Application by LGSS Pty Ltd atf Local Government Super

1. [1]

   HER HONOUR: Before me for hearing on 1 December 2021 was an application by the plaintiff (LGSS Pty Ltd), to which I will refer as the Trustee, for judicial advice pursuant to s 63 of the Trustee Act 1925 (NSW) (Trustee Act) to the effect that the Trustee is justified in amending its trust deed to charge a fee for acting as trustee. The application is similar to that brought this year in the Supreme Court of Queensland before Kelly J in Re QSuper Board [2021] QSC 276 (Re QSuper), to which I will refer in due course, and to similar applications brought both in this Court (see Application by Maritime Super Pty Ltd atf Maritime Super [2021] NSWSC 1614 (Maritime Super), which is also being published today) and in the Supreme Court of Victoria (see Re Care Super Pty Ltd (in its capacity as trustee of Care Super) [2021] VSC 805 (Re Care Super) per Lyons J and Re HEST Australia Ltd [2021] VSC 809 (Re HEST Australia) per Button J).

2. [2]

   The application arises as a consequence of certain legislative changes relating to the indemnification of trustees, and directors of trustees, of superannuation funds, which will become operative on 1 January 2022 (hence the urgency with which this matter was listed and heard). Those changes have caused concerns as to the exposure of the Trustee and its directors to personal liabilities, including pecuniary penalties which might be imposed upon them in the course of their duties, which in turn gives rise to potential disadvantages for members in terms of the potential insolvency of the Trustee (as I explain in due course).

3. [3]

   In both Re QSuper and Re HEST Australia, it was held that the trustee of similar superannuation funds was justified in consenting to an amendment to its trust deed in order to allow the trustee to charge a fee in very similar circumstances to the present case. For essentially the same reasons as those articulated by Kelly J in Re QSuper and endorsed and applied by Button J in Re HEST Australia, I have concluded that the advice sought by the Trustee in the present case should be given.

4. [4]

   Although the Australian Prudential Regulation Authority (APRA) did not formally appear at the hearing of the judicial advice application, APRA subsequently filed submissions, as amicus curiae, to identify matters to which it, quite properly, considers the Court ought have regard in determining the present application. (APRA has appeared as amicus curiae on the applications heard by Kelly and Button JJ and in the Maritime Super proceeding and has made similar submissions on the last of those applications to the submissions here made; not surprisingly it has taken a consistent position in relation to this application.) I have taken APRA’s submissions into account in preparing these reasons; as well as the Trustee’s submissions in reply thereto and its supplementary submissions.

5. [5]

   There was a large amount of material tendered on the present application that the Trustee identified as confidential and commercially sensitive as well as confidential submissions. I am satisfied that it is in the interests of justice that confidentiality orders should be made under the Court Suppression and Non-publication Orders Act 2010 (NSW) (Suppression Orders Act ) (as I set out below). Accordingly, these reasons will not refer expressly to the content of that confidential material (though it has been taken into account and will be retained on the Court file subject to confidentiality orders). Given the limited time available, these reasons will be brief. I note that I have been greatly assisted in this regard by the Trustee’s comprehensive written submissions as well as the submissions from APRA.

Introduction

1. [6]

   The Trustee is a company registered in New South Wales and is the trustee of Local Government Super (Fund) which operates under the name Active Super. The Fund was established under a trust deed dated 30 June 1997 (Trust Deed).

2. [7]

   The Trustee has resolved to amend the Trust Deed to insert a specific power to charge a fee out of the Fund. As adverted to above, that decision has been taken because of the significant changes which have occurred in recent years in the legal, regulatory and enforcement environment in which the Trustee operates. The proposed amendment will have the effect of providing the Trustee with funds to be utilised to build up a pool of personal capital for the purpose of reducing the exposure of the Trustee and the directors of the Trustee for personal liabilities, including pecuniary penalties imposed upon them in the course of their duties. The Trustee considers that it is in the best financial interests of members of the Fund that it amend the Trust Deed in this way.

3. [8]

   Since a conflict or apparent conflict may be said to arise (between the Trustee’s and the directors’ interests, on the one hand, and their duty to, and/or the interests of, members of the Fund, on the other) in respect of the proposed amendment, the Trustee seeks judicial advice as to whether it is justified in amending the Trust Deed in the manner contemplated.

4. [9]

   The proposed amendments to the Trust Deed are set out in a draft Deed of Amendment annexed to the Statement of Facts relied upon by the Trustee on the present application (Draft Deed of Amendment).

5. [10]

   The Statement of Facts is supported by affidavits sworn on 16 and 23 November 2021, respectively, by the deputy chief executive officer and company secretary of the Trustee, Ms Donna Marie Heffernan. The first of those affidavits exhibits a substantial body of material which demonstrates the extent of the work undertaken and the care exercised by the Trustee in coming to its conclusion that it is in the best financial interests of members to amend the Trust Deed in the manner contemplated. The second is a confidential affidavit (in respect of which confidentiality orders are sought).

6. [11]

   The Trustee’s primary application is for judicial advice. However, the Trustee has brought an alternative claim for relief under the statutory expediency jurisdiction (s 81 of the Trustee Act) or the Court’s inherent jurisdiction (in the event that this be necessary) and, because this alternative claim may be affected by views formed on the judicial advice application, the Trustee seeks the opportunity to make further submissions concerning the alternative claims if and when the need arises.

Confidentiality

1. [12]

   As adverted to above, a significant amount of the material relied upon in this application is material which the Trustee has identified as confidential and commercially sensitive. Separate submissions were made by the Trustee, identifying the material in respect of which confidentiality orders are sought and the basis for such orders. I consider those in due course. Suffice it at this stage to note that the Trustee also maintains a claim to legal professional privilege over all privileged material.

Background

1. [13]

   As noted above, the Fund was established in 1997. It was formerly known as the Local Government Superannuation Scheme (LGSS). LGSS was a successor fund to a series of early funds (as set out in Ms Heffernan’s first affidavit).

2. [14]

   The Fund is a regulated superannuation fund and a registrable superannuation entity within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act).

3. [15]

   As at 30 June 2021, there were over 79,056 members of the Fund; and the net assets of the Fund comprised over approximately $13.6 billion. Active Super provides retirement, death or disablement benefits for its members, who are (generally speaking) people employed in the local government sector. However, it is now a public offer fund.

4. [16]

   Active Super was established by the then Treasurer under s 127 of the Superannuation Administration Act 1996 (NSW), which authorised the Treasurer to approve the preparation of a trust deed for a superannuation scheme for the benefit of certain classes of State public sector employees. Section 127(5) required that “the trust deed must be consistent with the requirements of [the SIS Act] for a regulated fund within the meaning of that Act” and stipulated that “any trustee must satisfy the requirements of [the SIS Act] for a trustee”.

5. [17]

   There are six Divisions in Active Super, each with its own Rules. For example, Division B (also known as the Retirement Scheme) has the Rules set out in Schedule 2 to the Trust Deed. Each Division relates to a particular category of the beneficiaries of the Fund. Under cl 3.8 of the Trust Deed, the beneficiaries of the Fund are entitled to have the assets held by their Division applied in accordance with the Rules. The assets consist of: the small amount settled under the Trust Deed; assets transferred to LGSS on 1 July 1997 from earlier schemes; subsequent contributions made by “Employee Contributors’ and ‘Employers” under the Rules; and investment earnings.

6. [18]

   The Rules for the Divisions comprising accumulation schemes are to the effect that the beneficiaries are entitled to be paid a superannuation amount equal to the balance held in the individual beneficiary’s “Member’s Benefits Account”.

7. [19]

   Divisions B to D inclusive are defined benefit schemes (though Division B provides for both defined benefits and accumulation benefits). The Rules for these Divisions have the effect that the beneficiaries are entitled to be paid a superannuation benefit calculated by reference to formulae described in the respective Rules of the Divisions.

8. [20]

   The Trustee notes that, essentially, the defined benefit schemes are closed. Clause 3.10 of the Trust Deed provides that new beneficiaries may not be admitted to Divisions B to D inclusive, except in limited circumstances relating to mobility and government-initiated transfers. The Trustee says that mobility and transfers are relatively small in number and, accordingly, the number of beneficiaries in these Divisions has decreased over time.

9. [21]

   The Trustee is a limited liability proprietary company. Pursuant to cl 1.2 of its Constitution, the company was formed for the purpose of acting as the trustee of a regulated superannuation fund within the meaning of s 19 of the SIS Act. While the Constitution contemplates that the Trustee “may also act as the trustee of other trusts” (see cl 1.2), the Trustee’s evidence is that it does not do so and it has never done so.

10. [22]

    The Trustee currently has eight shares on issue, those being four “Employer Class Shares” (held by Local Government NSW (LGNSW), the peak body for NSW councils; see cl 2.2 of the Constitution) and four “Member Class Shares” (held by individuals for, or who are otherwise representatives of, the United Services Union (USU), the Local Government Engineers’ Association of NSW (LGEA) and the Development and Environmental Professionals’ Association (DEPA); see cl 2.3 of the Constitution).

11. [23]

    The Trustee is subject to the equal representation provisions of the SIS Act, which require that the Trustee have an equal number of employer representative directors and member representative directors.

12. [24]

    Pursuant to the Constitution, the board of directors of the Trustee must comprise: one-third independent directors, one-third member-representative directors (nominated by shareholders representing the USU, the LGEA and the DEPA), and one-third employer representative directors (nominated by LGNSW).

13. [25]

    The Trustee’s Constitution contains limitations on the entitlements of the shareholders (reflecting that the Fund operates on a profit-to-member model, rather than to generate profit for shareholders), including that: the directors are prohibited from declaring or determining a dividend or applying any portion of the Trustee’s capital or income to be paid or transferred, directly or indirectly, in any way to a shareholder (cl 21.1); and, in the event that the Trustee is wound up, any assets remaining after the satisfaction of the Trustee’s debts and liabilities must not be paid or distributed among shareholders (cl 22.1).

14. [26]

    The Trust Deed provides for recovery of the Trustee’s costs from the Fund, and includes among recoverable costs remuneration of the Trustee’s directors, as follows:

15. [27]

    The Trust Deed further provides that:

16. [28]

    The Trustee has a right of indemnity out of the Fund in the following terms:

17. [29]

    The Trustee does not currently receive remuneration, as such, for the services it provides to the Fund as trustee. The Trustee’s current practice for meeting its expenses of administering the Fund is that all costs and expenses are paid out of the Fund pursuant to cl 6.7, save that directors’ remuneration is paid out of the Fund pursuant to cl 4.5 and expenses that are known but not yet incurred are paid pursuant to cl 16.5.

