Application by SCS Super Pty Limited atf Australian Catholic Superannuation and Retirement Fund

The Plaintiff, SCS Super Pty Ltd (the Trustee), is the current trustee of a registrable superannuation entity known as the Australia Catholic Superannuation and Retirement Fund (the Fund), an industry superannuation fund that was constituted by a Trust Deed dated 30 June 1981, as amended from time to time (the Trust Deed).

In summary, in the Summons filed on 9 March 2022, the Trustee seeks the opinion, advice, or direction, of the Court under s 63 of the Trustee Act 1925 (NSW) (the Act), or alternatively, the Court’s inherent jurisdiction, that the Trustee would be justified in amending the Trust Deed to insert a trustee remuneration clause. (The Summons was subsequently amended but the principal relief was not significantly altered.)

The application is brought in response to changes in the regulatory and operating environment in which the Trustee, its directors, and the Fund, operate, following changes to the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) that relate to the indemnification of trustees, and directors of trustees, which changes took effect on 1 January 2022.

The application is similar to a number of applications made by other superannuation trustees in NSW, and in other States: see for example, Application by United Super Pty Ltd atf Construction and Building Unions Superannuation Fund [2021] NSWSC 1679 (Henry J) (United Super); Application by NGS Super Pty Ltd atf NGS Super [2021] NSWSC 1694 (Henry J) (NGS); Application by Maritime Super Pty Ltd atf Maritime Super [2021] NSWSC 1614 (Ward CJ in Eq) (Maritime Super); Application by LGSS Pty Ltd atf Local Government Super [2021] NSWSC 1613 (Ward CJ in Eq) (LGSS); Application by Motor Trades Association of Australia Superannuation Fund Pty Ltd atf Spirit Super [2021] NSWSC 1672 (Henry J) (Spirit Super); Re QSuper Board [2021] QSC 276 (Kelly J) (QSuper); Re Hest Australia Ltd [2021] VSC 809 (Button J) (Hest); Re Care Super Pty Ltd (No 2) [2021] VSC 854 (Lyons J) (Care Super (No 2)); AustralianSuper Pty Ltd v McMillan [2021] SASC 147 (Blue J) (AustralianSuper).

(Senior counsel for the Trustee submitted that the application made in QSuper and the application made in NGS, were the most similar to the application in this case in respect of the clause that was proposed in that in both applications a reasonable fee was the essence of the proposed clause to be introduced: Tcpt, 4 May 2022, p 31(15-19).)

The principal reason for bringing the application for judicial advice is the recognition, by the Trustee, that its proposal to vary the Trust Deed may give rise to a conflict, or apparent conflict, between the interests of the Trustee and its directors, and its, and their duty to members of the Fund.

In the Summons, there was no Defendant named. However, as a registrable superannuation entity, the Fund is regulated by the Australian Prudential Regulation Authority (APRA). It is an independent statutory authority that supervises institutions across banking, insurance, and superannuation, and it is accountable to the Australian Parliament. APRA was, therefore, notified of the application.

On 30 March 2022, without opposition from the Trustee, the Court granted leave to APRA to appear at the hearing as amicus curiae. (In so doing, it was not assumed that the Trustee was not prepared to assist the Court in arriving at the correct determination of the case.)

There was a degree of urgency in having the matter heard, as certain legislative changes, to which I shall refer, relating to the indemnification of trustees, and directors of trustees, of superannuation funds, became operative on 1 January 2022. Those changes caused concerns about the exposure of the Trustee, and its directors, to personal liabilities, including pecuniary fines and penalties which might be imposed in the course of its, or their duties in relation to any contravention of Commonwealth laws for which they will not be indemnified by the Fund. Such exposure, in turn, is said to give rise to potential disadvantages for members in terms of the potential insolvency of the Trustee.

As is the practice in judicial advice applications, the Trustee has provided the Court with confidential opinions from Counsel.

In summary, for the reasons that follow, I have determined that the Court should provide judicial advice under s 63 of the Act to the Trustee that it would be justified in amending the Trust Deed as is proposed in the amended Summons to which I shall refer.

Unsurprisingly, there was material read on the application, identified as confidential, and commercially sensitive, which has also been read. Submissions were made by the Trustee, and by APRA, on the question whether the evidence should be permitted to be kept confidential even though all of it has now been provided to APRA (albeit on a confidential basis).

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), or, alternatively, that such orders should be made in the inherent jurisdiction of the Court. These reasons, therefore, will not refer, expressly, to the confidential material, even though I have taken it into account. (It has been read (Ex 3) and considered and will be retained on the Court file subject to the confidentiality orders).

