a shop assistant, as a gate-keeper, as a console operator at a service station or he could do light process work. 37 Thereafter Mercer sent a Letter of Advice to the directors dated 10 January 2001, signed by Neal Dallas whose title was Principal Legal Group. This advice surveyed the reports of Dr Mitchell and Dr Billet and included the following passage: Recommendation The latest medical reports clearly conclude that Mr Sayseng is not totally and permanently disabled. They support the previous findings of Dr Funnell (Orthopaedic Surgeon) and Lyn Gosling (Occupational Physiotherapist). Whilst there remains 4 earlier reports which found Mr Sayseng to be totally and permanently disabled, it is relevant to note the report of Dr Mitchell which considers each of those reports and points to the inadequacies in each of those reports. It is my recommendation that Mr Sayseng be considered not to be totally and permanently disabled. I see no reason to refer the latest medical reports to the insurer, given that they are consistent with the insurer's existing decision. Notification The Trustee must form its own decision in relation to Mr Sayseng's claim, having regard to all of the evidence obtained. 38 Copies of the reports of Drs Billet and Mitchell and of the previous reports and other material were enclosed. 39 At the meeting of the directors of the Trustee on 9 April 2001 they resolved as follows: The Directors noted Mercer's review of Mr Sayseng's medical reports. The Directors were satisfied that the member was not totally and permanently disabled as defined in the Fund's Trust Deed or policy of insurance, and consequently declined the claim. Mercer was requested to advise the member of this decision. 40 When informed of this decision Mr Sayseng by a letter of 2 May 2001 said that he lodged a formal complaint regarding the decision. In reply the Trustee said: "If you have any medical or other evidence you wish to provide in support of your claim, please forward it …". Mr Sayseng sent the Trustee a copy of the report of Dr Giblin of 28 May 2001. This report was based among other things on a review on 23 May 2001 and the conclusions included: This Gentleman, in my view, has a disability in his lumbar spine which renders him a substantial liability to any employer, and to himself. It would be reasonable for this gentleman to consider early retirement on medical grounds. I consider him to be permanently unfit for his pre-injury job as a packing machine operator either on a full-time or part-time basis. The most optimistic, and unlikely scenario, would be a part-time light duty work environment, in a self employed position, and preceded by the appropriate vocational rehabilitation. . . . . In my experience, I think this is quite unlikely and unreasonable and as such, I would support his application for disability benefit in terms of his Superannuation Policy. 41 The Trustee referred this report to Hannover and asked for reassessment. The Trustee informed Mr Sayseng on 12 June 2001 that "… the matter has been referred to the insurer for reassessment." In a letter of 25 June 2001 Hannover maintained its decision to decline Mr Sayseng's claim. Their letter said: Although we fully acknowledge and respect Dr Giblin's comments in his report dated 28 May 2001, our assessment of Mr Sayseng's claim was based on both Dr Funnell's opinion and on a Functional Capacity Evaluation by Professional Rehabilitation Associates. When we consider all medical evidence in its totality, we are maintaining our decision to decline Mr Sayseng's claim as we believed Mr Sayseng has an ability to perform semi-sedentary type work. 42 Mercer in a letter signed by Neal Dallas on 13 July 2001 advised that the Trustee was required to reconsider its original decision in relation to Mr Sayseng's claim, including all relevant information in relation to the claim. The advice referred to the earlier comments and also to Dr Giblin's recent report, and recommended that Mr Sayseng be considered not to be totally and permanently disabled. Mercer's letter said: "… there is no reason for the Trustee to deviate from its previous conclusion that Mr Sayseng is not totally and permanently disabled" and recommended a decision to that effect. Mercer advised: "The Trustee must reconsider its original decision and form its own view in relation to Mr Sayseng's claim, having regard to all of the evidence obtained.". By a letter of 21 September 2001 written by Mr Creely on behalf of the Trustee to Mr Sayseng, the Trustee affirmed its decision of 9 April 2001. 43 Thereafter Mr Sayseng engaged solicitors, and they wrote to the Trustee on 19 December 2001 requesting a body of information about the claim and its rejection, in reliance on entitlements under the Superannuation Industry (Supervision) Act 1993 and regulation. The Trustee replied on 31 January 2002 furnishing some but not all of the requested information. 44 On 14 August 2002 Hannover sent to the Superannuation Complaints Tribunal a letter reviewing and adhering to its position. 45 In 2003, in a letter of 13 March 2003 addressed to its own lawyers, and in a letter of 4 April 2003 addressed to the plaintiff's lawyers, Hannover adhered to its earlier position. The letter of 4 April 2003 appears to have responded to additional material submitted on 28 February 2003; the evidence does not show what additional material was then submitted. 46 In 2003 consideration proceeded on the basis that in the definition in the policy, para.(b) was relevant and actually read: (b) having been absent from work through injury or illness for an initial period of six (6) consecutive months and in our opinion being incapacitated to such an extent as to render the Insured Person unable ever to engage in or work for reward in any occupation or work which he or she is reasonably capable of performing by reason of education, training or experience. 47 There are several minor verbal differences but where the version quoted in Mercer's letter of 22 May 2000 and then considered by the directors refers to a member's being "unlikely ever to engage in or work for reward …" the version considered recently refers to the member's being "unable ever to engage in or a work for reward …". The second version, with the word unable is what actually appears in the relevant policy. 48 The Trustee received a Letter of Advice from its solicitors Messrs Blake Dawson Waldron about 2 April 2003. The Letter of Advice is not in evidence. It enclosed a number of medical reports. Mr Creely, who is a director of the Trustee, prepared and circulated board papers with all the doctors' reports dealing with Mr Sayseng which were available, including some which Mr Sayseng's solicitor had referred to as new, apparently in a call for reconsideration of his claim. 49 The directors of the Trustee again considered Mr Sayseng's complaint at the directors' meeting of 6 May 2003, which was attended by Nicky Stathopoulos of Mercer Legal. The directors resolved: Nicky Stathopoulos advised that there appeared to be some confusion around the use of the disability definitions "unlikely ever" or "unable ever". Mercer was requested to investigate further and write to the two original examining doctors asking them to review their opinion within the context of the "unable ever" definition. Nicky Stathopoulos left the meeting. 50 Mercer then obtained some further short comments from Drs Billet and Mitchell on whether the definition with the word "unable" would change opinions they had given when earlier told the definition in terms which included the word "unlikely". 51 A meeting of the directors of the Trustee was held on 26 May 2003 attended by five directors (who attended in person: the heading of the minutes stating that it was teleconference meeting is incorrect.) 52 Before the meeting Mr Creely circulated 20 reports which were available to him to the directors. At the meeting it is his evidence, which I accept that: 6. At the meeting the directors considered: (a) the medical reports referred to in the schedule (GC2 above) (b) the other material previously considered by the directors (c) the supplementary reports of Dr Mitchell dated 14 May 2003 true copies of which are annexed marked "GC3" and Dr Billet dated 21 May 2003 annexed marked "GC4" (d) the advice of Blake Dawson Waldron dated 2 April 2003.