18. [30]

    Fees levied upon members include administration fees, and investment fees.

19. [31]

    As to administration fees, members pay a flat rate annual fee of $66.04, together with a fee of 0.24% of the member’s account balance (for the accumulation and transition to retirement products) or 0.25% of the member’s account balance (for the standard account-based pension product). Administration fees are deducted from members’ accounts.

20. [32]

    As to investment fees, these vary over time and depend on the member’s investment choices. For example, the investment fee payable by a member invested under the Fund’s MySuper option for the financial year ended 30 June 2021 was 0.80% - 0.93% of the member’s account balance per annum, depending on the member’s life stage (since the Trustee’s MySuper investment options vary by the member’s life stage) with these figures including estimated performance fees of between 0.23% and 0.29%. For that product, transactional and operational costs currently range from 0.07% - 0.08%. Investment fees are deducted from investment returns before unit prices are determined.

21. [33]

    The Fund maintains various reserve accounts. The purpose of the reserves is generally to provide pools of funds to meet operational and administrative costs of the Fund.

22. [34]

    The operational risk reserve is maintained in accordance with the requirements of APRA Prudential Standard SPS 114, which applies to all APRA-regulated funds. It preserves a pool of funds equivalent to around 0.25% of funds under management from which the Fund can meet operational contingencies.

23. [35]

    The administration reserve holds any excess funds levied to members to meet costs and expenses over actual costs and expenses.

24. [36]

    As at 30 June 2021, the net asset position of the Fund was a surplus of approximately $296 million.

25. [37]

    As adverted to above, in recent years there have been significant changes to the regulatory environment in which the Trustee administers the Fund, which the Trustee says have made the Trustee’s discharge of its obligations as trustee of the Fund more onerous. Those changes include: an expansion and elaboration of the regulatory obligations of superannuation trustees; an increase in penalties for non-compliance with those obligations; and an intensification of regulatory scrutiny and enforcement of superannuation trustees’ conduct.

26. [38]

    Most recently, the SIS Act has been amended so as to limit the Trustee’s capacity to be indemnified out of the Fund for liabilities incurred in its capacity as trustee of the Fund. Those amendments will take effect on 1 January 2022. From that date, the Trustee will be personally liable for any to penalties imposed on it for non-compliance with a wide variety of obligations imposed upon it by Commonwealth law (many of them obligations of strict liability).

27. [39]

    As noted at [27] of Re QSuper, the amendments to ss 56(2) and 57(2) of the SIS Act were as follows:

28. [40]

    As Kelly J further noted in Re QSuper at [28], the amendments to ss 56(2) and 57(2) were discussed in the explanatory memorandum to the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 as follows:

29. [41]

    The Trustee considers that, in view of the changes to its operating environment described above (and having regard to the matters referred to below) it is prudent and in the best financial interests of members to introduce a fee to compensate the Trustee for acting as trustee of the Fund and the services it performs as such. In particular, the Trustee considers that the significant compliance and other risks associated with performing the role of trustee render it commercially unreasonable to expect the Trustee to act as trustee of the Fund without remuneration. It says that the impact of the proposed Trustee Fee upon members is fair and equitable as between different groups of members.

30. [42]

    The Trustee is of the view that it would be beneficial to members of the Fund if the Trustee could build up a fund of personal capital in order to mitigate the risks of the insolvency of the Trustee together with: (i) the risk that the Fund (and thus members) may incur the costs which would be imposed upon it (and them) in the event that the Trustee became insolvent and could not continue as Trustee of the Fund (which costs the Trustee has estimated on various insolvency scenarios – as per confidential submissions); and (ii) the risk that appropriately skilled individuals could not be attracted to act as directors of the Trustee, with commensurate effects upon the administration of the Fund.

31. [43]

    It is noted that if the Trustee determined that it could no longer act as trustee of the Fund without appropriate measures in place to address its personal financial risks, the Trustee would be required to transfer its members to another fund where, in all likelihood, a fee would be paid to the trustee of that fund in one form or another given other trustees would be facing the same personal financial risks. Further, it is said that, in the event that the Trustee became insolvent such that a successor fund transfer became necessary, participating employers might cease to be obliged to make contributions to fund liabilities associated with the defined benefit section of the Fund.

32. [44]

    The Trustee notes that the proposed remuneration power would be subject to limits to ensure that the fee levied remained no higher than what the Trustee considers to be a fair and reasonable rate of remuneration for the services it provides.

33. [45]

    The proposed amendment to the Trust Deed would empower the Trustee to impose a Trustee Fee in an amount equivalent to up to 0.04% per annum of the net assets of the fund (Annual Limit). In addition to the Annual Limit to the amount of the Trustee Fee that could be charged, the power to levy a Trustee Fee would be subject to a cap on the amount of personal capital the Trustee could accumulate out of the proceeds of the Trustee Fee (Cap on Target Capital). The Cap on Target Capital is to be set initially at an amount equal to 0.08% of the net assets of the fund or such other maximum amount (if any) of Trustee capital as the applicable law requires or a regulator permits, recommends, requests or directs the Trustee to hold. Once the Cap on Target Capital is reached, for as long and to the extent that the amount of Trustee Capital held does not drop below that amount, the power to levy the Trustee Fee would be suspended.

34. [46]

    The Annual Limit and the Cap on Target Capital have been set by reference to the Trustee’s assessment of what level of remuneration compensates the Trustee for the risks of personal liability which it assumes in and through providing services as Trustee to the Fund.

35. [47]

    The Trustee has calculated a reasonable rate of remuneration for the risks of personal liability assumed by the Trustee using modelling it developed with the assistance of Pricewaterhouse Coopers (PwC). The details of the Trustee’s modelling are set out in the Report on Trustee Capital and Fee. The Trustee has submitted the modelling conducted to external validation.

36. [48]

    The Annual Limit and Cap on Target Capital would be subject to review every three years. The Trustee would be required to amend the Annual and the Cap on Target Capital to accord with the outcome of each such review.

37. [49]

    The Trustee Capital would be held by the Trustee solely for the purpose of enabling the Trustee to discharge its duties as Trustee of the Fund. The Trustee’s Constitution provides that no dividends or return of capital can be paid to shareholders, and that any capital held by the Trustee cannot be returned to shareholders in a winding up, which provision can only be modified with the agreement of all directors of the Trustee.

38. [50]

    The Trustee has express power to amend the Trust Deed by a deed executed by the Trustee (cl 20.1). Clause 20.1 provides that the Trustee’s power of amendment is conditional upon the Treasurer of NSW consenting to any amendment, and the amendment complies with sub-cll 20.2 (concerning reduction of benefits) and 20.4 (precluding amendment to permit a natural person to become trustee).

39. [51]

    Relevantly, cl 20.5 provides that “subject to clause 20.7” (which enumerates a number of clauses which may not be amended by this means), the Trustee may in its absolute discretion “exercise its powers in clause 20.1 without requiring the consent of the Minister [i.e., the Treasurer], to amend, add to, delete or to replace all or any of the provisions that apply to the Deed or the Accumulation Divisions of the Fund (other than an amendment, addition, deletion or replacement provision which would provide for Defined Benefits)”. Clause 20.6 provides a cognate power to amend “all or any of the provisions that apply to the Defined Benefit Divisions of the Fund” other than an amendment “which would improve any Defined Benefit”.

40. [52]

    Clauses 20.5 and 20.6 were inserted through previous exercises of the amendment power in cl 20.1 (first, an earlier version of cl 20.5 was introduced; then cl 20.5 was disaggregated into cll 20.5, 20.6 and 20.7 – both of which sets of amendments being made with the Treasurer’s consent).

41. [53]

    Subsequently, a restructuring of the Fund, including a successor fund transfer from one part of LGSS to another, led to a further deed of amendment, in effect, replacing references to “Pool A” and “Pool B” with references to the Accumulation Division and the Defined Benefit Division respectively. The Trustee notes that these amendments did not require ministerial consent.

42. [54]

    The Trustee does not consider that the Treasurer’s consent to the proposed amendments is required (and has not sought that consent).

43. [55]

    The Trustee has notified APRA as to the nature of the proposed amendment to the Trust Deed, the reasons for it and the basis of the Trustee’s determination that the amendment is in the best interests of members of the Fund; and provided APRA with a copy of this application and the material filed in support. As noted above, after the hearing of the application APRA filed submissions in relation to the Trustee’s application.

44. [56]

    The Trustee has also notified representative of each sponsoring organisation (i.e. USU, LGEA, DEPA and LGNSW) of the proposed amendment; and each has indicated that it supports the proposal. The Trustee has not served the application seeking judicial advice on the members. It says that this approach is consistent with s 63(4) of the Trustee Act and submits that service of the application is not warranted where: the directors include member representative directors that are nominated by organisations representing the interests of members of the Fund; the directors have approved this application, and hence it can be taken that representatives of members of the Fund are aware of the application; each of the four sponsoring organisations of the Trustee (being organisations representing the interests of members and employers) has confirmed it is in support of the application; there are over 79,000 members in the Fund and it can be assumed that giving notice to members would involve prohibitive costs and lead to substantial delay; and APRA has been served with the application.

45. [57]

    In this regard, it is said that the position is very similar to the position which prevailed in Re Queensland Coal and Oil Shale Mining Industry (Superannuation) Ltd [1999] 2 Qd R 524 (Queensland Coal and Oil Shale Mining Industry) (an application under the Queensland equivalent of s 81 and the inherent jurisdiction), Re Cuesuper Pty Ltd [2009] NSWSC 981 (Re Cuesuper) and Re Retail Employees Superannuation Trust Pty Ltd [2013] NSWSC 1681 (Re Retail Employees Superannuation Trust), where in each case the Court did not require service on the members. Reference is made to what was said by Palmer J in Re Cuesuper at [8]-[10]; and it is noted that a similar approach was adopted in Re QSuper (see at [17]).

46. [58]

    That said, the Trustee intends to notify members of the amendments to the Trust Deed once this application has been determined in accordance with the requirements under the Corporations Act 2001 (Cth).

47. [59]

    The Trustee has notified the Treasurer of NSW of the proposal.