At the conclusion of the hearing, the Court discussed the form of orders that would be made pending further order. Without opposition from APRA, the following order was made:

The matter was listed for hearing on 4 May 2022 with an estimated duration of 1 day. Ms D Hogan-Doran SC, with Ms E Phelan of counsel, instructed by Mr M Girgis, Mr D Taylor, Ms J Street and Ms S Wells, of MinterEllison, Solicitors, appeared for the Trustee. Mr B Doyle QC, with Mr D Allen of counsel, instructed by Mr T Owen-Taylor and Ms M Graham, appeared for APRA.

(In the events that happened, a late request for senior counsel for APRA to appear remotely using Microsoft Teams, and make submissions, was made, and without opposition, was granted by the Court. This did not cause any inconvenience to the Court or otherwise.)

Counsel have provided the Court with detailed written submissions, which were supplemented by oral submissions at the hearing. I have been greatly assisted by the submissions, which, supported by the evidence, have laid the factual platform for these reasons. I wish to commend all of the legal representatives for her, and his, diligence and effort, the timely provision of the submissions, and also for the general way in which the case was presented at the hearing. There is little doubt they have acted co-operatively with each other in ensuring the proceedings were dealt with in a just, quick and cheap manner, and with a view to resolving the real issues in dispute.

APRA has appeared in the role of amicus curiae in a number of the cases that were relied upon, and referred to above, including Maritime Super and LGSS.

An amicus curiae is not a party to the proceedings. By definition, it, he or she, is a stranger to the litigation and does not have any rights, or interests, affected by the litigation. (In this case, it was not submitted that APRA was entitled to appear, as of right, or by leave, as an intervener, in the proceedings.)

The power of courts to permit amicus curiae appearances is well established throughout the common law world: Breen v Williams (1994) 35 NSWLR 522 at 533 (Kirby P). There is no prescription of the circumstances in which it may, or may not, be proper for a Court to hear an amicus. It is well-established that if it is in the interests of justice to do so, the Court may permit an amicus curiae to participate in the proceedings: Kabushiki Kaisha Sony Computer Entertainment v Stevens (2001) 116 FCR 490; [2001] FCA 1379 at [11] (Sackville J).

Also, a further consideration is one of utility. The Court should be satisfied that it would be significantly assisted by the submissions of the amicus and that any costs to the parties, or any delay consequent upon agreeing to hear the amicus, is not likely to be disproportionate to the expected assistance: Roadshow Films Pty Ltd v iiNet Limited (2011) 248 CLR 37; [2011] HCA 54 at [4].

The principal role of an amicus curiae was explained by Brennan CJ in Levy v The State of Victoria (1997) 189 CLR 579 at 604-605; [1997] HCA 31. It is to provide assistance to the Court:

In Bropho v Tickner (1993) 40 FCR 165 at 172-173, Wilcox J observed, citing Corporate Affairs Commission v Bradley [1974] NSWLR 391 at 399, that an amicus curiae has no entitlement to lead evidence. His Honour added, with some reservation, that he did not dispute that “it may sometimes be appropriate to allow an amicus curiae to complete the evidentiary mosaic by tendering an item of non-controversial evidence”.

In Re Medical Assessment Panel; ex parte Symons [2003] WASC 154, E M Heenan J wrote at [18]:

His Honour at [20], also observed that:

In Coulthard v State of South Australia (Adnyamathanha, Ngadjuri and Wilyakali Overlap Claim) [2018] FCA 2094, White J, at [9], noted that “the position of an amicus is very different from that of an intervener in that, amongst other things, an amicus cannot file interlocutory process or commence an appeal or otherwise take exception to a ruling of the Court”.

In the Plaintiff’s Outline of Submissions, counsel stated at [8]:

For its part, in written submissions, APRA stated at [17]:

In his oral submissions, senior counsel noted (Tcpt, 4 May 2022, p 45(36)-46(7):

The submissions made are well justified as the Court has been substantially assisted by the submissions made by APRA in relation to the consideration of the issues. APRA’s stated intention in performing its role has also been achieved.

The only persons who could be directly affected by the application are the members of the Fund. They have not been given notice of the application. As will be read, the question of notice to members was raised by the Court prior to the hearing.

In Supplementary written Submissions, counsel wrote (Plaintiff’s Supplementary Outline of Submissions dated 2 May 2022):

In addition, the Trustee has engaged with member representative organisations about the application through their appointed directors on the Board. (Senior counsel for the Trustee acknowledged however that “whilst the directors, including those directors who have been elected by the membership, have been consulted through this process … they are not disinterested in the application, and so they are in sense potentially conflicted”: Tcpt, 4 May 2022, 39(17-24).)

