Interest
60 The Tribunal concluded that the word 'interest' in cl C.4.10 of the Deed does not, on its proper construction, contemplate 'negative interest'. It was common ground that this construction involves a question of law.
61 The applicant contended that, in the context of a superannuation trust deed and in view of other provisions of the Deed itself, the word 'interest' in cl C.4.10 should be construed as meaning a return on investment that might be either positive or negative. It also contended that, when cll A.4.1, A.4.2(i) and C.4.10(a)(2) are read together, the Deed gives the applicant an absolute and uncontrolled discretion to determine the interest to be set from time to time, including negative amounts.
62 The applicant developed these contentions by arguing that there is an essential difference between the relationship of trustee and beneficiary and that of debtor and creditor: a debtor is free to use the money as he or she wishes, subject to a contractual obligation to repay the principal together with an amount of interest, whereas a trustee is obliged to administer the money as a separate fund on behalf of the beneficiary. It follows, so the applicant said, that it is more useful to conceive of the word 'interest' in cl C.4.10 as referring to 'returns' or 'earnings'.
63 Having taken these steps, the applicant submitted that it was appropriate to have regard to reg 5.01(1) of the Superannuation Industry (Supervision) Regulations 1994(Cth) ('SIS Regulations') which provides that:
'investment earnings, in relation to a member's benefits (or a member's benefits of a particular kind) in a regulated superannuation fund or an approved deposit fund as at any time, means the total of amounts credited, less the total of the amounts debited, to the member's account by way of investment return down to that time in respect of those benefits.
…
investment return, in relation to a member's benefits (or a member's benefits of a particular kind) in a regulated superannuation fund or an approved deposit fund over a particular period means:
…
(c) in the case of a defined benefit fund:
(i) the proportion of the return to the fund on investments over that period that is attributable to those benefits; or
(ii) the return on the benefits over that period that is fair and reasonable to all members of the fund, being a return based either on the actual return earned on the investments of the fund or on a commercially available rate of interest; or
(iii) the return on the benefits that is derived by increasing the benefits in proportion with the increase in the salary of the member over that period.'
The applicant contended that, when these two definitions are read together, it is implicit in the definition of 'investment earnings' that an 'investment return' can be positive or negative.
64 As for the construction of cl C.4.10 as a whole, the applicant submitted that although the Fund falls within the definition of a 'defined benefit fund' under the SIS Act, the deferred retirement benefit was more like an 'accumulation-style' benefit than a 'capital guaranteed' or 'defined' benefit. The applicant accepted that the deferred retirement benefit in cl C.4.10 differs from any other benefit in Part C4 of the Deed and consists of two components: the retirement benefit calculated under cl C.4.2 and interest. It pointed out that the first component would crystallise into a lump sum on cessation of service, so that thereafter it would cease to grow with respect to salary or years of service. It also pointed out that at the date of ceasing service the member who makes an election to take a deferred retirement benefit has no present entitlement to be paid that benefit until he or she attains the age of 55 years, or in other limited circumstances. Given these circumstances, the applicant submitted that the deferred retirement benefit should be regarded as an accumulation benefit that may increase or reduce with investment returns from time to time.
65 For the reasons that follow, I do not accept the applicant's contentions. I have concluded that cl C.4.10 of the Deed does not, on its proper construction, permit or authorise the applicant to reduce the respondents' deferred retirement benefits on account of negative interest or a negative investment return, as it has purported to do.
66 There are no special rules of construction of documents relating to pension or superannuation schemes but, as a general rule, the Court's approach to the construction of such documents will be practical and purposive, rather than detached and literal: see Mettoy at 537 per Warner J; Lock at 602 per Waddell CJ in Eq; AMP Superannuation at 580 per Merkel J; and Gas and Fuel Corporation (Vic) v Fitzmaurice (1991) 22 ATR 10 at 24 per Hedigan J.
67 This approach is not very different from the modern approach to statutory construction. The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute: Project Blue Sky Inc v Australian Broadcasting Association (1998) 194 CLR 355 at 381 [69]-[70] per McHugh, Gummow, Kirby and Hayne JJ.