Application for judicial advice

1. [60]

   As noted above, the Trustee has formed the view that making the proposed amendments to the Trust Deed is in its members’ best financial interests. However, the Trustee and its directors recognise that they may have a conflict of interest in making the amendments, in that the amendments will permit the Trustee to acquire a financial benefit (and thereby reduce the Trustee’s personal liability, and enable the Trustee to indemnify the directors for personal liabilities), which it is accepted would be at some indirect cost to members. Hence the present application for judicial advice.

2. [61]

   As to the jurisdiction for the giving of such advice, it is noted that the Trustee is resident and administered in New South Wales; and is a company registered in New South Wales with its registered office and principal place of business in New South Wales. The original Trust Deed provided in cl 27.2 that the Trust Deed was governed by the laws of New South Wales.

3. [62]

   An amending deed (Amendment No 33) contained a provision that cl 27.2 was to be replaced by a new clause 27.2 in Schedule 1 (to the effect that the Trust Deed was governed by the law of the Australian Capital Territory) and also provided:

4. [63]

   The date of the amending deed was 24 May 2011. There is no evidence of any subsequent determination by the Trustee of the date on which the amending deed was to become operative, nor any subsequent act of the Trustee which ratified the amendment in Deed of Amendment No 33 or embodied that amendment in a subsequent consolidated deed.

5. [64]

   The Trustee contrasts the wording of cl 4.1 of Deed of Amendment No 33 with the wording of previous amendments. Clause 2 of the Deed of Amendment No 26, for example, provided that the amendments there identified “will commence on the date of this Deed”. The equivalent clauses in Deeds of Amendment Nos 27 and 28 provided that the identified amendments “take effect” on a date there specified. Clause 2 of Deed of Amendment No 29 provided that:

6. [65]

   Similarly, cl 3 of Deed of Amendment No 30 provided that:

7. [66]

   Clauses 4 of the respective Deeds of Amendment Nos 31 and 32 provided in similar terms that the amendments there identified “take effect from a date after the date of this deed is approved of by the Minister as determined by the Trustee”.

8. [67]

   Clause 4 of Deed of Amendment No 34 provided that the amendments there specified “take effect from the day following the execution of this deed”.

9. [68]

   Deed of Amendment No 33 therefore differs from the other deeds of amendment referred to above in that it does not in terms make clear when the amendments were to come into effect. The Trustee submits (while recognising that there may be some scope for argument on this issue) that the amendments in Deed of Amendment No 33 have not yet come into effect and, therefore, the original cl 27.2 remains in force and the Trust Deed remains governed by the law of New South Wales. (On the evidence before me I accept that this appears to be the case, there being no evidence of any determination by the Trustee of the date from which the amendment was to come into force.)

10. [69]

    In any event, the Trustee says that, even if the Trust Deed is now governed by the laws of the Australian Capital Territory, this Court has jurisdiction to provide the judicial advice (citing Re Application of Rinehart (2020) 104 NSWLR 274; [2020] NSWSC 1624 (Re Application of Rinehart) at [94] per Parker J). Reference is made to cases in which it has been held that this Court may give judicial advice under s 63 of the Trustee Act in respect of foreign trusts (the Trustee citing, by way of example, BTA Institutional Services Australia Ltd & BNY Trust (Australia) Registry Ltd (2009) 3 ASTLR 207; [2009] NSWSC 1294 and Re Dion Investments Pty Ltd [2013] NSWSC 1941).

11. [70]

    It is noted that in Re Application of Rinehart, Parker J (without deciding the question) considered that there was room for argument as to whether s 63 applied to foreign trusts (see at [111]). His Honour there held that where, on any view, this Court had power under interstate legislation (in that case, the Trustees Act 1962 (WA)) and the inherent jurisdiction, the Court should exercise jurisdiction under the interstate legislation rather than s 63 of the Trustee Act.

12. [71]

    The Trustee here submits that it would be appropriate to proceed under s 63 of the Trustee Act but, out of an abundance of caution, also to make the order under s 63 of the equivalent Australian Capital Territory Act, the terms of those statutory provisions being relevantly identical. It is noted that this Court has jurisdiction to provide advice under s 63 of the Australian Capital Territory Act by virtue of s 4(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (ACT) and s 9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) (see Re Application of Rinehart at [36], [112]).

13. [72]

    The Trustee further notes that, under both s 63(4) of the Australian Capital Territory Act and s 63(4) of the New South Wales Act, the beneficiaries need not be joined as parties to the proceedings.

14. [73]

    As to the breadth of the jurisdiction under s 63, the Trustee refers to Baymill Investments Pty Ltd v Drewlock Pty Ltd [2019] VSC 827 (Baymill) where Sloss J noted (at [75]) that the equivalent Victorian provision conferred on the Court the power to give directions to trustees and reflected the long-standing practice that “[w]here an executor or trustee is in doubt as to the course of action it should adopt, it is always entitled to take the opinion of the court as to what it should do”. In Re Perpetual Investment Management Ltd [2011] NSWSC 133 (at [46]) it was said that s 63 is beneficial legislation for the protection of trustees and should not be narrowly construed.

15. [74]

    The Trustee notes that the only jurisdictional bar to the exercise of the power is the requirement that there be a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument (see Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 (Macedonian Church) at [58]; Baymill at [76]).

16. [75]

    Further, it is noted that the procedure does not involve proving facts according to a certain standard of proof to enable findings to be made as would be the case in adversarial litigation (Crnjanin v Ioos [2010] NSWSC 750 at [28]) and that it has been said that the primary function of the legislation is to facilitate the provision of “private advice” to the trustee (Macedonian Church at [64]-[65]).

17. [76]

    The Trustee points out that it is not the function of the court to take over the exercise of the trustee’s discretion or assess the wisdom of the trustee’s decision (citing McKinnon v Samuels [2000] VSC 393 at [14]); nor to order or tell the trustee what to do; rather that the order is permissive and usually expressed in the form that the trustee “is justified” in acting in a particular way (citing Re Application of NSW Trustee & Guardian [2014] NSWSC 423, at [24] which was in turn cited in Baymill at [80]). Reference is also made to what was said in Re Application of NSW Trustee & Guardian by Kunc J (at [25]-[26]).

18. [77]

    It is noted that, in exercising the jurisdiction, the court “is essentially engaged solely in determining what ought to be done in the best interests of the trust estate” (see Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 at 201, which was quoted in Macedonian Church at [104]).

19. [78]

    The Trustee says, by reference to the above, that it may thus be appropriate to seek judicial advice in relation to a proposal by the trustee to amend the trust deed but that, insofar as this involves matters which are for the discretion or judgment of the trustee, the court does not express any view; rather, its role is primarily that of passing judgment upon the lawfulness of the course which the trustee is minded to pursue (citing Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd (2006) 15 VR 87; [2006] VSC 112 (Invensys) at [36]) or as to whether the proposed course of action or exercise of power is proper or within power (citing Chamberlain v Spry [2008] VSC 562 at [14]).

20. [79]

    Finally, it is noted that the courts may provide judicial advice in cases of perceived or actual conflict between the trustee’s duty as trustee and its personal interest, including when exercising a power of amendment (the Trustee citing Re Cuesuper at [22]; Baymill at [83]-[90]).

Trustee’s submissions

1. [80]

   The Trustee submits that it is entitled to amend the Trust Deed in the manner contemplated by the proposed deed of amendment, noting that a trustee may amend a trust deed pursuant to an express power and in so doing is required to exercise the power in good faith, upon a real and genuine consideration and in accordance with the purposes for which the power was conferred. It is noted that the trustee should act in a way which appears to it to be fair and equitable in the circumstances (see Invensys at [62]). It is accepted that, in exercising its power to amend, the Trustee is also required to comply with its obligations under relevant superannuation legislation, including in particular, the covenants in s 52(2)(c) and (d) of the SIS Act.

2. [81]

   The Trustee points to authority for the proposition that amending powers in superannuation trust deeds are construed in a way which takes into account of the fact that such funds are intended to operate over a long period and often against a changing commercial and legislative background, referring to what was said by Millet J (as his Lordship then was) in Re Courage Pension Schemes [1986] 1 WLR 495 (Courage) at 505ff, namely that:

3. [82]

   It is accepted that, where an amending power in a trust is subject to express restrictions, there must be compliance with those restrictions (see Walker Morris Trustees Ltd v Masterton [2009] EWHC 1955 (Ch) at [48]; Trustee Solutions v Dubery [2006] EWHC 1426 (Ch) at [20]; Re UEB Industries Ltd Pension Plan [1992] 1 NZLR 294 at 300-301); and that the trustee cannot employ its amending power to remove those restrictions (see Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 at 1411; Courage at 505; Re Reevie and Montreal Trust Co of Canada (1984) 46 OR (2d) 667 at 673).

4. [83]

   The Trustee submits that the power of amendment is here proposed to be exercised in good faith, upon a real and genuine consideration, and that the power is being exercised in accordance with the purposes for which the power was conferred and in a way which is fair and equitable in the circumstances. The purpose of the exercise of the power of amendment (in the sense of “the substantial object the accomplishment of which form[s] the real ground of the [Trustee’s] action”) is here said to be to provide clarity, to provide a more focussed power and to permit the Trustee to continue to function as trustee in the face of potential risks to its solvency and, ultimately, to secure the competent administration of the Fund. The Trustee says that, absent the payment of the Trustee Fee, the Fund will potentially be exposed to the loss of the Trustee, with concomitant financial detriment (noting that any replacement trustee would likely require payment of a fee in any event; c.f., In re Duke of Norfolk’s Settlement Trusts [1982] Ch 61 (In re Duke)).

5. [84]

   It is submitted that there are idiosyncrasies of the Fund in the present case which make the loss of the Trustee additionally undesirable. It is noted that the power to appoint a replacement trustee is vested in the Treasurer; and the Trustee says that the process of appointing a replacement trustee is therefore likely to be additionally cumbersome.

6. [85]

   Further, emphasis is placed on the fact that participating employers’ obligations would be unlikely to survive a successor fund transfer, in circumstances where a significant number of members of the Fund are accruing defined benefit entitlements. It is said that, while those defined benefit entitlements are adequately funded as at 30 June 2021, accruals for future service are not funded and rely upon continuing contributions from the relevant participating employers. The Trustee anticipates that some affected participating employers would be reluctant to consent to a transfer and would have an interest in avoiding any further obligation to make contributions to fund defined benefit entitlements. It perceives that there is accordingly a risk that a successor fund transfer would have significantly adverse consequences for members accruing defined benefit entitlements, and potentially for members of the Fund more generally.