Taking into account all of these matters, the submissions made by counsel for the Plaintiff on this topic should be accepted. To those submissions could be added the impracticability of serving all of the large number of members of the Fund. As well, I shall refer to s 63(4) of the Act later in these reasons.

In all the circumstances, I am satisfied that it is appropriate for the application, as amended, to proceed without the joinder of any other party, or notification to any other person or entity. That approach is consistent with the approach adopted, recently, by Henry J, in United Super at [65]-[68] and the cases to which her Honour referred.

On 25 August 2021, the Board of the Trustee resolved to authorise management to instruct its solicitors, MinterEllison, if so advised, to seek judicial advice in relation to a form of orders.

At its meeting on 28 April 2022, the Board, having considered APRA’s submissions, and having received further advice from its solicitors, instructed the solicitors to draft appropriate revisions to the proposed form of orders in the form of what was described as, a “Preferred Clause”.

As stated, the Trustee, pursuant to s 63 of the Act and the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 55.2, seeks the Court’s opinion, advice or direction that it would be justified in amending the Trust Deed of the Fund to insert a new trustee remuneration clause giving the Trustee a right to charge, and take from the Fund a fee for acting as trustee of the Fund (described as “the Proposed Amendment”).

The Trustee did not bring any alternative claim for relief under s 81 of the Act (the statutory expediency jurisdiction). It did seek relief, in the event that it was necessary, relying upon the inherent jurisdiction of the Court.

Following the receipt, and reading, of the written submissions, my Associate, at my request, on 28 April 2022, sent an email, relevantly, in the following terms to the legal representatives of the Plaintiff and of APRA:

By email sent on 29 April 2022, the Plaintiff’s solicitor responded in the following terms:

The legal representatives, then, provided a joint response in an email sent on 2 May 2022, which was in the following terms:

Shortly thereafter, the Plaintiff caused to be filed, without leave, an amended Summons late on 2 May 2022. The Court granted leave nunc pro tunc, at the commencement of the hearing to file the amended Summons and an amended Statement of Facts.

The amended Summons, relevantly, provided:

(Hereafter, I shall refer to the Clause that is proposed to be added as stated in the amended Summons as the Proposed Amendment.)

Paragraphs 3 and 4 of the amended Summons sought, in relation to certain identified documents, an order pursuant to s 8(1) of the Court Suppression and Non-Publication Orders Act 2010 (NSW) or in the Court’s inherent jurisdiction, a suppression or non-publication order “on the ground that the order is necessary to prevent prejudice to the proper administration of justice, or it is otherwise necessary in the public interest for the order to be made and that the public interest significantly outweighs the public interest in open justice”.

I shall deal with this aspect in a summary way as, ultimately, there was no dispute between the Trustee and APRA as to the documents that should be the subject of such an order.

The Trustee submitted that the information over which confidentiality orders are sought falls into two categories. The first category consisted of information to which legal professional privilege applies and which privilege the Trustee does not waive. These documents include the opinions of counsel, and legal advices from KPMG and MinterEllison.

The first category of information is clearly privileged and confidential to the Trustee. As submitted by the Trustee, judicial advice applications are customarily supported by a confidential opinion of counsel and such opinions are ordinarily the subject of confidentiality orders: Re Application of NSW Trustee and Guardian [2014] NSWSC 423; Re Equititrust Ltd (In Liq) (Receiver Appointed) (Receivers & Managers Appointed) [2016] NSWSC 1936; NGS at [94].

The second category consists of confidential and commercially sensitive information which relates to correspondence between the Trustee and its regulators (ASIC and APRA), and the Trustee Board minutes and paper. The Trustee submitted that the contents disclose the workings and reasoning of the Trustee Board and advice received by it in addressing the issues posed by reason of the s 56 amendments, including consideration of matters from expert consultants and cost information. As the Trustee operates in a competitive market, it submitted that it would suffer commercial prejudice if such documents, including its internal risk modelling analysis, directly linked to the proposed new trustee fee, were to be disclosed to the market.

In deciding whether to make a suppression, or a non-publication order, in respect of the second category of information, the Court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice: s 6 Court Suppression and Non-Publication Orders Act.

As APRA submitted, this ordinarily involves weighing the nature of the confidential factual material and the potential impact of its disclosure on the Trustee or the Fund against the normal requirement that evidence deployed in legal proceedings is deployed openly: Hogan v Hinch (2011) 243 CLR 506; [2011] HCA 4 at [21]; Tribal Health Pty Ltd v Flush Fitness Pty Ltd [2016] QSC 103 at [69] (Bond J).

