Superannuation Fund Investment Trust v Commissioner of Stamps

Superannuation Fund Investment Trust v Commissioner of Stamps - [1979] HCA 34 - HCA 1979 case summary — Zoe

[35]

There is, in my view, also little importance to be attached to the fact that the word "Trust" is used to describe the entity which s. 29 incorporates. I do not regard it as significantly assisting the case for the respondent. No true analogy can, I think, be drawn between the Trust's closely confined statutory power of management of the Fund and of investment of such of its assets as are available for investment and the position of a trustee in a privately constituted trust: I have thus found the attempted identification of some cestuis que trust of the Fund to be of little profit. The most that can usefully be concluded concerning the Fund, viewed as a going concern, is that both contributors and the Commonwealth are in a practical sense interested in its prudent but profitable management. The current flow of moneys into the Fund derives exclusively from contributions by contributors. These the Commissioner receives and pays into the Fund. At its outset the Fund also received the moneys and assets of the old fund established under the 1922 Act. That fund, unlike the present Fund, was fed from two sources, the Commonwealth as well as contributors making contributions to it - see 1922 Act, s. 8 (1). Thus, apart from a component of Commonwealth funds in the initially transferred assets of the old fund the moneys which the Trust invests come exclusively from contributors and not out of Consolidated Revenue. On the other hand it is true, as the appellant points out, that the Fund is expressed, by s. 40 (2) of the Act, to form part of the Trust Fund referred to in s. 60 of the Audit Act 1901 Cth, as amended, and certain provisions of that Act are made applicable to the Fund. However s. 62B of the Audit Act, which deals with the investment of moneys standing to the credit of the Trust Fund, is expressly stated not to extend to the Fund, and the other provisions of the Audit Act only extend to it subject to the terms of the Superannuation Act itself. That the Fund is thus made to form part of the Trust Fund of which the Audit Act speaks may have consequences from an accounting viewpoint and no doubt emphasizes the extent to which the Auditor-General, already given wide powers by the Superannuation Act, may oversee dealings with the Fund. But to my mind none of this throws much light upon the question now in issue.

[40]

This is not so much because of any distinction which the Act may perhaps be thought to make between the general "management" of the Fund and the more specific "investment of moneys" standing to its credit - e.g. in s. 41 (2) and s. 42 (1) and (5), but rather because I would not understand s. 160 (1) as requiring the Trust to adopt in its accounts a method of accounting which such an interpretation would seem to involve. Such a method of accounting would, in the Trust's reporting of its investment activities, require it to disregard all out-of-pocket costs involved in the acquisition or realization of investments, the outcome of a year's investment activities being shown net of all such costs. They would presumbaly be shown separately and be offset by a corresponding Commonwealth contribution. However, as Viscount Simonds said in Sun Life Assurance Society v. Davidson [9] , when speaking of the investment fund of a life assurance company and, in particular, of out-goings in the form of stamp duty and brokerage, "as a matter of accounting such disbursements need not be and generally are not included in the item "expenses of management" " His Lordship went on to cite, by way of elaboration, a passage from the reasons of the Special Commissioners in which they had said that "the brokerage and stamp duties payable on the purchase of an investment being not general expenses of conducting the society's business but expenses specifically referable to and only incurred by reason of the purchase, are expenses of the purchase and not expenses of management" and also expressed a like view concerning such expenses when incurred on the sale of investments. Lord Morton [10] , described brokerage and stamp duty as being expenses "so closely linked with the transaction of purchase that they may naturally be considered as items in the total cost of a purchase and not as expenses of management". Lord Reid, confining his view to the case of stamp duties, said [11] that they formed part of the cost of acquisition of an investment rather than an expense of management. The case, like the earlier decisions to which reference is made in the course of their Lordships' judgments, was concerned with slightly different language from that found in s. 160 (1) and occurring in a different context. But it is for its statements of what was to be regarded as proper accounting treatment of outgoings such as stamp duty incurred in the course of investment management, rather than as precedent authority on the interpretation of s. 160 (1), that I cite it. I conclude that stamp duty incurred by the Trust in connexion with the purchase of investments of the Fund are not "costs of and incidental to the management of the Fund" within s. 160 (1). It follows that the provisions of that sub-section throw no light upon the present problem.