68 In Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at 398, Brennan CJ, Dawson, Toohey, Gaudron and McHugh JJ cited with approval the statement of Lord Simon of Glaisdale in Maunsell v Olins [1975] AC 373 who said at 391:
'Statutory language, like all language, is capable of an almost infinite gradation of "register"- ie, it will be used at the semantic level appropriate to the subject matter and to the audience addressed (the man in the street, lawyers, merchants, etc). It is the duty of a court of construction to tune in to such register and so to interpret the statutory language as to give to it the primary meaning which is appropriate in that register (unless it is clear that some other meaning must be given in order to carry out the statutory purpose or to avoid injustice, anomaly, absurdity or contradiction). In other words, statutory language must always be given presumptively the most natural and ordinary meaning which is appropriate in the circumstances.'
The notion of a practical and purposive approach to construction, rather than a detached and literal one, is entirely compatible with the view that language should be given presumptively the most natural and ordinary meaning which is appropriate in the circumstances. I propose to approach the construction of the Deed, and the meaning of the word 'interest', with these principles in mind.
69 It is convenient to commence with the language, structure and purposes of cl C.4.10 of the Deed. Under cl C.4.10, a member who resigns his or her employment before attaining 55 years and who elects to accept a deferred retirement benefit (as each of the respondents did) thereupon becomes entitled to a retirement benefit calculated under cl C.4.2 of the Deed. The structure of paragraphs (a) and (b) of cl C.4.10 makes it plain that the deferred retirement benefit falls 'due' when the employee makes his or her election. However, the benefit does not become payable before the member attains the age of 55 years, unless one of the conditions set out in cl C.4.10(b) is met. This may explain why Mr Poulter's member statement for the year ended 30 June 2002 referred to his benefit as a 'vested benefit'.
70 Under cl C.4.10(a)(2), the member is entitled to interest 'on the amount of that retirement benefit from the date on which that benefit falls due until the date it is paid' (my emphasis). The words 'the amount of that retirement benefit' refer to a fixed and ascertained sum, namely the benefit referred to in subcl (1) that has been calculated under cl C.4.2 as at the date upon which the member made his or her election.
71 There is no definition of 'interest' in the Deed. As a matter of ordinary language 'interest' is 'the return or compensation for the use or retention by one person of a sum of money belonging to or owed to another': see Adams v Paul's Properties Ltd [1965] NZLR 161 at 169 per Woodhouse J; Australian Finance Direct Ltd v Director of Consumer Affairs Victoria [2004] VSC 526 at [82] per Kaye J; Consolidated Fertilizers Ltd v Deputy Commissioner of Taxation (1992) 36 FCR 1 at 6 per Cooper J; and Riches v Westminster Bank Ltd [1947] AC 390 at 400 per Lord Wright.
72 In Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 at 218, Mason ACJ, Wilson, Brennan, Deane and Dawson JJ explained the nature of interest:
'But the interest which becomes due is not the produce of the mere contractual right to interest severed from the debt for the money lent. Interest is regarded as flowing from the principal sum (Federal Wharf Co Ltd v Deputy Federal Commissioner of Taxation) and to be compensation to the lender for being kept out of the use and enjoyment of the principal sum: Riches v Westminster Bank Ltd. A covenant to pay interest on a principal sum may, according to the terms of the lending agreement, be independent of or accessory to a covenant to repay the principal sum or the covenants may be integral parts of a single obligation, but it is of the essence of interest that it be referable to a principal sum: per Rand J in Reference as to the Validity of Section 6 of the Farm Security Act, 1944, of the Province of Saskatchewan.'
73 Rand J's classic description of the concept of interest in Reference as to the Validity of Section 6 of the Farm Security Act 1944 of the Province of Saskatchewan [1947] SCR 394 at 411-412 is frequently cited, but it bears repeating:
'Interest is, in general terms, the return or consideration or compensation for the use or retention by one person of a sum of money, belonging to, in a colloquial sense, or owed to, another.'
Most recently, this description was referred to, with approval, by Morris J in Director of Consumer Affairs v City Finance Loans (Credit) [2005] VCAT 1989 at [13]; see also Broken Hill Pty Co Ltd v Commissioner of Taxation (1999) 99 ATC 5193 at 5210 [72] and Consolidated Fertilizers Ltd v Deputy Commissioner of Taxation (1992) 36 FCR 1 at 6.