Depending on the nature of the proceedings, the weight to be given to the public interest in open justice will vary. It may be necessary for the Court to consider whether the proceedings are criminal or civil in nature, whether they involve questions of public or private law, and whether they involve disputes that impact on the public or only the parties: Spirit Super at [104] (Henry J); NGS at [98] (Henry J).

Whilst the Court should be informed on relevant aspects of a party’s dealings, including its confidential information, to exercise the proper administration of justice, the confidential information, in this case, forms only a subset of the material relied upon, and the evidence over which no suppression order is sought. That evidence has been referred to in these reasons.

As identified by the Trustee, in the absence of a suppression order, the Trustee may be exposed to the risk that its confidential information will become public and could be exploited by competitors: Telstra Corporation Ltd v NBN Co Ltd [2014] NSWSC 940 at [91]-[93] (McDougall J); NGS at [100].

I accept the Trustee’s submissions that the confidentiality orders sought over the second category of information should be made. I am satisfied that this information is confidential to the Trustee and that the confidentiality order is necessary for the Trustee to gain some protection for that information to prevent prejudice to the proper administration of justice.

Sections 11 and 12 of the Court Suppression and Non-Publication Orders Act require that an order specify the place where it applies and the duration of that order. I accept the Trustee’s submission that, as the Fund operates throughout Australia and it has members in every State and Territory, the orders should apply throughout the Commonwealth of Australia: NGS at [106].

The Trustee’s submission that the Court should make suppression orders over the commercially sensitive, or commercial-in-confidence, material for a duration of 10 years also has merit. It based this submission on two grounds, the first being that, under ss 103 to 105 of the SIS Act, 10 years is the period of time for which superannuation trustees must keep minutes of meetings and certain other records relating to their governance and operations. The second ground is that the Trustee believes that 10 years is a period of time after which any competitive advantage associated with knowing this internal information is likely to be lost due to changes in the size, membership and funds of the Fund: NGS at [107].

With respect to the material that is subject to legal professional privilege, I accept the Trustee’s submission that it is not appropriate to impose time limitations on these orders as that would prejudice the protection afforded by the privilege itself.

During the hearing, there was discussion regarding the documents to be the subject of the order and, following the conclusion of the hearing, a form of order was provided to the Court in the following terms:

On 9 May 2022, APRA sent an amended draft form of orders which it submitted might be more appropriate. APRA cited concerns that the effect of the previously proposed order would be that any factual matter referred to in any of the documents listed in paragraph 5 (such as APRA’s submissions or the various legal opinions) would be subject to the order, making the suppression order broader than necessary and preventing publication of the non-confidential parts of the court file. APRA’s revised draft order 5 is as follows:

The Trustee did not oppose the suggested amendment, which in my view, is appropriate. The order referred to, in the above terms, should be substituted accordingly.

There was no dispute that APRA, in its role as regulator, has engaged in an extremely detailed way with the Trustee upon it being notified of the original application. As a consequence of its constructive involvement with the Trustee, by its legal representatives, the Plaintiff brought the amended application and proposed the amended orders.

In support of its application, as amended, the Trustee relied on an amended Statement of Facts dated 2 May 2022, and two affidavits of the Trustee’s Head of Risk & Compliance, Mr Gokhan Oguzhan, each affirmed on 8 March 2022. One affidavit, which comprises 37 paragraphs also contains an Exhibit of 109 pages (Ex. GO1). It sets out general background information which gives rise to the application (the general affidavit). The other affidavit is described as a “Confidential Affidavit” (I shall refer to it as such) and it contains material going to legal advice that has been provided to the Plaintiff. Mr Oguzhan did not give any oral evidence. The facts stated are supported by the evidence read in the proceedings.

I am satisfied that the Amended Statement of Facts and affidavits to which I have referred identify the relevant factual matters which are to be assumed to exist for the purpose of providing the necessary opinion advice or direction that has been sought. Naturally, it is impracticable to include all of the facts stated.

I have taken almost all of what appears hereunder from the amended Statement of Facts that was relied upon and also from the written submissions provided by counsel.

The Trustee is a not-for-profit company governed by a constitution amended from time to time, the last amendment taking effect from 7 March 2022 (SCS Constitution).

The Fund was originally established as an industry fund for the benefit of members from the Catholic education, healthcare, aged care and welfare sectors. Although the membership of the Fund is open to members of the public, the majority of the Fund’s members continue to be from the education, healthcare, aged care, and welfare sectors.