It appears from the papers considered that a matter of concern for the directors at their meeting on 26 May 2003 was whether the correct definition of Total & Permanent Disablement had been used in their earlier considerations. 53 The substance of the minute is as follows: Purpose of The Directors noted that a special meeting has been Meeting : convened for the purpose of reconsidering its Earlier decision that Mr D Sayseng is not entitled To a Total & Permanent Disablement ( TPD ) Benefit Under the Kellogg Retirement Fund ( Fund) . TPD Claim - The Directors noted that that: Mr Sayseng: · A supplementary report has been received from Dr Robin Mitchell dated 14 May 2003. · A supplementary report has been received from Dr Derrick Billet dated 21 May 2003. · Blake Dawson Waldron (BDW) has provided advice to the Trustee in relation to the TPD claim for D Sayseng. · The Trustee is now required to give consideration to the new evidence and make its decision in respect of this TPD claim.

IT WAS RESOLVED that having reviewed all of the medical evidence and other information in relation to the TPD claim, the Trustee maintains its decision that Mr Sayseng is not TPD as defined in the Fund's Trust Deed and the Policy of Insurance. 54 The matter for the opinion of the Trustee in Subrule 10(1) - "… a member becomes totally and permanently disabled while in service prior to the Normal Retirement Date …" - when understood in its context but without the definition of the almost identical expression "Total & Permanent Disablement" in the Policy, is a rather stringent test. It cannot be understood however without considering the question - disabled for what? The narrow context of Rule 10 and the wider context of the whole deed give the answer that it refers to being disabled for employment, including employment in the work the member was doing in the service of the employer, and other employment for which he is qualified by capacity training or experience. Physical ability to perform work which the member does not know how to do or could not be trained to do, or to perform work which is not available, could not be relevant to the application of Rule 10, which is directed to the realities affecting the member under consideration. It is not about theory. The requirement that the member be totally disabled is stringent and excludes disability from doing part-time work, again with reference to part-time work which the member can do. 55 In Rapa v. Patience (McLelland J) (4 April 1985 unreported) his Honour dealt with entitlement to benefit for early retirement on the basis of total and permanent disablement under a Trust Deed regulating a fund for the purpose of providing individual personal benefits, pensions or retiring allowances for employees of a group of companies. McLelland J said: The grounds on which the performance by trustees of functions such as these may be successfully challenged are those applicable generally to the exercise by trustees of discretionary powers, helpfully discussed by McGarvie J in Karger v. Paul (1984) VR 161. As encapsulated by his Honour in that case there are three such grounds and in some circumstances a fourth. They are, first, that the discretion was not exercised by the trustees in good faith, second, that the discretion was not exercised upon real and genuine consideration (which includes consideration of the wrong question - see Scott on Trust 3rd ed. Vol.3 para.187.3) third, that the discretion was not exercised in accordance with the purposes for which it was conferred, and fourth, where the trustees have disclosed (otherwise than in the course of the proceedings in which the discretion is challenged) the reasons for the exercise of their discretion, that those reasons are not sound. 56 McLelland J treated the grounds upon which discretionary decisions of superannuation trustees may be challenged as the same as the grounds upon which discretionary decisions of trustees generally may be challenged, as to which see also Parkes Management Ltd v. Perpetual Trustee Co. Ltd (1977) 3 ACLR 303 at 311 (Hope JA). McLelland J's statement has been approved and followed by courts many times. 57 To a similar effect is the following statement in Tonkin v. Western Mining Corporation Ltd [1998] 10 ANZ Ins Cas in the judgment of Franklyn J with whom Malcolm CJ and Pidgeon J concurred:- In my view, having regard to the terms of the Deed and the relevant definition, there is no obligation on the Trustee, on an application for the TPD Benefit supported by evidence inadequate to give rise to the necessary opinion, to seek out, on its own initiative, evidence for its consideration and so strain to obtain evidence relevant to the formation of the necessary opinion, thereby attempting to bring within the definition a member not otherwise within its terms. It may, however, in the exercise of its fiduciary duty and as a matter of discretion, if it considers it appropriate, seek and obtain additional medical evidence. It may also, as a matter of discretion, require medical evidence to be submitted to it for the purposes of its consideration. As trustee, it is not an adversary either for or against an applicant for the benefit. Relevantly, it has a duty only to act in accordance with the trust. If it fails to perform the same, the court will compel it to do so or do so for it. It is not bound by any rules as to how it exercises a discretion conferred on it, save such as it is obliged to comply with by the terms of the Deed, provided always that it must act honestly and in good faith, on an informed view of whether or not to exercise its discretion, and exercise the power with due consideration for the purpose for which it was conferred and for no ulterior purpose. In the case of powers conferred on it and as to whether it should do or refrain from doing something, it must exercise its judgment actively and honestly and act accordingly. The court will not control a trustee in the exercise of its purely discretionary powers unless it is acting mala fide or has misconceived the nature of its discretion and acted upon that misconception. When appointed to exercise a trust according to discretion, a trustee is not bound to state reasons for any conclusion at which it may have arrived and on which it has acted, but again the discretion must be exercised with an absence of indirect motive with honesty of intention and on a fair consideration of the issues. The duty of the court generally is to see that the discretion of the Trustee has been exercised in this manner and not to deal with the accuracy of the conclusion at which it may have arrived. See Jacobs' Law of Trusts in Australia, 5th Ed, p372-p379. 