7. [86]

   The Trustee accepts that equity has historically expected trustees to act gratuitously (pointing by way of example to Robinson v Pett (1734) 3 P Wms 249; (1734) 24 ER 1049) (in essence, a manifestation of the rule that a fiduciary must not be in a position of conflict – i.e., a position where the fiduciary’s interests conflict with its duty to, or the interests of, the beneficiary – or pursue a personal gain in a position of conflict).

8. [87]

   However, the Trustee says that any conflict which may be said to arise by reason of the amendment is mitigated by the fact that the Trustee is seeking judicial advice before exercise the power (citing Hancock v Rinehart (2015) 106 ACSR 207; [2015] NSWSC 646 at [379]-[383]; Macedonian Church at [104]; and pointing to the observations of Palmer J in Re Cuesuper at [21]-[22], including the acceptance by his Honour of the adage “penny wise, pound foolish” in the context of the proposition that the failure to pay a relatively small remuneration in order to retain a professional and committed Board might result in less skilled administration of Cuesuper and a poorer return to its members). It is noted that the approach of Palmer J was followed by Darke J in Re Retail Employees Superannuation Trust (at [16]).

9. [88]

   The Trustee submits that it would be not be proscribed, upon the receipt of positive judicial advice, from exercising the amendment power simply because the amendment would result in payment of a fee which may be described as “remuneration”; and that there is no overriding rule of law or equity that an amending power in a trust deed cannot be utilised to authorise payment of remuneration – rather, that every trust deed must be construed in accordance with its own terms.

10. [89]

    The Trustee further submits that the decision of Dankwerts J in Re French Protestant Hospital [1951] Ch 567 does not inhibit the grant of the advice sought or the making of the proposed amendments. There, the by-laws of a charitable corporation empowered the directors to amend the by-laws, provided that the new by-laws were reasonable and not repugnant to law. On a challenge to the validity of the amendments, Dankwerts J held that an amendment of the by-laws authorising directors to charge profit costs and fees was invalid. The Trustee says that this decision provides no impediment to the Trustee exercising its power of amendment in the present case, for the following reasons.

11. [90]

    First, that the amendment in Re French Protestant Hospital purported to authorise the charging of “full profit costs and fees” so that the directors “could in fact make a profit out of their office for the services rendered by them” (at 572); whereas the fee proposed by the Trustee in the present case is of a quite different character (being a fee designed to facilitate the ability of the Trustee to continue to perform its role as trustee, rather than expose itself to insolvency, the loss of the Trustee and the potential for substantial cost to members). It is noted that the proposed fee does not operate, in substance, to secure a private gain or “profit” to the Trustee in conflict with its duties to members.

12. [91]

    Second, it is noted that the decision in Re French Protestant Hospital was based, in large measure, on the construction of limitations in the by-laws of a charitable corporation (whereas the amendment power in the present matter does not import comparable limitations). It is said that Dankwerts J did not hold that it was not open to a trustee, in any circumstances, to exercise an amending power to provide for its remuneration; rather, holding (at 571-2) that in the case of administering charitable trusts by the court, it had always been the practice to exclude any power on the part of the trustee to obtain a profit or remuneration and it would be a great change if it were thought proper to do so, particularly at the instance of the trustee itself. In the circumstances, Dankwerts J held (at 572.5) that it was not proper and reasonable to include such a provision in the by-laws relative to a charitable trust, that such a power was “prima facie” repugnant to law and, if it were said that it was not repugnant, that it was not reasonable to insert such a provision in trusts of the kind he had to consider in that case. Accordingly, it was held that the amendment was not “reasonable, and not repugnant to the law” as required by the by-law authorising amendments. The Trustee notes that the amendment power in the present case does not contain express restrictions of the type in Re French Protestant Hospital; and emphasises that the present case does not involve a charitable trust but, rather, a superannuation trust (where it is said that powers of remuneration are now commonplace – they certainly will be if the fate of this and similar applications is taken into account).

13. [92]

    Third, the Trustee says that the proposed amendments do not in reality confer any personal advantage upon the Trustee, or upon its directors (or an advantage of a type which was not, at least implicitly, contemplated under the current deed), which is in conflict with the Trustee’s duties to members. It is said that, while the proposed amendments do confer a benefit on the Trustee and the directors by mitigating the risk of insolvency and moderating the directors’ exposure to personal liability, those benefits are incidental to the amendments’ effects upon the Fund’s administration. It is said that if the Trustee were not afforded some measure of protection from the threat of insolvency, the risk of that eventuality and the attendant disruption to the Fund’s administration and remedial expense to the Fund would be unacceptably high. The Trustee argues that if the Trustee remains unable to offer any indemnity to directors against personal liability for penalties incurred in the course of their duties, and directors remained without such an indemnity, the Fund would risk the Trustee becoming unable to attract competent directors. Further, it is submitted that the Trustee could also be expected to grow excessively risk-averse in its decision-making, potentially leading to poorer financial outcomes for members.

14. [93]

    The Trustee accepts that it might be said that, by enabling the Trustee to accumulate a pool of personal capital out by levying a fee against the Fund, the proposed amendments would provide the Trustee with an income in excess of its immediate expenses for a period of years (for as long as the Trustee chose to take to accumulate enough personal capital to trigger the Cap on Target Capital) and that, in this process, the Trustee’s balance sheet would be inflated by the amount of the Cap on Target Capital. However, the Trustee says that the proposed fee does not operate, in substance, to secure a private gain or “profit” to the Trustee in conflict with its duties to members. It is noted in this context that the Trustee’s object is to serve as trustee of the Fund; that the Trustee’s board has an equal number of member representatives and employer representatives; and that the Trustee’s Constitution precludes the payment of dividends or the distribution of surplus capital among shareholders, including in a winding up.

15. [94]

    The Trustee emphasises that the purpose for which the Trustee has resolved to introduce the proposed Trustee Fee (and the apparent effect of the introduction of that fee) is to promote the beneficial administration of the Fund. It is said that the regulatory context in which the Fund is now administered, interacting with the scale of the Fund’s assets and membership, renders anomalous the fact that the Trustee is not receiving any remuneration; and (as already noted) that the task of administering the Fund has grown increasingly onerous. The Trustee says that, in order to continue to discharge its obligations as trustee, the Trustee must have means of remaining solvent in the event that a penalty is imposed upon it to which neither indemnities from the Fund nor its insurance respond. It is said that the consequences of insolvency of the Trustee would be significant disruption to the administration of the Fund, and significant expense in restoring proper administration.

16. [95]

    The Trustee points out that the proposed amendments do not eliminate the risks of insolvency of the Trustee (or the liability, beyond the limits of any available indemnity, of the directors). Rather, the Trustee says that the Trustee Fee and Trustee Capital (within the Annual Limit and the Cap on Target Capital, both subject to regular review to ensure the rate of remuneration remains fair and reasonable) function to mitigate the Trustee’s solvency risk and to moderate the directors’ personal exposure.

17. [96]

    The Trustee says that the proposed amendment does not engage any of the express restrictions on the Trustee’s power in cl 20 to amend the Trust Deed; noting, in particular, that the proposed amendment would not improve any defined benefit and does not alter cll 3.7, 4.2, 4.3, 4.5, 7.5, 7.6, 8.2, 10.2, 20.1, 22 or 23 of the Trust Deed. I agree.

18. [97]

    The Trustee submits that, in exercising the power of amendment, the Trustee will comply with its relevant statutory obligations including s 52(2)(c) of the SIS Act.

19. [98]

    Reference is made to what was said by Kelly J in Re QSuper, when considering s 52(2)(c) in a context analogous to the present, namely that: a “relatively broad and practical approach should be adopted when assessing whether this type of proposed amendment is in the best financial interests of the beneficiaries” (at [36]); the court should consider “the interests of present and future beneficiaries and have regard to the commercial and practical realities of the superannuation industry generally” (at [36]); ultimately, the relevant inquiry for the court is “not whether the decision to consent to the Proposed Amendment is in the best financial interests of the members but rather whether it is reasonably justifiable on that basis” (at [36]); and “a reasonably justifiable decision is one where ‘good and sufficient reasons in support of the decision ... exist at the time the decision is made’”.

20. [99]

    The Trustee notes that the situation in Re QSuper differed from the present case in at least one significant respect, namely that, in Re QSuper, the trustee had decided to amend the trust deed to import a broad remuneration power, whereas the Trustee in the present case is proposing to introduce a limited and focussed remuneration power which will be the subject of regular review.

21. [100]

    The Trustee submits that the proposed amendments would be justified by reason of the principles and considerations identified by Kelly J in Re QSuper. In essence, it is submitted that the same “good and sufficient reasons” for consenting to the proposed amendment in that case (at [37]) are equally applicable to the present case. In particular, it is said that, since the Fund’s establishment: (a) there have been substantial changes to the legal, regulatory and enforcement environment in which the Trustee operates has become increasingly onerous and complex, in circumstances where penalties for non-compliance have become more severe, which has very significantly increased the Trustee’s financial risks (see Re QSuper at [37(c)]); and (b) there has been a considerable increase in maximum penalties for non-compliance, a pronounced increase in regulatory scrutiny and enforcement efforts, particularly following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and amendments to sections 56 and 57 of the SIS Act (made in December 2020 which will come into effect on 1 January 2022) which will significantly limit indemnities for Trustee and directors (see Re QSuper at [37(g), (m), (n), (p)]).

22. [101]

    It is noted that the Trustee has limited contributed share capital of $8 and contribution of further capital is not available; that existing insurance will not adequately address the financial risks facing the Trustee and directors; and that the Trustee has no capacity to generate its own resources, being a not-for-profit entity (see Re QSuper at [37(l)]).

23. [102]

    Ultimately, the Trustee submits that the following summary of the position in Re QSuper (see at [38]) is applicable in the present case:

24. [103]

    The Trustee has disclosed in its confidential material the existence of a particular dispute which it contends demonstrates the risk that, despite believing it has taken every effort and prudent measure, it may in future face penalties not due to any want of care or diligence by the Trustee in the performance of its duties and in the maintenance of its compliance and risk management frameworks. The Trustee says that this underscores the need for the Trustee to take the steps proposed to bolster its financial resilience to give it means of dealing with penalties so as not to jeopardise the solvency of the Trustee (and so as to avoid the various risks documented in Ms Heffernan’s confidential affidavit).

25. [104]

    The Trustee submits that there would be no breach of the conflict covenant in s 52(2)(d) of the SIS Act in its decision to amend the Trust Deed, for the reasons already advanced in its submissions.