The Fund offers superannuation benefits through various products. As at 10 February 2022, the Fund had over 80,000 members and $10.5 billion in funds under administration. It offers superannuation benefits through various products (including a MySuper product).

The Trustee currently holds a Registrable Superannuation Entity licence (the RSE Licence) issued under s 29D of the SIS Act. The RSE licence permits it to be the trustee of public offer funds. (Public offer funds are “open to any member of the public, whether or not employed and whether or not associated with a corporate group, government sector or industry”: AustralianSuper at [7] (Blue J).)

It also holds an Australian Financial Services Licence (the AFS Licence), issued under Chapter 7 of the Corporations Act. The AFS Licence authorises it to provide financial product advice in relation to a superannuation product, to deal in superannuation products to wholesale and retail clients, as well as to provide superannuation trustee services.

The RSE licence and the AFS licence have the effect of making the Trustee’s activities subject to regulation by APRA and ASIC.

As a public offer superannuation fund, under s 93(3)(a) of the SIS Act, either:

Under s 89 of the SIS Act, the Fund complies with the basic equal representation rules if the Fund has a single corporate trustee and the board of that trustee consists of equal numbers of employer representatives and member representatives.

Clause 1.1 of the Trustee’s Constitution defines a "Member Representative" to have the same meaning as under the SIS Act. Section 10 of the SIS Act defines a "member representative" in the following terms:

The Trustee has all the powers of a natural person who is beneficially entitled to the assets of the Fund and may do anything it considers appropriate to administer the Fund and comply with Superannuation Law. It may appoint any person to perform any function of the Trustee and delegate any of its powers, duties and discretions.

The Trustee has never received any remuneration in relation to its services for the Fund.

SCS Super Holdings Limited (HoldCo) is the sole shareholder of the Trustee, and is governed by a Constitution dated 9 November 2016, as amended from time to time. Until 7 March 2022, the Trustee’s Constitution prevented the distribution of income to its sole shareholder.

HoldCo is a company limited by guarantee. Accordingly, it does not have the power to issue shares. The liability of the members of HoldCo is limited to an amount not exceeding $10. It is not able to pay any dividend to the members of HoldCo.

The Trustee’s only assets are represented by nominal capital. As at the end of the financial year ending 30 June 2021, the Trustee’s total equity was $6.

Under Clause 18.1(g) of the Trustee’s Constitution, the Board has the power to determine the proportional representation of Directors. However, this power is limited in that the Directors must be appointed in a manner that maintains the following proportions comprising employer representatives and member representatives. Seven Directors must be appointed from New South Wales and the Australian Capital Territory; three Directors must be appointed from Queensland; and two Directors must be appointed from Western Australia.

The Trustee facilitates (through external consulting firm Mercer) an election by members of the Fund every four years for the purposes of determining Directors who are to be appointed as Member Representatives on the Trustee’s Board.

The Trustee is required to undertake complex work carrying with it a high degree of responsibility. The Trustee’s Board has delegated some powers and authorities to committees, which are comprised of directors on the Board.

The Trustee has assessed the costs of an unplanned insolvency of the Trustee to the Fund and its Members and has concluded those costs would likely exceed the fees the Trustee would charge pursuant to the Proposed Amendment.

The Trustee maintains a policy for the amount, use, investment, monitoring and review of the Administration Reserve (Reserving Policy). The Trustee’s Reserving Policy currently states that reserves are held by the Fund for three broad purposes:

The Trustee has established three reserves within the Fund.

First, the Trustee established the Operational Risk Reserve to meet the Operation Risk Financial Requirement. Section 52(8)(b) of the SIS Act imposes a covenant in the governing rules of a registrable superannuation entity requiring a trustee to maintain and manage (in accordance with the prudential standards set by APRA) financial resources (whether capital of the trustee, a reserve of the superannuation fund or both) to cover the operational risk that relates to the entity. The relevant standard is APRA Prudential Standard SPS 114.

As at 31 March 2022, the assets in the Operation Risk Reserve had a value of $25.9 million.

Second, it established the Administration Reserve. Currently, the administration fees and costs charged to members’ accounts are credited to the Administration Reserve. The Administration Reserve is governed by the “Reserving Policy”.

The Reserving Policy confirms that the reserves are held as an asset within the Fund and each is segregated, from an accounting perspective, from other reserves and assets of the Fund.

The Administration Reserve is used for the following purposes:

The target level for the Administration Reserve is up to 2% of the Fund’s total assets. As at 30 June 2021, the amount of the Administration Reserve was 0.6% of the Fund’s total assets.

Currently, administration fees and costs charged to members’ accounts are credited to the Administration Reserve.