58 Franklyn J went to make observations on circumstances in which renewed consideration is required after submission of further material. In the present case the Trustee gave consideration to further material when requested on behalf of Mr Sayseng to do so; I see no reason to doubt that the Trustee was entitled to reopen its consideration if it chose to do so. Conceivably there may in the future be circumstances in which the Trustee would be obliged or entitled to reopen consideration again. 59 It should be recognised, in my view, that the context of the employment relationship has some influence on the application of grounds identified in Rapa v. Patience when exercise of discretionary powers by superannuation trustees is challenged. The context in which it may be supposed that discretionary trusts first existed was a context of bounty in the management of family property, and of settlements created by deeds or wills in which a benefactor substituted decisions to be made in the future by trustees for exercises of bounty which, had his life or control long continued, he would have made himself. Perhaps in their origin discretionary trusts in superannuation schemes were perceived as having a similar function as exercises of bounty, but if this was once so it has for a long time not accorded with the realities of the employment relationship, in which employees contribute their own funds, sometimes over many years, and bargain for employer contributions which have the economic function of being part of the reward for employee services. Notwithstanding the incorporation of discretionary tests, the shared expectation that benefits will actually be available as contemplated is extremely strong, and reasonably so. These circumstances must have some influence on the responsibilities of trustees and on the approaches of courts to the tests (to which McLelland J referred to Rapa v. Patience) of good faith in the exercise of powers, real and genuine consideration, compliance with the purposes for which power was conferred and soundness of reasons when reasons are given. In the context of the employment relationship, and of the importance of retirement benefits, including benefits for total and permanent disablement, the responsibility of trustees is high and scrutiny of their decisions is only to be expected and is appropriate. 60 A discretionary trust is not a satisfactory vehicle to secure entitlement to superannuation or retirement benefits. Discretionary superannuation trusts are not well suited to the expectations of those involved in employment relationships and the actual functioning of those relationships. The persistence of this kind of scheme, rather than some scheme in which entitlements are more open to objective ascertainment, is remarkable. I regard this mechanism as unsatisfactory because decision is not appropriately exposed to the scrutiny available where a court or other person not in any way involved in the controversy can hear the evidence of the medical witnesses, can hear evidence about available employment and the extent of disability, and can reach a conclusion on the basis of full exploration of the facts and of testing of the value of opinions and assertions of fact by cross-examination. These controversies cannot be addressed, and cannot be decided in a fair way, without making concrete a group of generalisations about employment which the employee has ability to undertake - what the duties of the jobs are, who are the prospective employers, where the jobs are, what physical operations the employee would perform, for how long in each working day and each working week he was to perform them. As far as possible these matters have to be reduced to the concrete and they cannot be addressed properly if they are left undefined and abstract. Decision of what may be complex controversies in which the attitudes, personal reliability and physical condition of the claimant are involved, as they typically are in cases about bad backs, and not over small amounts but over retirement allowances on which the claimant is to leave the work-force, seems to me to be too important to be left wholly to trustees and insurers to resolve from examination of files. This mechanism does not achieve decisions in which claimants can be expected to place much confidence, and it does not achieve the economic objectives of employers, who can be taken to intend to hold out entitlement to retirement benefits as an inducement to employees to enter and continue in their employment, an inducement which is blunted to the extent that actual fulfilment is uncertain. 61 The fourth matter to which McLelland J referred in Rapa v Patience turns on the well established immunity of trustees from being compelled to give reasons for discretionary decisions. If they give reasons the reasons are open to examination, but they may not be compelled to give reasons. To give their exemption from compulsion reality, trustees may not be exposed to adverse inferences and findings based on their not having given reasons at the time of their decisions, or their not having given evidence in litigation so as to explain their reasons; if they were so exposed, they would not in truth have any exemption. In the present case the Trustee did not give reasons, and all that can be known about the reasons are the very slight matters that may be inferred from evidence about the material which was circulated to the directors and from the terms of their resolutions. Their not having gone further in evidence is not a basis for any inference relating to whether they exercised the discretion in good faith, or upon real and genuine consideration, or upon the right question, or for any adverse inference at all. Observations to this effect by the plaintiff's counsel were not well directed. 