26. [105]

    It is noted that a question raised by APRA in Re QSuper was whether the proposed amendments were precluded by the amendments to ss 56(2) and 57(2) of the SIS Act and that Kelly J held they were not. At [32], his Honour said:

27. [106]

    It is noted that his Honour further considered (at [32]) that “the levying of a fee, which is meant to build up over time into an asset that may be deployed by the trustee in the event that it becomes subject to a liability against which it cannot be indemnified, does not have the substantive effect of conferring an exemption from or indemnifying against that liability. Notably, the fee charged may prove to be insufficient, or excessive, to cover the extent of the liability and does not have the effect of excusing or extinguishing the liability of the trustee”.

28. [107]

    The Trustee submits in this regard that: it cannot be the case that ss 56 and 57 could be contravened by an amendment which cuts down a broad remuneration power into a focussed and more restricted power; and that, in any event, any such argument would be rejected for the same reasons as articulated by Kelly J in Re QSuper. I note that APRA does not cavil with this proposition.

29. [108]

    Thus, the Trustee submits (and I agree) that it is proper for the Trustee to amend the Trust Deed in the manner set out in the Draft Deed of Amendment.

30. [109]

    As noted above, the Trustee has made an alternative application for relief under the inherent jurisdiction or, alternatively, under the expediency jurisdiction under s 81 of the Trustee Act (against the possibility that the Court did not accede to the application for judicial advice) and sought in that event a further opportunity to make submissions. The Trustee proposed that the alternative claims only be considered if the need to press them were to arise. In the event, it does not. For completeness, however, I note the following as to the jurisdiction invoked by the Trustee as to the application for alternative relief.

31. [110]

    First as to the Court’s inherent jurisdiction, it is noted that, even where a trust deed does not allow for remuneration of a trustee, the Court in its inherent jurisdiction may allow remuneration in a proper case. The Trustee points out that it has been recognised that (where the work of the trust takes up a great deal of the trustee’s time, so that, in order to obtain proper services from the trustee, it is in the interests of the trust that the trustee should be remunerated) the court will exercise its inherent jurisdiction to empower the trustee to receive remuneration (see Marshall v Holloway (1820) 2 Swan 432 at 435-6; Re Freeman’s Settlement (1887) 37 Ch D 148; Nissen v Grunden (1912) 14 CLR 297; [1912] HCA 35; In re Duke at 78; JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) at [17-39]); the basis for such intervention being the Court’s “ancient jurisdiction to secure the competent administration of the trust” (In re Duke at 78 per Fox LJ). The Trustee refers also to the summary of principles in Re Creditors’ Trust of Jackgreen International Pty Ltd [2011] NSWSC 748 (at [40]-[43]). It is noted that in Queensland Coal and Oil Shale Mining Industry Williams J accepted (at 527.9) that an order for remuneration of trustees could be made under the inherent jurisdiction in circumstances very similar to the present.

32. [111]

    As to the expediency jurisdiction (see s 81 of the Trustee Act) the Trustee notes that this broad jurisdiction depends upon the opinion of what is expedient and that the powers given by s 81 were not intended to be restricted by any implications (Riddle v Riddle (1952) 85 CLR 202; [1952] HCA 12 at 214 per Dixon J). The Trustee notes that in Queensland Coal and Oil Shale Mining Williams J (at 224) observed that the section recognises that trust instruments and the general law may often prove inadequate to clothe trustees with the requisite powers to manage and administer trust estates over a period of years to the best advantage and authorises the Court to supplement or override these powers so far as may be expedient.

33. [112]

    Reference is made to cases such as Arakella Pty Ltd v Paton (2004) 60 NSWLR 334; [2004] NSWSC 13 at [81]-[84]; Re Dion Investments Pty Ltd [2020] NSWSC 1661 at [35]; Re Dion Investments Pty Ltd (2014) 87 NSWLR 753 (Re Dion (CA)) at [87]-[88]).

34. [113]

    The Trustee points out that “transaction” is a very wide expression which includes both dealings involving an outlay of money (as would be involved in the present case) and dealings which do not (Re Dion (CA) at [91]-[92]); and that payment of remuneration to a trustee has been held to be an expenditure or transaction of the requisite kind (Re Queensland Coal and Oil Shale Mining at 527; Re Cuesuper at [17]).It is said that conferral of specific new powers pursuant to s 81(1) should not be by way of purported grant of authority to amend the trust instrument so that it provides for the new powers; rather, the order should directly confer (and be the sole and direct source of) the powers which then supplement and, as necessary, override the content of the trust instrument (Re Dion (CA) (at [97])).

APRA’s submissions as amicus curiae

1. [114]

   APRA notes that this application bears a number of similarities to other recent judicial advice applications before this Court (as to both the form of the proposed amendment sought and the material and reasons advanced in support of the advice sought by the application).

2. [115]

   APRA in its submissions addresses the nature of the proposed amendments, and notes that the immediate catalyst for the proposed amendments(i.e., the impact of recent amendments to ss 56 and 57 of the SIS Act that limit the ability of a superannuation trustee to indemnify itself and its directors out of the assets of a fund noting that those changes are the latest instance of increasing regulation of superannuation trustees and their directors under Commonwealth law since the Trustee first became trustee of the Fund in 1997).

3. [116]

   APRA notes that the relevant legislative changes are consistent with a focus on improving compliance on the part of superannuation trustees (among other providers of financial services) with the duties and obligations owed to members (among other consumers of financial services).

4. [117]

   APRA says that the possible effect on members of the imposition of penalties on a superannuation trustee was mitigated to some extent by simultaneous amendments made by the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth) that require a court, in determining a pecuniary penalty under the Australian Securities and Investments Commission Act 2001 (Cth) or the Corporations Act, to take into account the impact that the penalty under consideration would have on the members of the fund.

5. [118]

   Nevertheless, APRA accepts that (on the Trustee’s evidence) if the Trustee does not resolve to levy a fee to accumulate personal capital the Trustee would be at some risk of insolvency since the Trustee lacks any significant fund of personal capital, without insurance as a complete solution or any indemnity out of Fund assets for a Commonwealth penalty.

6. [119]

   As to APRA’s position on the application, it has identified in its submissions the legal principles and discretionary considerations which, in APRA’s view, bear upon the decision whether to grant the relief sought in the application; and I do not need here to repeat them. There was no dispute by the Trustee as to those.

7. [120]

   APRA submits that the process of decision-making by a superannuation trustee in these circumstances should reflect the requirements of the statutory covenants, including most relevantly the requirements by reason of s 52(2)(c) of the SIS Act that the Trustee act in the best financial interests of the members of the Fund and s 52(2)(b) that the trustee exercise the same degree of care, skill and diligence as a prudent superannuation trustee; and says that a central issue in that decision-making process ought be whether the proposed solution is proportionate and appropriately tailored to the problem. APRA says that this raises various issues for consideration (including issues of intergenerational equity and the trustee’s duties of impartiality under s 52(2)(e) and (f) of the SIS Act) relevant to the manner in which the Trustee proposes to introduce a fee-charging power (that being a power that has not previously been granted to the Trustee). Again this is not disputed by the Trustee.

8. [121]

   As adverted to above, APRA agrees with the Trustee’s submission that the recent amendments to the SIS Act do not prohibit the outcome sought to be achieved by the proposed amendment. It notes that ss 56(2) and 57(2) are directed to provisions of the governing rules of a superannuation entity which would have the effect of exempting a trustee or a director of a trustee from, or indemnifying a trustee or director against, certain liabilities; and submits that the levying of a fee of the present kind (which is meant to build up over time into an asset that may be deployed by the trustee in the event that it or a director becomes subject to a liability against which it or the director cannot be indemnified) does not have the substantive effect of conferring an exemption from or indemnifying against that liability. That said, APRA maintains that ss 56 and 57 of the SIS Act remain of relevance.

9. [122]

   In that regard, APRA points to the fact that the fee charged may prove to be insufficient to cover the extent of the Trustee’s potential liability; and that the proposed amendment does not have the effect of excusing or extinguishing the liability of the Trustee for any amount for which it cannot be indemnified out of the Fund APRA draws from this that while the Trustee would be able to accrue capital it would not enjoy a blanket indemnity that may dis-incentivise it from performing its duties carefully and diligently, in the sense that it is not freed from any personal consequence in the event of breach of duty.

10. [123]

    APRA further notes that any use of Trustee Capital by the board of the Trustee to indemnify or insure directors against liabilities for which the directors cannot be indemnified out of the Fund must be considered by the board in light of their general law and statutory duties to act in good faith in the best interests of the Trustee (referring to ss 181(1)(o) and (b) of the Corporations Act 2001 (Cth)); and that the limits in ss 199A and 199B of the Corporations Act on the scope of indemnities given by companies, and insurance paid for by companies, in respect of liabilities incurred by a person as an officer of the company would apply. It is not suggested by APRA that the proposed amendment would breach the Trustee’s duties in that regard.

11. [124]

    Turning to the question whether the adoption of the proposed amendment would contravene other duties or obligations under the general law or the SIS Act applying to trustees of superannuation funds, APRA in its submissions has pointed to the duties owed by the Trustee both at general law and under the SIS Act. I do not propose here to set those out. APRA also points to the amendment (introduced by the Treasury Laws Amendment (Your Future, Your Super) Act 2021 (Cth), from 1 July 2021, of the references to “best interest” of beneficiaries in s 52(2)(c) of the SIS Act to references to “best financial interests” of beneficiaries, noting the explanation given in the explanatory memorandum as to the purpose of the amendment as being:

12. [125]

    APRA notes that the duty as it was previously framed was considered at some length in APRA v Kelaher (2019) 138 ACSR 459; [2019] FCA 1521 (Kelaher), where Jagot J adopted an approach to the duty that directed attention to an objective assessment of the interests of beneficiaries at the time of the relevant decision, subject to the qualification that if the trustee is proved to have had a purpose or object contrary to the best interests of the beneficiaries, the duty is breached (see at [61]-[65]), thus suggesting that a relatively broad and practical approach be taken to s 52(2)(c), with a focus (following the recent amendment) on financial interests. APRA raises for consideration that proposition (3) in [65] of her Honour’s reasons (namely, that acting in the best interest of the beneficiaries is in effect synonymous with a trustee’s obligation to promote and act consistently with the purpose for which the trust was established) may require revisiting under a “best financial interests test”. It is noted that the expression “interests of the beneficiaries” has been held to have a broad general meaning which includes the concern of the members with the due administration of the trust.