After the costs of administering the Fund are met from the Administration Reserve, the remaining balance is used to meet liabilities or expenses for which the Trustee has a right to be indemnified. As at 31 March 2022, the total assets in the Administration Reserve had a value $81.6 million.

Third, the Trustee established a Queensland Part 1 Reserve. The funds in this Reserve are used to pay the insurance premiums formally of the Queensland Roman Catholic Retirement Plan, which employers paid 1.5% of their salary to the Reserve to cover the cost of the insurance premiums.

Unlike many other industry fund trustees, the Trustee does not outsource its administration functions to an external service provider, but rather self-administers the fund. However, it does outsource the coding function of the registry system, to facilitate the administration function of the Fund.

Therefore, the Trustee effectively bears all of the risks associated with the performance of its administration fund. Even to the extent that any risk is transferred, in part to the external provider, the Trustee would remain responsible under its general law and statutory obligations for the selection, monitoring and supervision of the external service providers and is responsible in its role of Trustee of the Fund as an RSE licensee under the SIS Act and an AFSL Holder under the Corporations Act.

As stated, the Fund was established by the Trust Deed dated 30 June 1981, as amended from time to time, being amended most recently with effect from 19 February 2021. The governing law of the Trust Deed is the law of New South Wales: Clause 14.15.

Historically, the Trust Deed provided that “Fund Expenses” were to be paid by the Trustee invoicing the Fund during the financial year, including remuneration paid to the Trustee’s directors.

The Trustee’s practice is to on-charge to the Fund premiums for trustee indemnity insurance it holds.

Clause 2.11 of the Trust Deed currently provides for an indemnity out of the Fund to the Trustee to recover from the Fund any loss or expenditure incurred in relation to the Fund or the administration of the Trustee unless:

Clause 14.1 of the Trust Deed provides:

Currently, the remuneration clause in the Trust Deed provides:

Whilst the Trustee has never received any remuneration in relation to its services for the Fund, its directors do receive remuneration.

Regarding insurance, the Trustee’s practice is to hold liability insurance policies in relation to various insured events, including professional indemnity insurance, directors’ and officers’ liability insurance, investigation insurance and legal expense insurance. Relevantly, cl 2.10 of the Trust Deed provides:

Pursuant to r 16 of the Trust Deed, the Trustee has express power to amend the Trust Deed.

Rule 16.1 provides:

The amendment must be in writing (r 16.2) and may take effect from a date before or after the time it is made (r 16.3). The Trustee must notify the Beneficiaries of the nature, purpose and effect of any amendment if superannuation law requires, however, failure to notify does not invalidate the amendment (r 16.6).

The power to amend the Trust Deed is limited by rr 16.4 and 16.5, which states, respectively:

As stated, the Trust Deed has been amended several times since its original version dated 30 June 1981 with the current version dated 19 February 2021. A draft of the amending Deed Poll, which includes an earlier version, was prepared by the Trustee’s solicitors and forms part of the evidence.

The Fund is a regulated superannuation fund and registerable superannuation entity for the purposes of the SIS Act.

As stated, the Fund holds an RSE licence and an AFS license.

The significant changes to the regulatory environment in which the Trustee and its directors have administered the Fund have expanded the regulatory obligations of superannuation trustees under the SIS Act and Chapter 7 of the Corporations Act; have increased penalties for non-compliance with those obligations; and have intensified regulatory scrutiny and enforcement of superannuation trustee’s conduct. The Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (NSW) (FSR Act) has also resulted in amendments to ss 56(2) and 57(2) of the SIS Act.

In broad terms, the amendments effectively provide that from 1 January 2022, the Trustee and its directors cannot be indemnified for statutory liabilities from the Fund. Thus, the imposition of any statutory liabilities may affect not only the Trustee, but also expose its directors to personal liability for which indemnity may not be able to be claimed.

Although I have read APRA’s extremely detailed submissions (particularly at paragraphs 4-13), which deal extensively with the statutory amendments, all counsel agreed, at the hearing (Tcpt, 4 April 2022, p 32(22)-33(25)), that it would only be necessary to refer to what Henry J wrote in NGS at [36]-[39] concerning those amendments:

In addition, Kelly J has identified, most usefully, the more significant legislative changes that have been introduced, and has detailed the range of penalties to which superannuation trustees are now exposed in QSuper at [22]-[27].

(Also see the comprehensive history set out by Blue J in AustralianSuper at [10] – [25] and his reference to the authorities at [87] – [120].)