74 The term 'interest' is also used in adjacent provisions of the Deed. Clause C.4.12 provides:
'Subject to division G, if a lump sum benefit to which a Member or other person is entitled is not paid within 14 days from the date the entitlement arose, interest must be added to the benefit at the rate calculated from time to time by the Trustee from the date the entitlement arose until the lump sum benefit is paid.'
In context, the word 'entitled' in cl C.4.12 refers to a benefit that is both due and payable. It is used in that sense in cl C.4.10(c). Clause C.4.12 speaks of interest being 'added' to the benefit. The clause applies where a member or other person who is entitled to be paid a benefit does not receive the payment in a timely way. The manifest purpose of cl C.4.12 is to compensate the member or other person for being kept out of a payment that he or she is entitled to receive.
75 Clause C.4.11 provides that a member and his employer authority may enter into an agreement for the payment of additional contributions in respect of the member so as to provide extra benefits to that member. Clause C.4.11(b) and (d) provide:
'(b) The Trustee must keep an interest bearing account for each Member with an additional benefits contract, and interest must be added to the account as determined by the Trustee.
…
(d) When the Member becomes entitled to a benefit under any other clause of this division C, the Member is entitled to the balance of the account (as well as any interest to the date of termination).'
The references in these provisions to 'interest bearing account' and to 'interest … added to the account' indicate that the term 'interest' is being used in these provisions in its ordinary sense of compensation for the use or retention of money.
76 Clause A.22.2(b) provides:
'Interest on benefits. The Trustee will determine the relevant rate of interest for the purposes of the whole or any particular provision of this Deed for all or part of the period between the date the benefit becomes payable out of the Fund until the date it is paid.'
This provision is not directly applicable because it only concerns interest between the date when the benefit becomes payable and the date of actual payment. Nevertheless, it is instructive. It obliges the trustee to pay interest on a benefit that has become payable for so long as the member remains unpaid. The evident purpose of the provision is to compensate the member for being kept out of his money beyond the date upon which the benefit becomes payable. The clause gives the trustee a discretion in relation to the relevant rate of interest, but it is difficult to conceive that it permits the trustee to determine that interest should be a negative sum. That would hardly be consistent with the language and purpose of the provision.
77 Similar observations can be made concerning the language, structure and purpose of cl C.4.10. The combined effect of subcll (a) and (b) is that a member is entitled to a benefit equal to 'the sum of' the amount of the retirement benefit calculated under cl C.4.2 and 'interest on the amount'. This language suggests that the interest referred to in subcl (2) is intended to be a positive sum. Certainly, there is nothing on the face of cl C.4.10, and nothing in its immediate context in the Deed, to suggest that the first component (ie the retirement benefit calculated under cl C.4.2) can be reduced by interest. On the contrary, the language used in the provision treats the amount of that retirement benefit as a fixed and ascertained sum on which interest is payable.
78 The structure of cl C.4.10 presents a real obstacle for the applicant's construction, as Ms Meade's situation can be used to illustrate. She elected to receive a deferred retirement benefit upon 27 May 2000. By virtue of that election, a deferred retirement benefit of $107,614 became due to her on and from 27 May 2000. According to the applicant's construction of cl C.4.10, her benefit could be reduced by negative interest or negative returns experienced in the 21 months to 31 March 2003. Specifically, the applicant contended that Ms Meade's accrued benefit had reduced to $103,655.62 as at 31 March 2003, ie less than the benefit that fell due to her on 27 May 2000. In my opinion, this analysis shows that the applicant's construction can produce results that are contrary to the express language and structure of cl C.4.10.
79 The applicant argued that the illustration based on Ms Meade's case is hypothetical; she was not entitled to withdraw her benefit at that time and did not do so. It also sought to avoid the problem by submitting that the issue whether the amount of a deferred retirement benefit paid or payable by the applicant can be less than the amount of the retirement benefit is not before the Court. These submissions miss the point. The hypothesis based on Ms Meade's position is a means of testing the appropriateness of the applicant's construction and whether it produces results that would be repugnant to the language and structure of cl C.4.10. In my view, the example demonstrates that the applicant's construction is flawed.