[102]

The scheme of the Superannuation Act differs considerably from that of its predecessor, the Superannuation Act 1922-1974, and generally speaking the former supersedes the latter, though there are some transitional provisions which continue the latter Act in operation for certain purposes. The general scheme of the Superannuation Act is to establish the office of the Commissioner for Superannuation, an officer who is to be appointed by the Governor-General, and to give to him "the general administration of this Act, other than Part III, and the general administration of the superseded Act." Part III provides in s. 28 that there shall be "a body by the name of the Superannuation Fund Investment Trust" and by s. 29 that the Trust is a body corporate with perpetual succession and a common seal and that it may acquire, hold and dispose of real and personal property and may sue and be sued in its corporate name. Section 30 provides that it shall consist of three members to be appointed by the Governor-General, namely, a Chairman, a member who shall be an eligible employee or a pensioner and one other member. The Chairman is to be a full-time member and the executive member of the Trust; the other two are to be part-time members. The Chairman is to be appointed for a term not exceeding seven years and the other members for a period not exceeding three years. By s. 30 (5) the Governor-General in making appointments is to ensure, so far as practicable, that no person is appointed unless he has appropriate experience in the investment or management of moneys. By s. 35 the Governor-General may terminate the appointment of a member of the Trust for misbehaviour or physical or mental incapacity. By s. 36 the Treasurer may appoint an acting Chairman and an acting member in certain specified circumstances and the Treasurer is also to determine the terms and conditions of appointment of acting members. By s. 40 it is provided that there shall be a "Fund" to be known as the Superannuation Fund and by sub-s. (2) it is provided as follows:

[115]

The Fund is thus to be held by the Trust upon trusts to be ascertained from the terms of the Act itself. Those trusts may be described briefly by saying that they are to hold the contributions upon trust to accumulate the income thereof until each relevant employee who makes them ceases to be an eligible employee, to hold all the contributions and the income derived therefrom as a common fund for purposes of investment and to invest the amounts in the forms of investment authorized by the Act. Upon an individual employee ceasing to be an eligible employee, the primary trust is to pay to the Commonwealth by payment into the Consolidated Revenue Fund the proportion of the fund represented by the contributions of that eligible employee and the interest or other income earned thereon during the time that he was an eligible employee ("the accumulated contributions"). In certain exceptional cases the Trust is required to pay either part or the whole of those accumulated contributions to the employee or to his dependants or personal representatives. A statutory obligation rests upon the Commonwealth to pay to each former eligible employee a pension as prescribed by the terms of the Act. That pension is to be payable out of the Consolidated Revenue Fund which is appropriated for that purpose by the terms of the Superannuation Act itself (s. 112 (2)). That statutory obligation continues throughout the life of each former eligible employee with provision in appropriate cases for payments to widows and dependants. The making of such payments out of the Consolidated Revenue Fund is not a use of the Fund either wholly or partly for that purpose, nor is it a use wholly or partly for that purpose of moneys paid into the Consolidated Revenue Fund by the Fund itself. Nor is the amount of the pension calculated by reference, direct or indirect, to the amount of an individual eligible employee's accumulated contributions to the Fund, but it is fixed by the Act itself. Lump sums are, however, related to the accumulated contributions, whether payable out of the Fund or out of Consolidated Revenue. The Consolidated Revenue Fund is from its very nature a common fund in which are blended indistinguishably all payments made to or moneys received by the Commonwealth and payments are made out of the general mass by appropriation. No statute provides for the tracing of individual amounts that are paid into the Consolidated Revenue Fund, for they are by their very nature consolidated upon payment in. If it matters, there could never be an occasion for the application of Clayton's Case [28] or the conceptions of tracing which have been developed in equity. That which reaches the Consolidated Revenue Fund from the hands of the Trust thereby ceases to be trust moneys under the Superannuation Act or at all and becomes simply part of the general funds of the Commonwealth, consolidated together in a single fund pursuant to s. 81 of the Constitution and the Audit Act 1901-1969 Cth. In no sense, therefore, can it be said that the pensions are payable out of the Fund, though some lump sums are payable directly out of it. In this sense the Fund is held primarily, but not exclusively, for the purpose of making payments to the Commonwealth on the happening of the relevant events, i.e. the cessation of an eligible employee to be such.