62 The plaintiff can rely only on a much broader approach, to the effect that a reasonable person deciding whether to form the opinion of the Trustee required by Subrule 10(1) could not have reached the decisions the directors of the Trustee did reach, so that there must have been some failure of good faith, or of the application of real and genuine consideration, or of exercise of powers for purposes for which they were conferred. The matter was put this way in Maciejewski v. Telstra Super Pty Ltd [1999] NSWSC 341 at [13] by Windeyer J: What the plaintiff must establish to make out her claim for relief is that the decision of the trustee to reject her claim was a decision that no reasonable person could come to on the evidence available to it. It is not the function of the Court to decide whether a particular decision might or might not have been more reasonable in its view than the decision to which the Trustee have come. 63 In a case like the present where the evidence allows the information placed before the Trustee to be identified, if the Trustee came to a conclusion which no reasonable person could have come to one of the first three grounds of challenge referred in Rapa v. Patience must be available; an unreasonable conclusion cannot be reached without either a failure to exercise power in good faith, or a failure to exercise the power upon real and genuine consideration, or a failure to exercise the power in accordance with the purposes for which it was conferred. See Maciejewski at [21]. Necessarily the consideration of the challenge to these opinions is restricted to consideration of material which was available for the Trustee and the insurer to consider: Tonkin v. Western Mining Corporation Ltd [1998] 10 ANZ Ins Cas 61-397. 64 The directors of the Trustee had before them, on each of the three occasions when they considered the matter, a number of reports from people with medical qualifications in several fields, and from a Physiotherapist, which bore on whether Mr Sayseng had incurred total and permanent disablement. Much of the material under consideration was not well directed to Mr Sayseng's state of disability while in the employer's service, which is what must be considered under Subrule 10(1). Nor was it all well directed to consideration of whether he was totally disabled from employment, which would require an address to his ability to perform available part-time work or light duties. The directors also had, at various times, advices from Mercer, and appraisals from different sources of the significance of the observations of the private inquiry agent and of the video. They did not act precipitately, they gave time to their considerations and they twice referred for further medical opinion. On the material before them there could be no doubt that Mr Sayseng had incurred disability which adversely affected his working capacity; but various sources differed as to the impact of the disability on Mr Sayseng, on the kind of work he could undertake, and on the influence of his own response and attitude on the outcome. 65 Many criticisms were offered by the plaintiff's counsel of the course of consideration and of particular aspects of reports which were before the directors. I will review these criticisms, but the plaintiff's claim does not raise for my decision what conclusion I would reach on the body of material and on the criticisms of particular passages in it. What is raised for decision is whether the Trustee, as a reasonable person confronted with this body of material, could reach the decision it did without failing in one of the respects indicated in Rapa v. Patience. Certainly there was much in the material before the directors which could have supported a decision favourable to Mr Sayseng, but there was also much which clearly favoured the decisions which the directors made. The influence which various parts of this material should have was a matter for the Trustee's own consideration; reaching one outcome or the other was, in my opinion, well within the range of outcomes available without falling within any of the grounds of challenge. Testing the relative weight of observations and conclusions in the body of material before them was something for the directors of the Trustees to consider. Unless some ground or reasoning can be pointed to which puts one conclusion or the other out of consideration in the minds of reasonable people, the decision cannot be set aside; and in my view no such ground or reasoning has been put forward. 66 Even if the Trustee had reached a conclusion favourable to Mr Sayseng, or were to do so on further consideration under direction of the Court, Mr Sayseng would not have an entitlement to benefit unless insurance were available. The grounds upon which an opinion of an insurer upon which entitlement to insurance arises may be challenged are different to the grounds upon which discretionary decisions of trustees may be challenged. 67 The attacks made upon the Trustee and its decisions in the Amended Statement of Claim ranged widely. However observations by plaintiff's counsel were even wider. In particulars (a) and (b) of para.11 of the Amended Statement of Claim there was a complaint to the effect that by entering into an insurance policy in which the insurer's opinion was an element for the availability of insurance the Trustee purportedly abrogated all its discretion in relation to the plaintiff's claim for Total and Permanent Disablement benefit. In my view this cannot succeed because the trust deed in terms authorises the Trustee to enter into a policy, and Rule 10 in the schedule of the trust deed makes the availability of insurance under a policy, where there is a policy, part of the conditions for the payment of benefit. Insurance policies in which an insurer's opinion is an element in the conditions for the availability of insurance are a very long established part of the insurance market and there is no evidence which would tend to show that the Trustee acted in other than an ordinary and reasonable manner in obtaining insurance on such terms; for example there is no evidence that insurance on terms not involving the insurer's opinion was available. It should not in my opinion be found that the Trustee acted in breach of trust in this respect. Particular (c) appears to be a development or restatement of Particulars (a) and (b). 68 Particular (d) is: By entering into the insurance policy in the form that it did, the trustee entered into an agreement that hindered or tended to hinder the first defendant as trustee properly performing or exercising the trustee's functions and powers.