80 Alternatively, the applicant argued that if the situation arose that a member's deferred benefit, at the time it becomes payable, was less than his or her resignation benefit as a result of the debiting of negative investment returns, the applicant would use its powers of augmentation under cl A.4.2(b) to top up the deferred benefit. Clause A.4.2(b) permits the applicant, inter alia, to compound or settle legal proceedings or any other claim or demand against the Fund. It is not entirely clear that this provision would apply, but in any event the applicant's argument implicitly assumes that there is a potentially good claim that the applicant breached the Deed by deducting negative investment returns from the retirement benefit.
81 It is also relevant to consider the purpose of cl C.4.10. I have already pointed out that the deferred retirement benefit which a member can elect to take under cl C.4.10 is substantially greater than the resignation benefit to which the member would otherwise be entitled. This incentive is offset by two considerations. First, the deferred retirement benefit is not payable before the member attains the age of 55 years unless one of the special conditions in cl C.4.10(b) is satisfied. The second consideration is that until the deferred retirement benefit becomes payable, the benefit only accrues interest under cl C.4.10. The implication of subcl (a)(2) is that members who elect to leave their money in the Fund have their capital protected, but they are only entitled to be paid interest at a rate that is at the discretion of the trustee. Members who elect to leave their money in the Fund on these terms forego the risks and rewards associated with other forms of investment.
82 Given the features of the Deed to which I have referred, I do not accept the applicant's argument that, in a superannuation context, the word 'interest' should be read as a reference to investment returns or earnings which may be either positive or negative. It is trite that a trustee and beneficiary do not stand in a debtor and creditor relationship, a trustee does not have personal use of superannuation funds, and a trustee must administer a superannuation fund on behalf of the beneficiaries in accordance with the governing trust deed. None of these considerations require the word 'interest', where it appears in cl C.4.10 (or for that matter in cll C.4.11 or C.4.12), to be given anything other than its ordinary and natural meaning. Nor do they support the contention that, in circumstances like those covered by cl C.4.10, a trustee cannot pay interest as such.
83 The applicant also argued that, independently of the proper construction of cl C.4.10, the general powers conferred on it by cll A.4.1 and A.4.2 authorised it to determine that interest should be a negative sum, and to apply that negative sum in its administration of cl C.4.10. I do not agree. The applicable rate of interest is not prescribed by cl C.4.10. The applicant submitted that power to determine the applicable rate of interest is conferred by cl A.4.2, and in particular by subcl A.4.2(i). Subclause A.4.2(i) empowers the applicant to make rules and adopt procedures in relation to 'the calculation and rounding off of … interest, to the determination of periods of time and to any other matters which the Trustee may consider appropriate for the convenient administration of the Fund'. Under the opening words of cl A.4.2, the applicant has power to do all acts and things which it may consider necessary, desirable or expedient for the proper administration of the Fund. The respondents accepted that under these provisions the applicant has power to determine the applicable rate of interest for the purpose of applying cl C.4.10. But this power has its limits. It must be exercised bona fide for the purposes for which it was conferred. Where the applicant determines a rate of interest, it must be a genuine determination of 'interest' as that term is ordinarily understood. Accordingly, it is one thing to say that cll A.4.1 and A.4.2 confer power on the applicant to determine a rate of interest in the manner just described. It is an altogether different thing to contend that cll A.4.1 and A.4.2 confer power on the applicant to convert the obligation to pay interest under cl C.4.10(a)(2) into a right to debit a negative investment return against the deferred retirement benefit of a member. To take that step would be to subvert the intended operation of cl C.4.10. In my opinion, no such power is conferred by cll A.4.1 and A.4.2.
84 In oral submissions, senior counsel for the applicant conceded that the Deed does not require the applicant to periodically credit interest. While the applicant could have determined the rate of interest at the time at which the deferred benefit became payable, that it is not what it did. The applicant determined a rate of interest payable to the respondents on an annual basis. Having taken that course, the question to be answered is whether the debit of negative interest to the respondents in respect of the 21 month period ended 31 March 2003 contravened cl C.4.10.