[118]

The Commonwealth has set up this body corporate, the only members of which are nominated by the executive government of the Commonwealth. They are corporators by virtue of that nomination and each ceases to be a corporator on the expiration of his term of appointment. It has no board of management other than the corporators themselves who combine the functions of corporators and directors in carrying on the sole function committed to the corporation, namely, the investment of the Fund and its management, and the payment of sums out of it, the former by exercise of its discretion, the latter by statutory direction. Neither the Trust nor its corporators have any other function and in the performance of the former function they are subject to no direction at all by the executive government. Its only contact with the executive government or its officers, apart from paying moneys into the Consolidated Revenue Fund, is that, in relation to investment of the Fund, it is required to consult with the Commissioner as to what amounts standing to the credit of the Fund are not required for the purpose of making payments out of the Fund under the Act, but not as to the mode of investment. It is required to make its records available to the Auditor-General (s. 44) and to make an annual report and to deliver the report and its financial statements to the Commissioner for transmission to the Treasurer. The Trust is thus an independent body to which is committed the power and the duty to invest and manage large sums which come into its hands regularly each fortnight throughout each year. It has only very limited responsibility for the making of payments to eligible employees or those who have been eligible employees. It is empowered to engage consultants but is under no obligation to consult the executive government nor any of its officers as to the mode in which it should exercise its powers of investment, which in the nature of things would be a continuing task. The skill with which it exercises its powers of investment and reinvestment may in some degree reduce the burden on the Consolidated Revenue Fund out of which pensions must be paid. It must calculate the "accumulated contributions" of individual employees who reach the retiring age or otherwise cease to be members of the Fund, though it is the Commissioner who keeps the records of contributions (s. 27).

[119]

In the result it seems to me that, whichever of the various indicia which have been suggested in the many cases on this topic is used in the process of characterization, the Trust does not fall into the category of the Crown, or a servant or agent of the Crown. There is first the absence of any power to control the activities of the Trust; there is also the nature of the function of the Trust which is a limited one, though no doubt of importance. It is an investment manager having wide powers over the nature of the investments to be made and the realization and reinvestment of the Fund. It has no discretion, however, as to the manner in which the Fund is to be dispersed. There is nothing here which could be regarded as an ordinary or usual function of government, or of a means by which such functions may conveniently be performed. No doubt the provision of pensions for retired government employees is a familiar function of government and the choice of means of performing this familiar task and of financing it is a matter which falls to the executive government and the Parliament. No doubt the Trust performs a function which is inherent in the kind of pension scheme which the Parliament has chosen to establish. It does not, however, collect the contributions, but receives them in bulk from the Commissioner, who keeps the records relating thereto, and it makes no payments of pensions as such. Determinations of the entitlement of individual eligible employees are made by the Commissioner, and the Trust plays no part in dealing with disputes as to entitlement. In the present case the Parliament has chosen a system which puts the investment and the management of the invested funds by realization and reinvestment out of the hands of the Public Service and places it in the hands of three persons who are required to have experience in relation to the investment of money, but who are not answerable to the executive government, nor subject to any direction by the executive government as to the manner in which they exercise their powers.