In my finding the Trustee was authorised by the trust deed to enter into the policy and by doing so did not encumber performance of its own functions. Particulars (e) and (f) are developments of Particular (d) they also fail. Particular (g) is to the effect that the decision of the directors of 9 April 2001 was not based on genuine consideration but was a mere endorsement of Hannover's rejection. This has not been shown to be true in fact. Particular (h) is to a similar effect and alleges that the Trustee acted as mere agent of Hannover. This also has not been proved. The evidence shows the contrary. 69 Particular (i) is to the effect that the Trustee refused to reconsider the plaintiff's claim when it was provided with further medical evidence on 28 February 2003. In my finding it has been proved in a clear way, by the evidence of Mr Creely and otherwise, that the Trustee gave careful reconsideration leading to the directors' decision of 26 May 2003. 70 Plaintiff's counsel made many further observations adverse to the weight or relevance of material before the directors on which the Trustee acted. Many of these observations would have been appropriate to a merits review, or a retrial on all relevant facts to establish what my own opinion is, which I am not authorised by law to undertake. On the other hand many aspects of the case as particularised were not deal with by plaintiff's counsel. No submissions were made in support of the claim in paras.12 and 13 of the Amended Statement of Claim relating to s.13 of the Insurance Contracts Act 1984 or in para.14 relating to s.55(3) of the Superannuation Industry (Supervision) Act 1993 (Cwealth). I have been unable to see any basis for those claims. 71 Other matters on which counsel made observations can be noted shortly. It was contended that the Trustee's consideration of the claim has been unduly delayed. I do not think that this was correct but if correct it would not be the basis for any remedy. The referral for report to Dr Mitchell and then after having Dr Mitchell's report to Dr Billet was criticised in view of the Trustee's resolution of 23 May 2000 having recorded a decision to refer to an orthopaedic surgeon and an occupational physiotherapist, which was not carried out. I am unable to see why departure from the decision of 23 May 2000 is a ground for attacking the validity of the opinion; further the material obtained, from Dr Mitchell and from Dr Billet, does not appear to me to be an inadequate endeavour to obtain relevant material when tested against the terms of the resolution. It was contended that there was no due weight given to the views of treating doctors; I do not think there is a basis for this, as it has not been established that the Trustee did not consider the reports of the treating doctors, and in particular there was a full survey of reports in May 2003. The weight to be given to reports, opinions in them and statements of fact in them was a matter for the directors to consider, and no particular outcome was dictated by a whole view of all materials. It was also submitted that the Trustee's decision was largely based on Hannover's decision. This has not been made out. Quite to the contrary Mercer pointed out in a clear way the need, as was already obvious, for the directors to make their own decision. There were also complaints made about incorrect references to Dr Funnell's field of specialisation, and about Dr Funnell's interpretation of the implications of the video film. There was a complaint about dealing with the plaintiff when he did not have legal representation, which was altogether for him, and not a matter within the control of the Trustee. It was said that in some way availability to the Trustee of information relating to a worker's compensation claim by Mr Sayseng was unfair; no basis for this has been proved. I do not regard any of these contentions as having any substance or as casting any doubt on the effectiveness of the decisions of the Trustee. 72 When the Trustee reached the first decision in 2001 it should be found that the directors acted in the belief that, as set out in the Mercer advice, the definition in the Policy applied, and that the definition was in the form incorporating the word "unlikely" not the word "unable". For similar reasons the decision of 26 May 2003 should be found to have been based on applying the words actually in the Policy with the word "unable". As earlier observations show, in my opinion the correct reading of Subrule 10(1) does not incorporate an definition from the insurance policy into the general meaning of the words "totally and permanently disabled" and the first condition in Subrule 10 (1). The fact that the directors applied tests attributed to the insurance policy is not a ground on which the Court should set aside their decisions unless there is some clear reason for saying that the tests that they applied were wrong, that is that the test in the Policy is different, in some material way, to simply applying the words first found in Subrule 10(1) in their ordinary meaning. I am unable to see any difference, in reality, between the test incorporating the word "unable" actually found in the Policy, and the test found in the first part of Subrule 10(1). To my reading the definition of the Policy restates, in a fuller way but without any change in substance, what the test in the first part of Subrule 10(1) means. The earlier form applied in 2001, with the word "unlikely" and not the word "unable" and with some other verbal differences, does not appear to me to be different in substance, although the word "unlikely" may have been, to a slight degree, more favourable to the member than the word "unable" or the actual application of the words in the first part of Subrule 10(1). It should not in my view be found that the Trustee exercised the discretion on consideration of the wrong question and for that reason did not exercise the discretion upon real and genuine consideration. 73 The general statement of the grounds on which discretionary powers of trustee may be controlled by the Court, appearing in Jacobs Law of Trust in Australia 6th ed. at [1607] and approved in Parkes Management Ltd v. Perpetual Trustee Co. Ltd (1977) 3 ACLR 303 by the Court of Appeal of New South Wales, does not include exercise of powers of trustees by the Court. In my understanding, where an exercise by a trustee of a discretionary power is successfully challenged, the consequence is that there has been no exercise of the power, and the purported decision was void. See my judgment in Vidovic v. Email Superannuation Pty Ltd (3 March 1995 unreported). If (as in the present case) the Trustee has a duty to come to a conclusion, the Court may compel reconsideration, even to the extent of removing a trustee who fails to consider a discretionary question on a proper basis, and substituting a new trustee. In my view the Court cannot itself exercise the power which the trust deed confers on trustees. The Court cannot undertake all or part of the duty of a trustee of a retirement fund. 74 In Rapa v. Patience McLelland J said: I accept that, in the case of at least some kinds of discretionary trust powers, the Court may in a proper case execute the trust by substituting its own discretion for that of trustees. (See McPhail v. Doulton [1971] AC 424 at 425 and cases there cited, and also at 457.) 