13. [126]

    APRA says that the best financial interests duty must also be considered within the setting of the trustee’s covenant to exercise the care, skill and diligence of a prudent superannuation trustee (pointing to the origin of s 52 of the SIS Act which can be traced to the joint Report of the Australian Law Reform Commission and the Companies and Securities Advisory Committee, Collective Investments: Superannuation (1992). APRA notes that the Report addressed the essential duties of responsible entities and characterised the best interests duty as “a general duty that complements the more specific obligations to act honestly and to exercise care, diligence and skill”. It is noted that the notion of a proactive best interests duty was the basis upon which Cowan v Scargill [1985] Ch 270 was decided, Megarry V-C there saying that trustees must do the best they can for their beneficiaries, and not merely avoid harming them.

14. [127]

    APRA also notes that s 52(2)(d) of the SIS Act differs from the conventional formulation of the duty of a fiduciary to avoid conflicts of interest, in that it requires the trustee: (i) to give priority to the duties to, and interests of, the beneficiaries over the duties to and interests of the other persons; (ii) to ensure that the duties to the beneficiaries are met despite the conflict; (iii) to ensure that the interests of the beneficiaries are not adversely affected by the conflict; and (iv) to comply with the prudential standards in relation to conflicts.

15. [128]

    APRA also points to the further statutory covenants to which the Trustee is subject, referring to s 52(9) of the SIS Act (which imposes on trustees by way of covenant an obligation to undertake an annual outcomes assessment which focuses on whether the MySuper and choice products offered are being conducted in such a way as to promote the best financial interests of members; and requires the trustee in so doing to make relevant comparisons with other superannuation funds by reference to benchmarks set out in ss 52(10)-(10A)); s 52(12) (which imposes on trustees an obligation to promote the best financial interests of MySuper and choice product members, by reference in particular to the returns to those beneficiaries after the deduction of fees, costs and taxes). APRA also refers to s 54A (which provides that regulations may prescribe further covenants so long as they are capable of operating concurrently with the statutorily enshrined covenants). It is noted that s 54B requires that a trustee not contravene the relevant covenants (and that these are civil penalty provisions - see s 54B(3); the remedies being contained in s 55).

16. [129]

    APRA then makes submissions as to the duties of the Trustee in assessing the proposed amendment by reference to the best financial interests covenant, pointing out that this demonstrates a legislative purpose of ensuring that trustees give primacy to the financial interests of members in their decision-making processes.

17. [130]

    APRA accepts that the material adduced by the Trustee on the present application evidences that the Trustee has given consideration to how the financial interests of members may be affected if the proposed amendment is not made and the Trustee becomes insolvent or faces a real risk of insolvency.

18. [131]

    In particular APRA notes the evidence of Ms Heffernan to the effect that the current entitlements to fees in respect of certain Divisions of the Fund are not, in her opinion, suitable to address the risks to which the Proposed Amendment is directed; and as to Ms Heffernan’s evidence as to the nature of the current fees and costs charged to members and to the Fund, which are substantial. APRA notes that the introduction of a fee to be charged to members or to the assets of the Fund itself will have an adverse financial impact on the retirement benefits of members over the long term but that the material indicates that the Trustee proposes to smooth the initial impact on current and future members by deducting at least part of the proposed trustee fee from the Fund’s Administration Reserve, which has accumulated over time, rather than by increasing immediately the administration fee charged to member accounts.

19. [132]

    Furthermore, APRA accepts that the financial impact on members’ retirement benefits caused by the trustee charging remuneration must be weighed against the financial impact to members if the trustee (having been precluded from relying on indemnities and otherwise having insufficient capital to meet its liabilities), becomes or may become insolvent. It is noted that Ms Heffernan has given evidence that one of three broad scenarios is likely to eventuate in the event the Trustee becomes insolvent and is thereby disqualified from acting as trustee: (a) a replacement trustee is appointed; (b) the Fund is merged with another superannuation fund by way of successor fund transfer; or (c) a replacement trustee is appointed for an interim period before the Fund is merged with another fund by way of successor fund transfer.

20. [133]

    APRA notes that the transition costs to members to effect a successor fund transfer comprise direct investment-related costs, indirect investment-related costs and non-investment-related transition costs. Direct investment-related costs include broker commissions, taxes and fees expected to be incurred. Indirect investment-related transition costs reflect the forecast potential market impact of buying and selling assets, as well as the impact of market movement during the transition period. Non-investment-related transition costs are the anticipated costs of the transition of contracts, employment arrangements and administrative platforms and processes between the Trustee or Fund and a replacement trustee or fund, including associated legal costs. APRA notes that the Trustee has prepared estimates of costs of this kind and that the Trustee has further identified and taken into consideration other financial costs that are said to be more difficult to quantify, including the reputational and member sentiment risks associated with insolvency and the increased difficulties in attracting and retaining appropriately skilled directors.

21. [134]

    Additionally, APRA notes that Ms Heffernan has identified certain additional complexities particular to this Fund (to which reference has been made above, namely, the vesting of power to appoint a new trustee in the Treasurer and the impact of a successor fund transfer on participating employer’s contribution obligations) which in Ms Heffernan’s view are matters relevant to the potential harm to members were an insolvency situation to result.

22. [135]

    APRA points out (by reference to Kelaher) that the question is not what is in the best financial interests of members but whether the decision of the Trustee to consent to the proposed amendment is reasonably justifiable on that basis. It is noted that this distinction recognises that the test does not presuppose that only one course of action is permissible in response to a given problem. However, APRA’s position is that, on the present application, there has not been substantial evidence adduced as to the extent to which the Trustee has considered alternatives to the proposed amendment.

23. [136]

    One of the circumstances that APRA considers relevant to the payment of a new fee is that the Trustee itself is restricted in its use of funds to some degree, noting that the Trustee is an Australian proprietary company limited by shares; that the purpose for which the Trustee is constituted is to act as trustee of the Fund; and that the Constitution of the Trustee provides that its income and property is to be applied solely towards the object of the Trustee and no portion may be paid, transferred, or distributed to the shareholders. It is noted that the Trustee has recently made amendments to its Constitution with a view to there being a further constraint on the purposes for which the proposed Trustee fee may be used in the event that the Trustee is wound up. It is noted that these provisions in the Trustee’s Constitution do not prescribe for what uses the proceeds of the fee may be deployed, but APRA accepts that they form part of the background to the application.

24. [137]

    As to the covenant to exercise care, skill and diligence, APRA submits that, although this does not preclude the introduction of a power to charge remuneration, it should be taken account of when considering the form and content of any such proposal, in at least the following ways.

25. [138]

    First, that what might be a reasonable fee may be informed by a consideration of fees proposed to be charged by superannuation fund trustees who provide similar services and products. In this regard, it is noted that the Trustee has identified the amount of the fee which it proposes to charge as remuneration, and that it will cease to charge remuneration once a sufficient capital reserve has been established; and that the Trustee has further commissioned an external consultant to undertake financial modelling for the proposed future fees.

26. [139]

    Second, that if a fee were constructed for the purpose of providing the Trustee with the capacity to absorb future liabilities of a wide kind, there would come a point where, by implicitly catering for the real possibility of liabilities that presuppose a failure to exercise reasonable standards of diligence, the adoption of the fee itself would bespeak a lack of the relevant diligence. APRA appears to accept that a generally diligent trustee charged with the administration of a complex or large superannuation fund may from time to time incur liabilities (that are not able to be indemnified), and that prudence dictates that financial resources sufficient to absorb such liabilities be built up, especially if that can be done by levying a fee which, when weighed against other fees and costs, and compared with industry benchmarks, does not involve an unreasonable imposition on members; but distinguishes the situation whereas a more significant cost is imposed on members with a view to catering for the reasonable likelihood of liability for seriously delinquent conduct. APRA expresses concern that a trustee might not satisfy the prudence, best financial interests and conflicts covenants if the trustee’s scheme were to introduce a fee directed to the creation of a capital reserve sufficient to cater not only for regulatory liabilities and infringements of an inadvertent and honest kind, but to cater for any and all non-indemnifiable liabilities that a trustee may incur including where it has acted inappropriately.

27. [140]

    APRA notes the process which the Trustee has followed in order to quantify the target amount for trustee capital (see the Report on Trustee Fee and Trustee Capital and the PwC report on Trustee Capital Framework) and accepts that there is no evidence that the Trustee’s purpose is to substitute setting a high fee to accumulate a larger than necessary reserve in place of proper diligence in implementing risk management controls or to exclude any residual risk to the Trustee.

28. [141]

    Third, APRA says that the recognition of the application of the Trustee’s legal obligations to the future exercise of the remuneration power is consistent with a trustee’s duty of care, skill and diligence and duty to act in the best financial interest of members and points to the fact that the proposed amendment itself contains such a review mechanism. APRA notes that the fee is subject to review every three years to ensure it remains fair and reasonable; that a review that results in an adjustment to the current fee or cap on trustee capital may have regard to amounts that the Trustee reasonably considers necessary appropriately to compensate the Trustee for acting as trustee of the Fund and/or appropriately to compensate it for the personal financial risk it might incur; and that the review mechanism further requires the Trustee to seek the advice of an appropriately qualified independent consultant.

29. [142]

    Finally, APRA says that, in order to discharge the duty of diligence, a trustee would be expected to have explored all reasonably available alternative means of establishing sufficient financial resilience, or otherwise mitigating the relevant risks, before imposing a fee upon members (i.e., whether the risks of liabilities of the kind which are thought likely to arise could be mitigated or reduced by, for example: investing in compliance or governance systems or upskilling; insurance; contributions from shareholders or associated entities; and/or the availability of indemnities from service providers to the Trustee). In this regard, it is noted that the Trustee has said that its insurance coverage has several limitations with the consequence that it would not necessarily respond fully or in a timely manner, and that it does not receive any financial support from its shareholders.

30. [143]

    As to the consideration of the conflicts covenant in assessing the proposed amendment, APRA notes that s 52(2)(d)(i) of the SIS Act requires that the Trustee give priority to the duties and interests of the members over the duties and interests of any other person. APRA does not contend that this aspect of the covenant is necessarily breached simply because a benefit of some kind ensures to the trustee as a result of the conduct in question. It says that s 52(2)(d) is not a rule against acting at all where a personal interest exists, resulting in a conflict. Rather, in APRA’s submission, the covenant presupposes that a conflict (or at least the substantial potential for conflict) exists; and that what the trustee must then do is give priority to the duties and interests of the beneficiaries over the duties to and interests of the other person.