85 There is nothing incongruous in giving the term 'interest' its ordinary meaning in cl C.4.10. I am not persuaded that any unintended or unreasonable consequences would follow if cl C.4.10 is construed in such a way that it does not permit or authorise the application of negative interest. It would have been a simple matter for the applicant to administer defined benefit entitlements in accordance with Division C of the Deed. It could, for instance, have established an appropriate reserve account under Part A.29. The advice the applicant gave to the respondents at the time they elected to accept deferred retirement benefits was along those lines, ie the deferred retirement benefits would be credited to an interest bearing account and would grow with interest.
86 The applicant also has power under Part A.30 to establish different investment portfolios for different categories of member. Indeed, the applicant informed the Court (by way of submission rather than evidence) that from 1 April 2003 it had established different investment portfolios and had given members the option of directing that their benefits be invested in one or other portfolio. The portfolios included a 'Cash' portfolio and a 'Just Shares' portfolio.
87 If my conclusion as to the proper construction of cl C.4.10 presents the trustee with any difficulties, it would be because the applicant has previously treated deferred retirement benefits as if they were accumulation style benefits in disregard of the requirements of cl C.4.10 of the Deed.
88 The respondents relied upon provisions found in other divisions of the Deed, aside from Divisions A and C, in support of their arguments. These other references need to be approached with caution, as they are directed to different sub-schemes and different kinds of entitlement.
89 In summary, the other provisions are:
· Clause B.3.2(k), which relates to Division B accumulation members and which allows for the debiting of a negative 'Declared Rate' (as defined in cl B.1.2).
· Clause D.4.5(c)(3) and (9), which relate to former City of Melbourne Superannuation Fund members.
· Clause G.2.2(h) and (o), which relate to personal retirement account holders.
· Clause H.4.2(a)(2) and (b)(6), which relate to eligible spouse member's accounts.
The provisions are not uniform and it is unnecessary to set them out in detail. None of them apply to the calculation or payment of deferred retirement benefits. None of them have any application to persons who are deferred benefit members within Division C, with the exception that defined benefit members can also be personal retirement account holders. In that event, their rights as such account holders would be governed by Division G.
90 The respondents also submitted that it needs to be borne in mind that cl C.4.10(a) and (b) largely replicate s 38(1) and (2) of the LAS Act. Section 38(1) and (2) were not amended between 1988 and 1998, even though new parts, covering different sub-schemes and different classes of benefit, were added to the LAS Act over that period. Sections 47E and 47I were introduced in 1993 when Part 7B of the LAS Act was enacted to cover the LASPLAN. Under those sections, accumulation style accounts maintained for LAS members can be reduced by negative investment returns. Yet Parliament did not seek to amend s 38 by defining interest as a net earning rate that might be positive or negative. According to the respondents, the reason is that Parliament considered that s 38 provided for a different kind of benefit than the accumulation style benefit provided to members of the LASPLAN by Part 7B.
91 By reference to these other provisions, the respondents submitted that the Deed, and previously the LAS Act, deliberately treated different classes of members differently; in particular, deferred benefit members were entitled to interest on their benefits, whereas members of other sub-schemes governed by other divisions were entitled to an investment return that might be positive or negative.
92 The applicant submitted that no weight should be attached to these other provisions. It said that these other provisions were later additions; none of them existed as provisions of the LAS Act at the time that the deferred benefits were introduced in 1988. And it submitted that there had never been an attempt to redraft either the LAS Act or the Deed to ensure consistency of expression among the disparate parts of those documents. The respondents countered that all of the versions of the Deed had been drawn by Freehills, the solicitors for the applicant, and that some provisions, notably cll B.1.2, D.4.5 and G.1.2, derived from the LAS Act and formed part of the Deed from its execution on 26 June 1998.
93 The respondents' argument invokes the maxim expressio unius est exclusio alterius. Particular reliance was placed upon the statement by DC Pearce and RS Geddes, Statutory Interpretation in Australia, 5th edn, Butterworths, 2001, at para [4.26] that '[i]t is a reasonable assumption that when legislation includes provisions relating to similar matters in different terms, there is a deliberate intention to deal with them differently.'
94 From time to time courts have expressed reservations about this maxim, and it is always applied with caution: see Houssein v Under Secretary, Department of Industrial Relations & Technology (NSW) (1982) 48 CLR 88 at 94 per Stephen, Mason, Aickin, Wilson and Brennan JJ; see also the authorities collected in Pearce and Geddes, Statutory Interpretation in Australia, supra, at paras [4.24]-[4.27].