75 Lord Wilberforce in McPhail v. Doulton referred to 18th Century or earlier cases where the Court directed division on the principle of equality, or (it may be) regarded it as obvious what the only possible decision was and made it. Further passages in Lord Wilberforce's judgment at 451 and 452 and following appear to me to acknowledge the difficulties for intervention by the Court presented by later authorities. 76 Many English cases deal with failure to take relevant considerations into account or with mistake affecting decisions of trustees; the series begins with In Re Hastings-Bass Deceased [1975] Ch 25 and leads to Abacus Trust Co. (Isle of Man) v. Barr [2003] 1 All ER 763, where Lightman J was of the view that the decision so affected is voidable by the Court and is not void. In the present case nothing turns on whether the decisions of the Trustee are no more than voidable. 77 Where, as in Hannover's Group Life Contract, entitlement to insurance is expressed in the Policy to depend on facts of which the opinion of the insurer is an element, intervention by courts takes place on different principles to intervention in discretionary decisions of trustees. Two different approaches to judicial intervention in discretionary decisions not uncommonly operate in litigation about superannuation, and (as in this case) in relation to the same claim. The grounds upon which the opinion of an insurer may be challenged are generally similar but the consequences of a successful challenge are more radical. The Court regards the reference to the insurer's opinion, in the context of a contract of insurance, as means adopted by the parties for ascertainment of the facts to which the opinion relates: contractual entitlement depends on the facts, not, primarily, on the opinion which is the means of ascertaining them, and if the insurer has actually failed to form the opinion, or has constructively failed by acting on some wrong basis, the Court proceeds to determine the facts. 78 I turn to address the standing of Mr Sayseng to bring these proceedings against Hannover. Hannover did not contest Mr Sayseng's standing, but it is appropriate that I say why I have accepted it. As the policy does not purport to extend insurance to Mr Sayseng or to the Insured Persons referred to in it, the reasoning which led the majority of the High Court of Australia in Trident General Insurance Co. Ltd v. McNeice Bros Pty Ltd (1988) 165 CLR 107 to conclude that the subcontractor in that case was entitled to enforce the insurance has no present application. There was no basis for Mr Sayseng or any other Insured Person to assume that insurance by Hannover was effectively available to them personally, or available in any other manner than the indirect path of their having an entitlement to a payment from the Kellogg Retirement Fund, with the Trustee having a corresponding entitlement under the Group Life Contract to have insurance money paid into the Fund. Trident General Insurance Co. Ltd v. McNeice Bros Pty Ltd related to provisions which in explicit terms purported to extend insurance to subcontractors. Provisions like these were familiar in indemnity insurance and had often been acted on. See Barroora Pty Ltd v. Provincial Insurance Ltd (1992) 26 NSWLR 170 (Brownie J) at 174 to 179. 79 I was referred to C.E. Heath Casualty and General Insurance Ltd v. Grey & Ors [1993] 7 ANZ Ins Cas 61-119; (1993) 32 NSWLR 25 and extensively to observations Mahoney JA on the application of the duty of utmost good faith among persons who are not strictly contractual parties to an insurance policy. In my opinion the standing of Mr Sayseng is related to the duty of good faith in exercise by an insurer of rights under the contract including the right of controlling the settlement of claim; see 78278. In my view the observations of Mahoney JA support the view that a person other than a contracting party to the policy may have standing to challenge the effectiveness of an opinion formed by an insurer. (In that case the majority of the Court of Appeal held that the claimants in fact were parties to the policy.) 80 In my opinion there is no difficulty about the standing of Mr Sayseng to bring his claim against Hannover, notwithstanding that he is not a party to the insurance policy issued by Hannover. The Trustee as first defendant is a party to the insurance policy, and is a party to this litigation. On a whole view of the trust deed, the Trustee holds the Fund, of which the Policy is an asset, on trust for the persons who, in due administration, are entitled to payments out of the Fund; Mr Sayseng claims that he is such a person and that the Trustee is entitled to insurance moneys, and whether or not he in fact is so entitled can only be established by determining the proceedings as a whole. In my view these considerations show that he has standing to bring the proceedings against Hannover. The reasoning which supports Mr Sayseng's having standing to challenge the rejection of the claim by Hannover does not support his having an entitlement to recover damages from Hannover for any breach of contract which the rejection entailed. 81 I respectfully adopt the statement in Edwards v. The Hunter Valley Co-op Dairy Co. Ltd & Anor (1992) 7 ANZ Ins Cas 61-113 (McLelland J) at 77,536 and 77,537 as to the nature and content of Hannover's obligations under the policy. It is next necessary to examine the nature and content of Zurich's relevant obligations under the policy. Those obligations were contractual and not fiduciary. Zurich was an insurer, not a trustee. Since the commercial purpose of the policy was, relevantly, to provide insurance against the risk of total and permanent disablement, and since the policy was expressed in terms requiring the formation by Zurich of a particular opinion as a condition of Zurich's own liability, there was clearly an implied obligation on Zurich to consider and determine whether it should form that opinion. That involved a consideration and determination of the correct question (see James Noel Eric Butcher v Port (1985) 1 NZLR 491 at 496, 504, and cf Wilson v Metro Goldwyn Mayer 18 NSWLR 730 at 734). Furthermore, in the exercise of powers affecting the interests both of itself and the claimant, Zurich was under a duty of good faith and fair dealing which required it to have due regard for the interests of the claimant (see The Distillers Company Biochemicals (Australia) v Ajax Insurance Company 130 CLR 1 at 29-31). This duty is in my opinion analogous to the duty to which a mortgagee is subject in exercising a power of sale of mortgaged property, and to the duty to which a controlling shareholder of a company is subject in exercising a right to procure the passage of a resolution affecting the interests of the shareholders at a general meeting of the company (cf Peters American Delicacy Co v Heath 61 CLR 457 at 502-4). (It is to be noted that the policy was issued prior to the commencement of the Insurance Contracts Act 1984 ).