31. [144]

    APRA accepts that where a trustee has a personal interest in a matter, complying with the duty in s 52(2)(d) does not necessarily mean that the trustee must act contrary to the trustee’s interests; rather, the trustee must give priority to the duties and interests of the beneficiaries over the interests of the trustee if and to the extent that they point in different directions. APRA accepts that compliance with s 52(2)(d)(i), and also with s 52(2)(d)(ii) and (iii), may be established if the introduction of the remuneration power is demonstrably in the best financial interests of beneficiaries.

32. [145]

    As to the covenant to act fairly between members and classes of members (see the relevant duties in sections 52(2)(e) and (f))), APRA recognises that it may not be possible to know, in prospect, whether an allocation of cost, as between different cohorts (whether they be defined temporally, or by reference to product class) will prove to be fair and appropriate; and says that the critical requirement is that due and proper consideration be given to the various dimensions that may distinguish groups of members.

33. [146]

    APRA notes that the charging of a fee, whilst it does impose an economic cost on members, may (subject to the design of the fee) spread that cost more equitably between members of the fund over time, rather than imposing the entirety of the liability or loss on the cohort of members at the moment the liability or loss crystallises, as would be the case if an indemnity were available. APRA says that the latter situation may be particularly unfair if the circumstances giving rise to the liability or loss occurred some significant time earlier when the membership of the fund differed substantially. In this regard, APRA accepts that the Trustee has proposed to smooth the initial impact on current and future members by deducting the proposed trustee fee from the Fund’s administration reserve, rather than by increasing immediately the administration fee charged to member accounts.

Plaintiff’s submissions in reply to APRA’s submissions

1. [147]

   In relation to APRA’s submissions relating to compliance with the “best financial interests covenant”, the Trustee submits that those submissions are consistent with a conclusion that the Trustee, in proposing to exercise its power of amendment to introduce the proposed amendment, is acting in accordance with its obligations under the best financial interests covenant. I agree.

2. [148]

   Insofar as APRA has submitted that the Trustee has not adduced substantial evidence of the extent to which it has considered alternatives to the proposed fee provision, the Trustee points to the evidence of Ms Heffernan as to the consideration of alternatives to charging a fee (see the first affidavit at [85]-[93]). The Trustee maintains that that there are no practical alternatives to imposing a fee, emphasising that: it has no meaningful capital of its own; it has no practical means of generating income of its own; it does not receive financial support from its shareholders, nor is it to be expected that it can or should attempt to require shareholders to provide such support; and that there are clear and understandable limitations on the extent to which insurance can provide a complete solution (including the size of applicable excesses referred to the confidential exhibit), exclusions on cover and the delay between the time at which the Trustee may be liable to pay amounts and the time when the insurer makes funds available (see Ms Heffernan’s affidavit at [93]).

3. [149]

   In relation to APRA’s submissions concerning the obligations imposed by the covenant to exercise care and skill, the Trustee submits that the matters raised in those submissions are consistent with a conclusion that the Trustee is here acting in accordance with its obligations; and it says that the evidence supports this conclusion. It is noted that significant and appropriate work has been undertaken by the Trustee and its advisers in giving consideration to the proposed amendment (referring by way of example to the matters addressed in the Report on Trustee Fee and Trustee Capital and the matters addressed in the PwC Trustee Capital Framework report). The Trustee refers to the matters set out in the confidential affidavit affirmed by Ms Heffernan on 23 November 2021 as an illustration of the limitations attending considerations of the kinds to which APRA has referred.

4. [150]

   The Trustee filed supplementary submissions as to the impact of the decisions handed down on 7 December 2021 by Button J in the Supreme Court of Victoria in the matter of Re HEST Australia and on 6 December 2021 by Lyons J in the Supreme Court of Victoria in Re Care Super. I have considered similar supplementary submissions made in relation to those decisions by the trustee in the Maritime Super matter in which judgment has also been published today and do not propose here to repeat them. Suffice it to note that I accept that there is a distinction to be drawn between the situation dealt with in Re Care Super decision and the facts of the present case (just as there was with Maritime Super) and that the more analogous decision to the factual circumstances at hand is that in Re HEST Australia, which endorsed and applied the reasoning in Re QSuper (noting that in Re Care Super that reasoning was not questioned but the evidentiary issues led to a different result in that case).

5. [151]

   The Trustee filed two sets of submissions in support of its application for orders protecting the confidentiality of certain information contained in application materials. In support of the application for confidentiality orders, reliance was placed on the affidavits of Ms Heffernan to which I have already referred as well as affidavits affirmed on 30 November 2021 and 7 December 2021 by Ms Natalie Rita Kalouche.

6. [152]

   The Trustee relies in this regard both on the inherent jurisdiction of the Court to make orders preventing inappropriate disclosure of information in order to promote the administration of justice, and on the Court’s power pursuant to s 7 of the Courts Suppression and Non-publication Orders Act 2010 (NSW) (Suppression Orders Act).

7. [153]

   As to the inherent jurisdiction to regulate the conduct of proceedings before the Court (see John Fairfax & Sons Pty Ltd v Police Tribunal of New South Wales (1986) 5 NSWLR 465 at 476) it is noted that this power extends to protecting confidential information from inappropriate disclosure in the course of litigation (reference being made by way of example to Kimberley Mineral Holdings Ltd (In Liq) v McEwan [1980] 1 NSWLR 210; and to Re Perpetual Investment Management Ltd [2014] NSWSC 784 at [5] per Robb J, where the power was exercised to preserve the confidentiality of material relied upon by an applicant for judicial advice).

8. [154]

   As to the invocation of s 7 of the Suppression Orders Act, it is noted that this gives the Court power to “prohibit or restrict the publication or other disclosure” [relevantly] of “information that comprises evidence, or information about evidence, given in proceedings before the court”.

9. [155]

   The grounds for making orders under s 7 relevantly include that the order “is necessary to prevent prejudice to the proper administration of justice” (see s 8(1)(a)). It is noted that such orders may be made on the Court’s own initiative or on application of a party (s 9(1)). It has been held that the word “necessary” in s 8(1)(a) should not be given a narrow construction (Fairfax Digital Australia and New Zealand Pty Ltd v Ibrahim (2012) 83 NSWLR 52; (2012) NSWCCA 125 (Fairfax Digital) at [8], [45]); and that what is necessary depends on the particular grounds relied upon in s 8 and the factual circumstances giving rise to the order (Fairfax Digital at [8]). Whether necessity has been established depends on the nature of the orders sought and the circumstances in which they are sought (D1 v P1 [2012] NSWCA 314 at [48]; Hogan v Australian Crime Commission (2010) 240 CLR 651; [2010] HCA 21 at [31]).

10. [156]

    The Trustee points out that a suppression order may be necessary in the relevant sense where the proper administration requires the court to be informed on all relevant aspects of the parties’ dealings including their confidential information and, absent a suppression order, the parties would be exposed to the very real risk that their confidential information would become public and be exploited by competitors, citing Telstra Corp Ltd v NBN Co Ltd [2014] NSWSC 940 (at [91]-[94]). There, McDougall J held (at [93]) that it was not desirable that parties should be put to the choice of either arguing their cases on the basis of inadequate material or having their confidential information become public and exploitable to their disadvantage.

11. [157]

    It is noted that the Suppression Orders Act does not limit the Court’s power in its inherent jurisdiction and at common law; and that an order under s 7 must specify the place in which the order applies (s 11), and the duration of the order (s 12).

12. [158]

    In the present context, the Trustee notes that determining whether the orders sought are “necessary” for the purpose of s 8(1)(a) requires consideration of the nature and peculiarity of an application for judicial advice. Relevantly, it is said that an application for judicial advice is an unusual process because, by its very nature, it involves private advice often in circumstances where the trustee must, of necessity, disclose confidential material to the Court (reference there being made to what was said in Re Application of Perpetual Trustee Co Ltd [2003] NSWSC 1185 by Young CJ in Eq, as his Honour then was, at [14]).

13. [159]

    The Trustee submits that, on an application for judicial advice, the usual principle of open justice must, of necessity, be applied in a way which accommodates the protection of privileged, confidential and commercially sensitive information. It is said that, were this not the case, trustees would be placed in the invidious position of choosing between bringing an application in the knowledge that commercially sensitive information would become public, to the possible detriment of the trust and its beneficiaries, or not bringing an application where it was appropriate to do so. Alternatively, it is said that trustees might be tempted to limit the amount of commercially sensitive material they disclose to the Court with the consequence that the Court would not receive all appropriate information and the protection which judicial advice is designed to provide would be diminished.

14. [160]

    The Trustee says that orders avoiding inappropriate disclosure of the Trustee’s confidential information (or that of third parties put before the Court by the Trustee) are in that sense “necessary to prevent prejudice to the administration of justice” such that the Court’s power in s 7 is enlivened.

15. [161]

    Thus it is said that there is power to make the orders sought both in the Court’s inherent jurisdiction and at common law and under the Suppression Orders Act, to the extent that in respect of any piece of evidence or information about evidence it is necessary to avoid disclosure of that evidence or information to prevent inappropriate disclosure or publication.

16. [162]

    The Trustee has addressed the confidential nature of each item of evidence or information, and the reasons why its disclosure would be inappropriate in the sense that it would make this application for judicial advice the occasion for harm to the Trustee’s commercial standing and/or the financial interests of the Fund’s members, as follows, referring to the second affidavit of Ms Kalouche in this regard. In summary, there are two bases on which the information confidential to the Trustee is sought to be preserved from disclosure: legal professional privilege; and commercial sensitivity.

17. [163]

    Item 1 is the opinion of Counsel. It is clearly privileged. The Trustee says (and I agree) that orders in the Court’s inherent jurisdiction are appropriate in this regard, since it is not clear that Counsel’s opinion constitutes either “evidence” or “information about evidence” to which the Suppression Orders Act could apply.

18. [164]

    Orders are also sought protecting from disclosure legal advice provided to the Trustee by its solicitors (Allens) in connection with the proposed amendments (Item 3; CB1218-1232) and legal advice provided to the Trustee in respect of the matters described in the Ms Kalouche’s second affidavit (Item 5). It is said that these items have been provided to APRA on a confidential basis; that they are plainly privileged and that orders in the Court’s inherent jurisdiction are appropriate to enable the Trustee to preserve privilege over these items. I agree.

19. [165]

    A number of items are sought to be protected on the basis that the relevant items contain information that is confidential and commercially sensitive.