Naturally, the Trustee has considered the impact of the SIS Act amendments. As a not-for-profit (or “profit-for-member”) company, the Trustee does not currently hold sufficient capital which could be used to indemnify it, or otherwise meet related liabilities. As a result of the SIS Act Amendments, the Trustee risks becoming insolvent if a fine or penalty was to be imposed (e.g., as a result of an inadvertent breach of Commonwealth legislation), and the Trustee does not have sufficient capital to pay the penalty.

It believes that now, as the Trustee of the Fund, it will be liable to the potential imposition of fines and penalties in relation to any contravention of Commonwealth laws in respect of which it will not be indemnified by the Fund. As it has no significant capital of its own out of which to pay any such fines or penalties it may become insolvent.

The Trustee is unaware of any allegation of a past breach of trust. It has not been, and is not, presently, the subject of any regulatory investigation, or threatened or actual enforcement proceedings by APRA, ASIC or any other Commonwealth regulator.

However, and naturally, it has also considered the chain of events which may occur if it did become insolvent. Those events would involve its removal as a trustee, the appointment of administrators, and, eventually, the appointment of a new trustee or successor fund: see s 120(2), ss 126K and 133 and s 134 of the SIS Act. Each of those events would be likely to result in significant transaction costs, which would be borne out of the Fund assets. Ultimately, these costs would fall on members.

To address the risks from the legal and regulatory changes, the Trustee explored various options for funding liabilities or expenses for which it will no longer be able to be indemnified out of the assets of the Fund (un-indemnifiable liabilities). The options which were explored included considering:

The Trustee has determined that the above options, either individually or together, would not be sufficient to meet the risk of liabilities in respect of which it would not be indemnified. It is concerned that this risk will give rise to a risk of its insolvency due to its lack of available capital.

The Trustee has assessed the potential costs and other consequences to it and the Fund in the event that the Trustee becomes insolvent, and is thereby disqualified from acting as trustee, on the assumption that the Fund would be a successor fund transferred to another existing superannuation fund. That analysis (which is subject to confidentiality claims) shows that the costs to the Fund (and thus to its members) would likely be substantial.

In this context, the Trustee identified the option of amending the remuneration clause in the Trust Deed and commence charging a fee for the provision of its services as Trustee, which it had previously provided gratuitously. It is of the view that “making the Proposed Trust Deed Amendment is a necessary course of action to pursue and in the best financial interests of members”: Affidavit of G Oguzhan, 8 March 2022 at par 12.

At its meeting of 17 February 2022, the Board considered the issues and material and resolved to make the application for judicial advice.

I have set out the Proposed Amendment earlier in these reasons.

The Trustee has taken advice from senior and junior Counsel and its solicitors, MinterEllison, on the proposal to amend the Trust Deed in the context of the concerns raised by the amendments to the SIS Act. It has also engaged with APRA regarding the nature of, and rationale for, the Proposed Amendment.

If the Proposed Amendment is made, the Trustee proposes to adopt a Trustee Capital Management Policy, to establish a Trustee Capital Reserve, and to build that reserve by charging a trustee fee in order to raise the Trustee Capital Target Amount of $6 million over a period of 2 years net of taxes (Proposed Fee). It would do so by taking remuneration for its services by charging, and taking it, from the Administration Reserve, which would not result in an increase in the fees charged against a member’s account. It would reserve, within its own balance sheet, amounts raised through the use of the power, the Trustee Capital Reserve, which would then be used for the purposes of an object of the Fund, as set out in the Constitution.

In summary, the circumstances relevant to the Proposed Amendment include:

The Trustee acknowledges that it will be subject to an objective standard of fairness and reasonableness, and its statutory covenants and general law duties, in exercising its powers under the Proposed Amendment.

The Act gives no power to the Court, on application by a trustee or by any person who has a vested, future or contingent interest in property held on trust to, amongst other things, enlarge or otherwise vary the powers of the trustee to manage or administer the trust property.

However, as is well known, s 63 of the Act enables a trustee to apply to the Court for an opinion, advice or direction on any question respecting the management, or administration, of the trust property, or respecting the interpretation of the trust instrument.

Relevantly, s 63 provides:

The Court’s power to give judicial advice is a broad discretionary power with the only jurisdictional bar to relief being the existence of a question respecting the management or administration of the trust property or the interpretation of the trust instrument.

In this case, it can be seen from the relief sought, that the advice concerns the administration of the trust property and/or the interpretation of the trust instrument. “Management or administration of property” includes taking steps to preserve the property and taking steps to make the property financially productive: Stein v Sybmore Holdings [2006] NSWSC 1004 at [59] (Campbell J). The words refer to both the manner in which trust property is managed, administered, handled, directed or controlled, and the actual carrying out of those functions. In addition, the words include transferring part, or all, of it, as required, to those who have become entitled to it. The words are not confined to the continued holding of the property in question.