Where under a contract, rights or liabilities depend upon the subjective state of mind of a party, eg the party's approval, opinion or satisfaction, of or about something, it can be a difficult question whether the party is subject to an implied obligation in reaching that state of mind, or failing to reach it, as the case may be, to be bound by objective standards of reasonableness (see the discussion by Mason J in Meehan v Jones 149 CLR 571 at 590-1, and see also VL Credits Pty Ltd v Switzerland General Insurance Co. Ltd (No.2) (1991) 2 VR 311 at 315 - 6 ). However in the field of insurance, it is well established that where under a contract of insurance an element of the insurer's liability is expressed in terms of the satisfaction or opinion of the insurer, the insurer is obliged to act reasonably in considering and determining that matter (see Moore v Woolsey (1854) 4 E1 and B1 243, 119 ER 93, Braunstein v Accidental Death Insurance Co (1861) 1 B and s782, 121 ER 904, London Guarantie Co v Fearnley (1880) 5 App Cas 911 at 916, 921, Doyle v City of Glasgow Life Insurance Co (1884) 53 LJ Ch 527, Harvey v Ocean Accident and Guarantee Corporation (1905) 2 IR 1, Butcher v Port (1985) 1 NZLR 491, cf Teur v London Life Insurance Co (1936) 1 DLR 161). To say that an insurer must act reasonably in forming or declining to form an opinion is not to say that a Court can substitute its own view for that of the insurer. As North J pointed out in Doyle at 529, "reasonable persons may reasonably take different views". Unless the view taken by the insurer can be shown to have been unreasonable on the material then before the insurer, the decision of the insurer cannot be successfully attacked on this ground. 82 To my reading this passage shows: · there was an implied obligation on Hannover to consider and determine whether it should form an opinion on the matter which was a condition of its own liability. · That obligation involved consideration and determination of the correct question. · Hannover was under a duty of good faith and fair dealing which required it to have due regard for the interest of the claimants, meaning Mr Sayseng as well as the Trustee. · Hannover was obliged to act reasonably in considering and determining what its opinion was. · If the view taken by Hannover can be shown to have been unreasonable on the material before Hannover, its decision can be successfully attacked. · If Hannover's decision is successfully attacked, the matter upon which Hannover's opinion was required becomes one for determination by the Court. 83 The requirement that the insurer must act fairly in coming to a decision has been applied by this Court a number of times. This decision was followed in Chammas v. Harwood Nominees Pty Ltd (1993) 7 ANZ Ins. Cas 61-175. 84 The duty of good faith in performance as well as in formation of a contract of insurance was referred to in Wyllie v. National Mutual Life Association of Australasia (18 April 1997 unreported at 20). Hunter J referred to and applied the passage in Edwards v. The Hunter Valley Co-op Dairy Co. Ltd to which I have referred. 85 That the decision of the Court can take the place of the insurer's opinion was further and extensively considered in McArthur v. Mercantile Mutual Life Insurance Co. Ltd [2002] 2 Qd R 197. The view expressed in Edwards v. The Hunter Valley Co-op Dairy Co. was not departed from. 86 In Szuster v. Hest Aust. Ltd (2000) LSJS 35, Judge Herriman took an extensive view of an insurer's duty, in which the duty of good faith falling upon an insurer extends to an obligation to make the claimant aware of the type of material the insurer wishes to consider, to provide the claimant with copies of all relevant material which the insurer has, and to give the claimant an opportunity to put submissions on all matters; see para.41. In my respectful view this went further than is justified by the authorities or by the general concept of a duty of good faith, which may well, according to the facts, bring with it an obligation to enable a claimant to deal with some particular matter of concern, but does not, as a general rule, oblige the insurer to follow any particular form of procedure, or to act in the manner which the law requires of an administrative officer when obliged to afford natural justice to a person affected by a prospective decision. 87 The practical impact of this obligation on insurers has been far short of imposing the kind of procedures required of public officers exercising statutory functions or other persons who are required to accord natural justice in reaching decisions affecting the rights of others. One of the basic requirements of natural justice is obviously not applicable, as plainly the insurer must reach a decision on a matter in which it has an interest itself. The other basic requirement of hearing the case of either party has only had a limited impact on what is required of insurers. It has never been expected that they conduct anything in the nature of a hearing or give claimants an opportunity for personal attendance, legal representation or examination of witnesses. 88 In several decisions it has been held to be unfair for the insurer to act upon detailed and adverse medical reports obtained by the insurer itself without giving the claimant an opportunity to balance the report by obtaining a detailed report from a treating doctor, or giving the claimant a chance to answer the adverse elements in the report. There were holdings to this effect in Chammas v. Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 61-175, Hodgson J at 78000 and 78001, in Wyllie v. National Mutual Life Association Ltd (Hunter J) (18 April 1997 unreported) and in Beverley v. Tyndall Life Insurance Co. Ltd (1999) WAR 327: see Ipp J at [33 to 37] and [84 to 95] and Malcolm CJ at [6], [12] and [13], [14] and [15]. Anderson J who agreed in the result of the appeal did not agree with this holding: see [97, 98]. 89 In those cases there was a direct contractual relationship between the claimant as insured and the insurer. Mr Sayseng is not a party to the Group Life Contract and his interests are indirectly but very strongly involved in the decision of the insurer in the manner which I dealt with when considering Mr Sayseng's standing. Both he indirectly and the Trustee directly have interests in compliance by the insurer with its duty to proceed fairly to form its opinion. As he is not a party to the Policy Mr Sayseng does not fall within the provisions of s.13 of the Insurance Contracts Act 1984 relating to obligations of good faith between parties. Extension of the obligation of good faith to persons in positions like those of Mr Sayseng is supported by the opinion of Mahoney JA in C E Heath Casualty & General Insurance Ltd v. Grey. It is further supported by the structure of the insurance arrangements in the Group Life Contract, in which fair decision on the entitlement of the trustee to insurance cannot be made without dealing fairly with Mr Sayseng as claimant. In my opinion the validity of the opinion formed by the insurer falls to be tested on the basis that Mr Sayseng was entitled to fair dealing when Hannover considered the claim. 90 The principal matters alleged against Hannover appear in para.15 of the Amended Statement of Claim where it is alleged that Hannover has declined to pay benefits in breach of its policy of insurance. Particulars given are as follows: Particulars of breach of Second Defendant

(a) The second Defendant did not form its opinion fairly and reasonably or on consideration of the extent of the Plaintiff's incapacity or his reasonable qualifications in deciding that the Plaintiff was not permanently disabled as defined. (b) The Second Defendant did not act towards the Plaintiff in utmost good faith. (c) The Second Defendant did not consider the correct question. (d) The Second Defendant did not give proper or reasonable consideration to the information provided to it. (e) The Second Defendant breached its duty of care and failed to act in upmost good faith in refusing to reconsider the Plaintiff's claim when submitted with subsequent medical evidence by letter dated 28 February 2003 and therefore is in breach. 91 Hannover rejected the claim by its letter to Mercer of 27 April 2000 which I set out earlier. The material which evidence shows was available to Hannover included correspondence from Mercer passing on information that the claim had been made, and information relating to the claim including the report of Dr Tablante answering a questionnaire sheet and dated 12 May 1999, report of Dr Wolfenden of 1 April 1999, a number of reports of radiography and CT Scans, information furnished by Mr Sayseng on 9 June 1999, including his Member Statement and answers to the questionnaire, his list of doctors whom he had seen and a copy of Dr Wolfenden's report, the Employer's Statement on a Hannover form, with information about his employment history, the private inquiry agent's report, reports which Hannover had itself obtained from Dr Peter Giblin an Orthopaedic Surgeon, from Dr Daryl Salmon, a specialist in pain medicine, from Dr P.D. Funnell, Consultant in Rehabilitation Medicine and from Ms Gosling. In this body of material the reports of Dr Funnell and Ms Gosling were clearly and strongly adverse to a conclusion that Mr Sayseng was within the Policy definition of Total and Permanent Disablement. Doctor Salmon's report contained expressions which could support an adverse opinion - "In general terms he may be able to be employed in an occupation that requires light processing tasks with the ability to sit and move at will" - but also expressions which could support the opposite view. Doctor Giblin's report also contained expressions which could indicate towards either conclusion - "I believe that he should be considered as fit only for light duties, specifically having to avoid heavy repetitive bending, lifting and twisting and prolonged periods of interrupted sitting and standing. In my opinion, he is permanently unfit to do his normal job as a packing machine operator on a full-time or part-time basis." The Private Inquiry Agent's report, including interpretation of the video, should reasonably be understood to have been neutral. Doctor Tablante's report clearly supported the claim, and so did the report of Dr Wolfenden: "I regard him as totally unfit for work. He is certainly not fit for any work involving bending and lifting but with a history of back trouble such as this I think he would be unable to find employment anywhere." 92 In his address plaintiff's counsel criticised Hannover's conduct by saying to the effect that Hannover did not uphold a large body of medical evidence forwarding the claim, that their treatment came down to securing the services of a private inquiry agent and qualifying a rehabilitation doctor and a physiotherapist and that this was inadequate. Counsel also criticised Hannover's not giving Mr Sayseng the opportunity to answer the adverse reports which it obtained. 93 In my opinion it is striking that there was no flow of information back from Hannover to Mr Sayseng about the investigations which Hannover caused to be made. The private investigator's report and film were not notified to Mr Sayseng. If they had the neutral significance suggested by the private investigator's report itself, not passing them on to Mr Sayseng was of no importance; however the film acquired some significance because Dr Funnell made an adverse interpretation based on it. The severely adverse report of Dr Funnell, and the equally severely adverse report of Ms Gosling were not passed on to Mr Sayseng for comment. Doctor Funnell's report is dated 12 January 2000. It was passed to Mercer by Hannover on 24 January 2000. Ms Gosling's report was given after an assessment on 14 March 2000 and was passed by Hannover to Mercer on 10 April 2000. The letter declining the claim of 27 April 2000 followed without there being any further representation or communication from the Trustee to Hannover and indeed without there being an opportunity for the Trustee to respond. There was also no offer to Mr Sayseng of an opportunity to comment, and there was not even communication of the reports to Mr Sayseng. 94 I would not suppose that information collected by an insurer which confirmed, or in some moderate way qualified information furnished by the claimant should as a matter of fairness be passed on to the claimant for an opportunity to answer by comment or to answer by submission of some further material. However the reports of Dr Funnell and Ms Gosling put an entirely different view of Mr Sayseng, his disability and his claim before the insurer, a view which departed completely from that presented by the medical reports and information submitted by Mr Sayseng. The first indication about the view of Hannover on the relative importance of these adverse reports was that relatively severe passages from them were quoted in the letter of 27 April 2000 which declined the claim. In my view these reports were so important that it was not possible for the insurer to reach a conclusion on the effect they produced in relation to other material submitted, in the course of good faith and fair dealing and with due regard to the interests of Mr Sayseng and of the trustee, without finding out what response if any would be made to them. This was particularly so as the first two reports obtained by Hannover, those of Dr Giblin and Dr Salmon, supported Mr Sayseng's claim in general ways although not conclusively. The difference was not a slight matter; one body of reports had to be completely right and the other body completely wrong, and a fair minded person deciding between them would go further than to rely on his own impressions, particularly as they related to matters of medical expertise and factual complexity. 95 My conclusion is that the insurer's decision of 27 April is vitiated for this failure. There was never any real re-opening of consideration on any later occasion. The opinion or purported opinion of Hannover expressed in the letter of 27 April 2000 should not be treated by the Court as an effectual opinion for the purpose of determining liability under the Policy, and this Court should itself embark on deciding whether there was total and permanent disablement within the meaning of the Policy. The Court should do that by using the Court's own method, which involves hearing the evidence. 96 For these reasons I propose to make a declaratory order establishing the lack of effect of the purported opinions of Hannover, and to direct trial and determination of the separate question whether, in accordance with the Group Life Contract, Mr Sayseng was incapacitated so as to fall within paragraph (b) of the definition of Total and Permanent Disablement. As the Trustee may well reconsider Mr Sayseng's entitlement again if he obtains a favourable decision against Hannover, I will defer making orders disposing of the proceedings against the Trustee. 97 ORDER:

1. Declare that the purported determination by Hannover Life Re of Australasia Ltd in its letter of 27 April 2000 to William M. Mercer Pty Ltd of the question whether Diosadado Sayseng was in the condition of Total and Permanent Disablement within the meaning of Group Life Contract No. VGL8034 was void and without effect.

2. Order that it be determined as a separate question in these proceedings whether Diosadado Sayseng was at the time or times relevant to his claim against the Kellogg Retirement Fund in the condition of Total and Permanent Disablement within the meaning of Group Life Contract No. VGL8034.

3. Reserve further consideration of: (1) directions for the determination of the separate question. (2) the plaintiff's claims generally.

          Revision reasons
          Incorrect hearing date recorded on the coversheet - 16/07/2007

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