20. [166]

    In particular, Item 3 contains information about the Trustee’s insurance arrangements which is not public and which if disclosed would compromise the Trustee’s commercial position in future negotiations concerning insurance contracts, adversely affecting members’ interests (see Ms Kalouche’s second affidavit at [10]-[12]). It is noted that Item 3, along with [44](c)(i) of item 2, contains information about the estimated costs of various insolvency scenarios together with details of the basis upon which those estimates have been made. Again, this information is not public. This item contains detailed information about the Trustee’s internal commercial matters, disclosure of which may place the Trustee at a commercial disadvantage vis a vis its competitors and thereby cause members financial disadvantage (see Ms Kalouche’s second affidavit at [13]-[15]).

21. [167]

    Further pages of Item 3 details deliberations over matters of commercial strategy. Again this information is not public and it is submitted that, if disclosed, it could put the Trustee at a commercial disadvantage, and thus adversely affect members (see Ms Kalouche’s second affidavit at [16]-[18]).

22. [168]

    The Trustee’s Report on Trustee Capital and Fee, PwC’s Trustee Capital Framework and a letter dated 30 October 2021 from PwC, contained in Item 3, contain information from reports and opinions obtained by the Trustee in support of this application. The relevant items contain information which is not public and is commercially sensitive in that it details the Trustee’s internal matters, including in relation to its financial position, taxation and compliance arrangements. Disclosure of this information may place the Trustee at a disadvantage vis a vis its competitors, causing financial harm to the Fund and members (see Ms Kalouche’s second affidavit at [19]-[23]).

23. [169]

    Further identified pages of Item 3 are documents internal to the Trustee which are not public and are commercially sensitive in that they consist of confidential communications between the Trustee and APRA (see Ms Kalouche’s second affidavit at [28], [30]). The Trustee says that disclosure of these documents would be inimical to the relationship between the Trustee and APRA, which the SIS Act recognises ought to be a relationship characterised by candid and uninhibited exchanges of information (see Ms Kalouche’s second affidavit at [27]-[30]).

24. [170]

    Item 4 and Item 6, along with [114]-[115] of item 2, contain confidential information the disclosure of which has the potential to cause significant harm to members of the Fund (see Ms Kalouche’s second affidavit at [34], [38]; confidential affidavit of Ms Heffernan affirmed 23 November 2021 at [3]-[4]).

25. [171]

    It is noted that, as a regulated superannuation entity, and as a trustee at general law, the Trustee has prescriptive and onerous disclosure obligations. It is submitted that it would be inappropriate if, by virtue of its coming to the Court for advice on a course of conduct proposed in the interests of members, the Trustee were required to make disclosures of information beyond what its statutory and general law obligations require, especially where there is a risk that those disclosures would put the Trustee at a commercial disadvantage and thus be adverse to members’ interests.

26. [172]

    I note that certain pages (CB 1239-1260) of Item 3 are included in the confidential exhibit to Ms Heffernan’s affidavit but the Trustee no longer presses its claim to confidentiality of those materials (see Ms Kalouche’s second affidavit at [31]-[33]).

Form of orders

1. [173]

   The Trustee has proposed orders in respect of the confidential information. In this regard it submits that the orders sought should apply in Australia (noting that orders may be made applicable anywhere in the Commonwealth – see s 11(2)), pointing out that the Fund has members throughout Australia.

2. [174]

   As to the duration of the orders it is said that this should be coterminous with the Fund, i.e., the orders should be expressed to apply unless and until the Trust Deed terminates. Again, it is noted that the Trustee is subject to onerous statutory and general law disclosure obligations. It is said that it ought not be required to make further disclosures of information concerning its deliberations on the matters subject of this application in consequence of having made the application. The Trustee says that the passage of time does not diminish the force of that consideration or dilute the adverse consequences which could follow for the Fund and members if the material subject of the claims for orders were disclosed.

3. [175]

   It is noted that the orders would prevent disclosure of evidence in these proceedings, or (in the case of items 1 and 6) information about evidence in the proceedings.

4. [176]

   As adverted to above, it is submitted that it is not clear that counsel’s opinion, or Allens’ letter, constitutes either “evidence” or “information about evidence” in the proceedings. Accordingly, the Trustee proposes that in respect of items 1 and 6, the Court exercise powers in its inherent jurisdiction to make the order sought, rather than power under the Suppression Orders Act.

5. [177]

   The Trustee has prepared versions of Items 2 and 3 with confidential information identified in these submissions redacted and proposes with the Court’s leave to file those redacted versions, which could then be made available to any party seeking access to the Court file (with any unredacted versions of those items, along with each other item, to be kept inaccessible to non-parties).

6. [178]

   For the avoidance of doubt, the Trustee seeks orders in respect of all copies filed or provided either to the Court or to APRA of the documents identified in the table to the submissions (i.e., not only the copies which appear (where applicable) in the filed and served court book). It is noted that the form of proposed orders annexed to the Trustee‘s submissions reflects this position.

APRA’s submissions on confidentiality

1. [179]

   As to the application for maintenance of confidentiality of certain of the evidentiary material tendered on the present application, APRA notes that, to the extent that relief is sought in respect of matters of fact said to be commercially sensitive (as distinct from privileged legal advice), consideration of the “open-court” principle arises. Reference is made to the observation of French CJ in Hogan v Hinch (2011) 243 CLR 506; [2011] HCA 4 (at [20]):

2. [180]

   APRA accepts that there is jurisdiction to make orders which would maintain the confidentiality of the material. APRA submits that whether that jurisdiction is exercised would ordinarily involve weighing the nature of the confidential factual material and the impact its disclosure might have on the Trustee or the Fund against the normal requirement that evidence deployed in legal proceedings is deployed openly.

Determination

1. [181]

   In the present case, the proposed amendments are in the following terms:

2. [182]

   I accept, for the reasons submitted by the Trustee, that the jurisdiction to give judicial advice is here enlivened and I have concluded that it should be exercised.

3. [183]

   The context in which the proposed amendment is sought (the changes to the legislative and regulatory framework affecting superannuation funds of the present kind; and in particular the amendments to the SIS Act, and the explanation for those amendments) has been comprehensively detailed in Re QSuper (and also see Re HEST Australia). Kelly J noted in QSuper (at [29]) that, prior to these amendments, ss 56(2) and 57(2) had been understood to allow superannuation fund trustees, and directors of the trustees, to indemnify themselves for all liabilities they incurred by acting as trustee, or as a director of the trustee, even if those liabilities were incurred in breach of trust, except for liabilities which were attributable to dishonest, intentional, or reckless conduct, or a liability with respect to a statutory penalty. I accept that the Trustee here has reasonably formed the view that the effect of those amendments exposes it to a substantial risk of insolvency were penalties to be imposed on it and I note that such penalties could be imposed even in the absence of dishonest or other misconduct on the part of the Trustee or its officers (noting that a number of the relevant provisions are strict liability provisions).

4. [184]

   I accept that, for the reasons given by Kelly J in Re QSuper, the proposed amendment is not precluded by the amendments to the SIS Act. I further accept that a relatively broad and practical approach should be adopted when assessing whether the proposed amendment is in the best financial interests of the members (see [26] of Re QSuper).

5. [185]

   I have taken into account the submissions by the Trustee and by APRA both as to the view taken by the Trustee and the advice it has received (as referred to above) and as to the additional issue raised in APRA’s confidential submissions.

6. [186]

   I accept that the Trustee has a high degree of responsibility as to the management and administration of the Fund and its assets; and that there is complexity in the work required for the Fund. There is an obvious risk that members’ financial interests would be detrimentally affected were there to be an insolvency of the Trustee consequent upon an inability to meet a future liability (which might well arise from unintended or inadvertent conduct and despite all reasonable care) for which it cannot now be indemnified.

7. [187]

   I consider that (notwithstanding APRA’s criticism as to the adequacy of this) there has been sufficient evidence of consideration by the Trustee of alternative means of addressing the increased risk consequent upon the latest legislative changes and I have concluded that, balancing the respective risks and interests, it is not in the best financial interests of members of the Fund to be exposed to the risk of insolvency of the Trustee (nor is it in the their interests that qualified and professional directors may decline to be exposed to the risk of personal insolvency if the Trustee is not able to establish a pool of funds from which liability for financial penalties may be met). I am also satisfied that the conditions to be placed on the proposed fee (particularly, its capping and the provisions for review) have the effect that the fee will be fair and reasonable in all the circumstances.

8. [188]

   As to the confidentiality orders sought, I am persuaded that the material in respect of which confidentiality orders are sought is indeed confidential and commercially sensitive (and, in the case of Counsel’s opinion, privileged) and that, notwithstanding the fundamental importance of the principle of open justice, it is in the interests of the administration of justice that trustees be able to provide material of this kind on a confidential basis when seeking judicial advice on issues which have the potential to be detrimental to the interests of the beneficiaries or members of the relevant trust.

Orders

1. [189]

   For those reasons I make the following orders:

   1. (1)

      The opinion, advice and direction of the Court under s 63 of the Trustee Act 1925 (NSW) that the Plaintiff would be justified in amending the trust deed of LGSS (the Fund) in the manner set out in the Draft Deed of Amendment (which is exhibited to the affidavit affirmed by Ms Donna Maree Heffernan on 16 November 2021 (Draft Deed of Amendment).

   2. (2)

      Order that the costs arising out of and incidental to this Summons be paid out of the assets of the Fund on the trustee basis pursuant to s 93 of the Trustee Act 1925 (NSW)

   3. (3)

      Pursuant to s 7 of the Court Suppression and Non-publication Orders Act 2010 (NSW) (Act), or alternatively in the Court’s inherent jurisdiction, and on the grounds referred to in s 8(1)(a), a suppression order is made prohibiting the disclosure by publication or otherwise of the Plaintiff’s Confidential Information (as defined below).

   4. (4)

      Pursuant to s 12 of the Act, the suppression order in order 3 above operates until the termination of the Trust Deed constituting the Fund or further order of the Court.

   5. (5)

      Pursuant to s 11 of the Act, the suppression order in order 3 above applies throughout the Commonwealth.

   6. (6)

      Order that the plaintiff has leave to file copies of the plaintiff’s filed affidavits and written submissions and the Australian Prudential Regulation Authority’s written submissions with the Plaintiff’s Confidential Information redacted.

   7. (7)

      Orders that applicants for non-party access, whose application for access is otherwise approved, may be given access to the redacted materials filed in accordance with order 6.