[123]

Some reliance was placed in argument on the decision of this Court in Goodfellow v. Commissioner of Taxation [33] which dealt with the Defence Forces Retirement Benefits Act 1948. It was there held that the payments made to that taxpayer were pensions and allowances "paid", or "payments made", by the Commonwealth within the meaning of s. 23 (kaa) of theIncome Tax Assessment Act 1936, as amended. As to 80 per cent of the payments there in question it was clear that they were paid directly by the Commonwealth, though the Act provided an alternative mode of payment which would have amounted to indirect payment, i.e. by payment to the Defence Forces Retirement Benefits Board which would have been obliged immediately to pay the amount over to the person entitled under that Act. The remaining 20 per cent was paid out of or ultimately borne by the Fund to which the taxpayer along with other members of the Defence Forces had contributed. The Board, had, amongst other functions, that of investing the Fund though the range of authorized investment was much narrower than in the present case. The critical provisions of that Act were those which related to the composition and functions of the Board which consisted of the President of the Superannuation Board under the Superannuation Act 1922, as amended, the Commonwealth Actuary, and four persons representing respectively the Minister, the Naval Forces, the Military Forces and the Air Force, who were appointed by the Governor-General after nomination by the relevant Ministers. However, all the persons other than the President of the Superannuation Board and the Commonwealth Actuary (who under their respective Acts were appointed by the Governor-General) were removable by the Governor-General whenever in his opinion it was "desirable or necessary" to terminate such appointment. The composition of the Board and the complete control over the appointment and removal of four out of the six members was sufficient, along with the nature of its functions which included the general administration of the whole of that Act, to demonstrate that it was the Commonwealth or an emanation of the Commonwealth. The present case differs in important respects. The first is that the Trust has not the responsibility for the general administration of the Superannuation Scheme and the Act itself, but a much more limited function, namely, the investment of the Fund and the making of direct payments to the Consolidated Revenue Fund, as well as a limited number of payments to certain eligible persons. Under this Act the basic records in respect of contributions into the Fund and payment of benefits under the Act are to be kept by the Commissioner, not by the Trust. Decisions as to amounts of pensions and entitlement are made by the Commissioner and not by the Trust, and there is an appeal from the Commissioner to the Administrative Appeals Tribunal - see s. 154. It is the Commissioner who makes decisions about, for example, whether persons are entitled to invalidity pensions or having been so entitled are thereafter restored to health so as to be capable of returning to employment, and indeed all other matters concerning eligibility for pensions or other benefits and the amount thereof. All these matters comprise the general administration of the Act and the Superannuation Scheme. It is the management of investments pursuant to the provisions of Pt III which alone is given to the Trust.

[126]

It was further argued that the provisions of s. 160 (1) of the Superannuation Act which provides that "The costs of the administration of this Act, including the costs of and incidental to the management of the Fund by the Trust, shall be paid out of moneys appropriated from time to time by the Parliament for the purpose" supported the argument that the Fund was the Crown or a servant or agent of the Crown. Alternatively, it was argued that because the costs of management must be borne by the Consolidated Revenue Fund, the burden of the stamp duty fell on the Commonwealth itself, a result which was beyond the power of the State to effect. I am unable to see that there is any substance in this argument. I do not think that the stamp duty in question can properly be regarded as a "cost of" or "incidental to" the management of the Fund. No doubt it is a cost incurred by the Trust, but in my opinion, it is properly characterized as part of the cost of the purchase of the land. It has the character of a capital outgoing, and in a trust which distinguished in its terms between those entitled to income and those entitled to capital, would undoubtedly be on capital account. No doubt that analogy is not an exact one. A closer analogy is to be found discussed in Sun Life Assurance Society v. Davidson [34] which concerned the entitlement to a refund of income tax to a life assurance company under the Income Tax Act 1918 U.K. which required repayment to each such company "of so much of the tax paid by it as is equal to the amount of the tax on any sums dispersed as expenses of management (including commissions)". The company claimed that brokerage and stamp duties incurred upon the investment and reinvestment of funds were "expenses of management", it being common ground that the expression "commissions" in that context did not include brokerage. It was held unanimously by the House of Lords that the amounts paid in respect of stamp duties were not expenses of management and (with one dissentient) that the amounts paid in respect of brokerage were not expenses of management. Lord Reid (dealing with stamp duty) said [35] :

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Judgment (142 paragraphs)

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