95 Bearing these reservations in mind and recognising the need to proceed with caution, I have concluded that the contrast between cl C.4.10 and these other provisions is capable of providing some support, albeit in a very subsidiary way, for the construction of cl C.4.10 that I prefer. The short point is that the drafters of the Deed could have specifically included a provision in cl C.4.10 entitling the applicant to deduct negative interest (as defined) from a member's deferred retirement benefit, but they did not do so. However, given the history of the LAS Act and the Deed and the way in which different divisions have been introduced at different times to accommodate different sub-schemes, I would treat the point very cautiously.
96 The applicant also sought, somewhat inconsistently, to gather some support for its construction of cl C.4.10 from these other provisions. It pointed out that each of cll B.3.2, D.4.5, G.2.2 and H.4.2 provided for a crediting of interest at the declared rate (if positive) and a debiting of interest at the declared rate (if negative). It submitted that these provisions show that the Deed contemplates the concept of negative interest. In my opinion, these provisions do not assist the proper construction of cl C.4.10. They simply show that it is possible to adopt special definitions that alter the ordinary meaning of a word such as 'interest', and to use those definitions for specified purposes.
97 For completeness, I should add that I have gained no assistance from earlier determinations made by the Tribunal. Nor have I gained any assistance from other legislative schemes to which the respondents referred me: see State Superannuation Act 1988 (Vic) s 91; Emergency Services Superannuation Act 1986 (Vic) s 20I(3)(a); and Retirement Savings Accounts Act 1997 (Cth) s 42. These legislative schemes exhibit many different features, and it is not possible to reason from one legislated superannuation scheme to another.
98 Having construed cl C.4.10, it is necessary to return to the Tribunal's Determinations. Under s 37(4) of the ROC Act, the Tribunal may only exercise its powers of review for the purpose of placing the complainant as nearly as practicable in such a position that the unfairness or unreasonableness inflicted upon him or her no longer exists. The Tribunal determined pursuant to s 37(3) of the ROC Act that, as the reference to interest in cl C.4.10(a)(2) does not include negative interest, the applicant had acted unfairly and unreasonably towards the respondents by debiting their deferred retirement benefit accounts.
99 The applicant submitted that this determination paid insufficient regard to the fact that the respondents had enjoyed far higher returns in earlier years than would have been the case if they were only entitled to interest at a rate determined by the applicant. There was no evidence to support the submission, as the respondents correctly pointed out. But, even assuming that the contention is correct, I do not consider that it identifies any error in the determination made by the Tribunal. The fact that the applicant may have credited the respondents in the past with amounts that exceeded the rate of interest which it might otherwise have determined does not mean that the applicant can lawfully debit negative interest to the respondents in respect of the 21 month period ended 31 March 2003, or that it is fair and reasonable for the applicant to do so.
100 The Tribunal also noted in its reasons for decision that its conclusion as to the meaning of interest in cl C.4.10(a)(2) seems consistent with the views expressed in documentation that the applicant forwarded to the respondents at the time they made their elections. The Tribunal went on to state that it considered that, on a fair and reasonable reading, those documents were likely to have led the respondents to believe that deferred benefits would be capital guaranteed. In my opinion, it was open to the Tribunal to consider that the information provided by this documentation, including that provided by the Guide, constituted another factor supporting its conclusion that the applicant had acted unfairly and unreasonably in debiting interest to the respondents' deferred benefits.
101 However, the Tribunal added that it had no need to make any determination relating to whether or not the trustee should compromise claims that the complainants were misled, because of the conclusion it has reached on the interpretation of cl C.4.10(a)(2). It therefore seems that the Tribunal did not find it necessary to make any findings concerning the respondents' contention that they were misled by the information provided to them at the time they elected to take deferred retirement benefits. Accordingly, I do not need to address this question. I should add, however, that I can see no error of fact or law by the Tribunal in the observation it made concerning the nature and content of the documentation supplied to the respondents.
102 In my opinion, the Tribunal correctly concluded that the applicant acted unfairly and unreasonably towards the respondents in debiting negative interest in contravention of the requirements of cl C.4.10.