As Henry J wrote in NGS at [59]-[61]:

Essentially the Court’s sole purpose in giving judicial advice is to determine what ought to be done in the best interests of the trust estate. Even so, it “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”: LGSS at [79] (Ward CJ in Eq).

An order under s 63 produces the statutory consequence stated in s 63(2), namely that if the trustee, having received judicial advice, acts in accordance with it, the trustee is “deemed to have discharged the trustee's duty as trustee in the subject matter of the application”.

UCPR r 55.1, provides:

UCPR r 55.2 provides that an opinion, advice or direction given under s 63 “must be given by order”. However, such an order is permissive in nature, its usual form being that the trustee “would be justified” in taking certain action. As such, the order does not carry with it the usual consequences of an order made by the Court in adversarial proceedings, regardless of whether parties have been given notice of the application under s 63(4). Thus, it does not create a res judicata. It does not finally determine the rights of parties. Indeed, it does not, of itself, determine any rights, although, it has the potential to affect the rights of the parties given notice under s 63(4). It does not carry with it the consequences of breach, including, e.g. the exposure to contempt proceedings should an order be disobeyed: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2006) 66 NSWLR 112; [2006] NSWCA 160.

Furthermore, this sort of application provides a summary procedure, intended to enable questions arising in the administration of an estate, or a trust, to be resolved cheaply and simply: Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 at [61].

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 14.15 that the Trust Deed is governed by the laws of New South Wales.

There are no discretionary reasons to not entertain the Trustee’s application.

On the material before the Court, I am satisfied that the Trustee’s proposed course of action seeking to amend and make the Proposed Amendment is proper and lawful.

I am also satisfied that the exercise of power will not be improper in the sense that it is not exercised in good faith, with real and genuine consideration or in accordance with the purpose for which it was conferred, or it is exercised for an ulterior purpose: Re Care Super Pty Ltd [2021] VSC 805 at [27], citing Longboat Holdings Groupno3 v Zacole Pty Ltd [2021] VSC 280 at [58]–[60].

It was not submitted, in my view, correctly, that the proposed Amendment contravened the amendments to sections 56(2) and 57(2) of the SIS Act. As was written in Re QSuper Board, by Kelly J, at [32]:

Furthermore, the Trustee has a duty to act in the best financial interests of the members of the Fund. In adopting a broad and practical approach when assessing whether the Proposed Amendment is in the best financial interests of the members, the court should consider the interests of present and future members and have regard to the commercial and practical realities of the superannuation industry generally. There does not appear to be any suggestion that one class of members would be unfairly advantaged to the prejudice of another class.

I am satisfied that the Trustee would be reasonably justified in exercising the power of amendment to make the Proposed Amendment. The evidence satisfies me that the Trustee’s proposal to exercise its power to amend is made in good faith and for a proper purpose upon a real and actual consideration of its position. It has identified a list of relevant circumstances that demonstrates that it has good reasons for the Proposed Amendment and justifies the view that it would be in the best interests and to the benefit of the Fund’s members to make it. Clearly, it is in the best financial interests of the members of the Fund that the Trustee take steps to ensure the due and proper administration of the Fund. That includes protecting against any risk of it becoming insolvent. There is, therefore, good reason to make the Proposed Amendment.

Again, quoting Kelly J in Re QSuper at [38]:

The Trustee acknowledges that it will be subject to an objective standard of fairness and reasonableness, and its statutory covenants and general law duties, in exercising its powers under the Proposed Amendment.

The evidence also indicates that the Trustee has given due and proper consideration to the impact of charging a fee on members of the Fund. It appears to understand that in the future, in deciding to exercise its power to charge remuneration, its power will not be unconstrained and it will remain burdened by the obligations and duties it has as a trustee, including the requirement that the power be exercised for a proper purpose having regard to the best financial interests of members and would only do so having regard to legal advice, and the Board’s own satisfaction of its compliance with, duties under trust law, the SIS Act and the Corporations Act.

As was pointed out by senior counsel for APRA at Tcpt, 4 May 2022, p 50(19-29):

Finally, the confidential opinion from Counsel and the approach adopted by APRA in raising its concerns which have subsequently been dealt with convinces me that it is appropriate to make the orders sought by the Trustee.

In these types of applications, and consistent with ss 59(4) and 93 of the Act and UCPR r 42.25, the Trustee’s costs, calculated on the indemnity basis, should be paid out of the assets of the Fund.

The Trustee has proposed orders which have been considered by APRA.

The orders of the Court are: