FEDERAL COURT OF AUSTRALIA Kowalski v MMAL Staff Superannuation Fund Pty Ltd (ACN 064 829 616) (No 2) [2008] FCA 691 PRACTICE AND PROCEDURE – motion to dismiss under s 31A Federal Court of Australia Act 1976 (Cth) and O 11 r 16 Federal Court Rules – leave to file further amended application and statement of claim TRUSTS AND TRUSTEE – superannuation – alleged entitlement to total and permanent disablement pension – principles of judicial review of trustee's discretion – significance of failure to give reasons for decision Federal Court of Australia Act 1976 (Cth) s 31A Federal Court Rules O 11 r 16 Misrepresentation Act 1972 (SA) Fair Trading Act 1987 (SA) Corporations Act 2001 (Cth) Kowalski v MMAL Staff Superannuation Fund Pty Ltd (2007) 242 ALR 370 cited Minehan v AGL Employees Superannuation Pty Ltd (1998) 134 ACTR 1 cited Neil v Nott (1994) 121 ALR 148 cited Jeffrey Guy Baker v Local Government Superannuation Scheme Pty Ltd [2007] NSWSC 1173 cited Hay v Total Risk Management Pty Ltd [2004] NSWSC 94 cited Sayseng v Kellogg Superannuation Pty Ltd [2003] NSWSC 945 cited Flegeltaub v Telstra Super Pty Ltd [2000] VSC 107 cited Vidovic v Email Superannuation Pty Ltd (unreported, Supreme Court of New South Wales, Bryson J, 3 March 1995) cited Maciejewski v Telstra Super Pty Ltd (1998) 44 NSWLR 601 cited Alcoa of Australia Retirement Plan Pty Ltd v Thompson (2002) 116 FCR 139 cited Karger v Paul [1984] VR 161 cited Ford and Lee, Principles of the Law of Trusts Butler LM, "Reviewing Trustees' Decisions: The Right to Reasons"(1999) 7 Aust Property LJ 251 KAZIMIR KOWALSKI v MMAL STAFF SUPERANNUATION FUND PTY LTD (ACN 064 829 616) AND AMP SUPERANNUATION LIMITED (ACN 008 414 104) SAD 11 of 2007 FINN J 20 MAY 2008 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 11 of 2007 BETWEEN: KAZIMIR KOWALSKI Applicant AND: MMAL STAFF SUPERANNUATION FUND PTY LTD (ACN 064 829 616) First Respondent AMP SUPERANNUATION LIMITED (ACN 008 414 104) Second Respondent JUDGE: FINN J DATE OF ORDER: 20 MAY 2008 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The amended statement of claim be struck out. 2. Leave be granted to the applicant to file and serve a further amended application and further amended statement of claim. 3. The costs of this motion be the respondents' costs in the cause. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 11 of 2007 BETWEEN: KAZIMIR KOWALSKI Applicant AND: MMAL STAFF SUPERANNUATION FUND PTY LTD (ACN 064 829 616) First Respondent AMP SUPERANNUATION LIMITED (ACN 008 414 104) Second Respondent JUDGE: FINN J DATE: 20 MAY 2008 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 The motion before me is a predictable sequel to the circumscribed leave I gave Mr Kowalski in Kowalski v MMAL Staff Superannuation Fund Pty Ltd (2007) 242 ALR 370 to file and serve an amended application and statement of claim. That leave was exercised but the respondents (MMA Super and AMP Super) now seek orders either that the proceedings be summarily dismissed pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth), or that the statement of claim be struck out under O 11 r 16 of the Federal Court Rules as disclosing no reasonable cause of action. I intend taking the latter course for the reason that, while the pleading is misguided in its thrust, it cannot be said that the underlying complaint that appears to inform it may not suggest a reasonable cause of action. In their submissions the respondents, while not admitting this to be the case, have come close to identifying that cause of action, though without conceding that it is reasonably arguable or that they do not have a good defence to it. BACKGROUND 2 As I indicated in Kowalski (No 1), the actual dispute between Mr Kowalski and his past employer, Mitsubishi Motors Australia Ltd (MMAL), has a long history dating to before 16 March 1994 when his employment with that company ceased. MMA Super, a subsidiary of MMAL, was the trustee of the MMA Staff Superannuation Fund and was brought into that dispute because of claims Mr Kowalski has asserted as to his superannuation entitlements consequent upon the cessation of his employment with MMAL. It is unnecessary for present purposes to outline the many proceedings he has brought against MMAL and MMA Super. 3 Though his complaints in substance relate to defaults of MMA Super, AMP Super has been joined in this proceeding because by a deed of 15 June 2006 the trust fund was transferred to it as trustee and MMA Super was then wound up as a superannuation entity. The relief Mr Kowalski seeks includes an order for payment of a sum of money out of the fund, hence the joinder of AMP Super. 4 The trust rules of the fund that was administered by MMA Super and on which Mr Kowalski seeks to rely as they relate to his alleged "entitlements" provide (Rule C.7) that in the event of his retirement "from the employ of [MMAL] before his Normal Retirement due to his Total and Permanent Disablement", he is to be paid a lump sum from the Fund in accordance with the relevant rules ("a TPD Benefit") which lump sum, it is claimed in his pleading, represented an entitlement of $181,195.00 as at 1 July 1991. Clause 1(6) of the fund's Trust Deed defined "Total and Permanent Disablement" as follows: Total and Permanent Disablement" means in relation to a Member disablement due to illness accident or injury as a result of which – (a) he has been continuously absent from employment with the Employer for a period of at least six months (or such lesser period as the Trustee may determine in any particular case); and (b) he is, in the opinion of the Trustee after consideration of medical evidence satisfactory to them, incapacitated to such an extent as to render him unlikely ever to engage or work for reward in any occupation for which he is reasonably suited by education, training or experience. 5 It is the above alleged entitlement to a TPD Benefit that Mr Kowalski seeks to have enforced, or else to be compensated for not receiving, in this proceeding. For the sake of completeness I would add that the Rules provided separately for payment from the Fund on resignation otherwise than as provided for specifically in the Rules: Rule C.9. Additionally cl 3(1) of the trust deed provides (inter alia) that: Except to the extent otherwise provided in the Deed or the Rules the Trustee have in the exercise or non-exercise or partial exercise of each and every power exercisable by the Trustee an absolute and uncontrolled discretion and are not bound to give to any person any reason for or explanation of their exercise, non-exercise or partial exercise of any such power. 6 The applicant commenced employment with MMAL in January 1964. According to his amended statement of claim he suffered a psychological injury/mental breakdown at work on 16 August 1991. Apparently he did not thereafter go to work. Again according to his pleading, in April 1993 a psychiatrist informed MMAL that, in his opinion, "as a consequence of [Mr Kowalski's] psychological medical condition and the fact that his employer had failed to provide any rehabilitation to [him], [he] would never be able to work again". On 16 March 1994, MMAL notified him in writing that it considered his employment contract frustrated. The notice stated: As you continue to be unfit for your normal duties with us, your contract of employment with the company is frustrated. On that ground, your contract of employment with the company is now at an end, and accordingly you are no longer required to report for work. 7 In his pleading Mr Kowalski acknowledged that MMAL informed MMA Super's actuaries "that the applicant had resigned [from] his employment" and that in August 1994 MMA Super paid him a resignation benefit in the sum of $27,664.54. Though this sum has not been explained in the material before me it seems likely to have been a lump sum payment on resignation under Rule C.9 noted above. 8 The essence of his complaint is that given the context of his termination, he was entitled to be paid, but has not been paid, a TPD Benefit under Rule C7. 9 The manner in which this entitlement is put is various: an absolute entitlement is asserted in the events which occurred; alternatively a culpable failure to exercise powers in light of the evidence and particularly the medical evidence that was available to MMA Super; and a failure by MMA Super to consider the available evidence consequent upon a formal application for his entitlement on 3 November 2005 as well as upon earlier alleged requests. 10 The legal wrongs alleged are pleaded as being for breach of fiduciary duty and negligence in MMA Super's not performing its duty to him. Patently inapposite claims which it is not necessary to discuss in detail here, are made as well under the Misrepresentation Act 1972 (SA), the Fair Trading Act 1987 (SA) and the Corporations Act 2001 (Cth) in respect of the conduct said to give rise to the breaches of fiduciary duty and the claims of negligence. I would simply note that none of these additional claims have any reasonable prospects of success. The evidentiary morass 11 Mr Kowalski has filed a growing mosaic of pieces of evidence covering, in the main, a 15 year period. The documents filed (often as annexures to submissions) are for the most part unexplained; their context is often lacking; if they refer to annexures those annexures are often missing; and a deal of it relates to matters occurring subsequent to 16 March 1994 which have no relevance to this proceeding. The respondents in contrast, while filing several lengthy affidavits, have sought to confine their evidence to what they perceive to be the matter in hand but without illumination of the overall context of that evidence. The consequence of this is that, in matters of detail, I have no real understanding of the sequence of events since 1991 or of the relevance or significance of much that is before me. Nonetheless, given the view I have taken of the proper way forward, I do not consider any useful purpose would be served by attempting to come to terms with the evidentiary morass in some further hearing. 12 I do consider, though, that it is useful to refer to an exchange in correspondence which has no little bearing on the disposition of this motion. 13 The first letter is from Mr Kowalski to MMA Super of 3 November 2005. It stated: Re: My formal application for a Total and Permanent Disability Benefit. I provided you with a copy of a letter from Mr J K Beer, Manager Human Resources, Mitsubishi Motors Aust. Ltd. Lonsdale Plant, to myself, dated 16 March 1994, in which he and MMAL informed me that "… As you (I) continue to be unfit for your (my) normal duties with us, your (my) contract of employment with the company is frustrated. On that ground your (my) contract of employment with the company is now at an end, and accordingly you are no longer required to report for work …". I also provide you with a copy of a letter from Senator Grant Chapman to Mr Tom Phillips dated 19 October 2005. The letter is self explanatory, however, I draw your attention to the parts of the letter that I have underlined. In view of the above, I formally apply for a TPD Benefit from the MMA Staff Superannuation Fund on the grounds found in Mr Beer's letter to me, dated 16 March 1994, and Senator Grant Chapman's letter to Mr Tom Phillips dated 19 October 2005. I look forward to your reply in the next few days. (Emphasis in original.) 14 I simply note in passing that it would appear from the amended statement of claim that this was the first formal application Mr Kowalski had made to MMA Super to be paid a TPD Benefit. In saying this, I should not be taken as suggesting that the superannuation issue had not previously been a live one. 15 The response made to the above letter was by letter dated 24 February 2006 and came from MMA Super's solicitors. It said: We refer to recent letters to the Trustee in respect to your "formal" application for a TPD benefit from the Fund dated 3 November 2005. We are instructed that the Trustee has previously considered and declined your claim for a TPD benefit from the Fund arising from your employment to 16 March 1994 and including its cessation on that date. The trustee is of the opinion that your letter of 3 November 2005 and its annexures raise no new issues. We have again been instructed by the Trustee that we will not be responding to any matters that you have previously raised and which have been dealt with. The Trustee has made its position clear in respect to your entitlement to a TPD benefit from the Fund in previous correspondence and this position remains unchanged. CONSIDERATION 16 Disregarding the wholly inappropriate claims made under the Misrepresentation Act, the Fair Trading Act and the Corporations Act, the deficiencies of the amended statement of claim are obvious enough. The single question raised by the pleading is whether, having regard to the circumstances of Mr Kowalski's cessation of employment by MMAL on 16 March 1994 and the terms of the Trust Deed and its Schedule C, the pleading sufficiently discloses a reasonably arguable cause of action against MMA Super – hence AMP Super – in respect of its administration of the fund vis-à-vis Mr Kowalski. The technical answer to that question must be no. 17 While the structure of the Trust Deed and Schedule C is such that, in the circumstances, Mr Kowalski had some entitlement to be paid a sum out of the fund, the deed did not give him any absolute entitlement to be paid a TPD Benefit as such. For such a benefit to be payable the trustee had to determine whether Mr Kowalski fell within the definition of "Total and Permanent Disablement" in cl 1(6) of the Trust Deed. Part (b) of that definition required the trustee to form an opinion as to whether Mr Kowalski was incapacitated to such an extent as to render him unlikely ever to engage or work for reward in any occupation for which he is reasonably suited by education, training or experience. The cl 1(6) determination and the opinion embedded in it were ones for the trustee not the court: see Ford and Lee, Principles of the Law of Trusts, [5185] and the cases cited therein. Accordingly, absent a favourable determination by the trustee, it cannot be said, as Mr Kowalski claims in his pleading, that he has an entitlement to a TPD Benefit: but cf Minehan v AGL Employees Superannuation Pty Ltd (1998) 134 ACTR 1 at [68] where the court itself executed the trust – a rare event. 18 Again the pleading alleges repeated failures by the trustee to consider any of the medical evidence that was available to it and hence whether he was entitled to a TPD Benefit. Assuming that there were times at which a duty to consider so arose, the most that Mr Kowalski could expect from a court by way of relief – if any – would be a direction to the trustee to consider whether, in the circumstances, a cl 1(6) determination should be made and this on the basis of an unreasonable and culpable failure to consider the matter. Mr Kowalski does not seek such relief in this proceeding. 19 Underlying Mr Kowalski's complaint about the trustee's omission, though, would seem to be an unformulated assertion that a determination under cl 1(6) adverse to him had been made. I put the matter this way for this reason. I earlier referred to the correspondence between Mr Kowalski and the trustee concerning his formal application for a TPD Benefit. This evidence was put on by Mr Kowalski. In the course of that correspondence the trustee's solicitors indicated on instruction that "the Trustee has previously considered and declined your claim for a TPD benefit from the Fund arising from your employment to 16 March 1994 and including its cessation on that date". Mr Kowalski is unrepresented. In the distinctive circumstances of this matter where he cannot be expected fully to understand the mysteries of the law of trusts, it is proper for the court to endeavour within appropriate limits to ascertain the right that confusedly such a litigant could well be seeking to assert: cf Neil v Nott (1994) 121 ALR 148 at 150. 20 In his oral submissions Mr Kowalski indicated that, though it was said in the 24 February 2006 letter that the trustee had made a determination adverse to him, he has not been provided with a copy of it or, I would infer, the reasons for it. He equally says he has put on such evidence as he could to satisfy the trustee for cl 1(6) purposes. 21 There is now a significant body of Australian case law dealing with challenges to the decisions of superannuation trustees not to provide a particular benefit to a member because the trustee has determined that the member did not fall within the relevant trust definition for that benefit. Many of these cases have involved claims for total and permanent disability benefits having criteria similar to those embodied in cl 1(6): see eg Jeffrey Guy Baker v Local Government Superannuation Scheme Pty Ltd [2007] NSWSC 1173; Hay v Total Risk Management Pty Ltd [2004] NSWSC 94; Sayseng v Kellogg Superannuation Pty Ltd [2003] NSWSC 945; Flegeltaub v Telstra Super Pty Ltd [2000] VSC 107; Minehan v AGL Employees Superannuation Pty Ltd; Vidovic v Email Superannuation Pty Ltd (unreported, Supreme Court of New South Wales, Bryson J, 3 March 1995). 22 I will return below to the question of the grounds upon which a court will review and set aside a discretionary decision of a superannuation trustee denying a member's entitlement to a claimed benefit. What I wish first to emphasise is that it has not been suggested that Mr Kowalski was provided with reasons for the trustee's determination adverse to his TPD Benefit claim, nor have I been taken to such reasons. I would also add that there is medical evidence before me which, if accepted, would suggest so far as it goes that Mr Kowalski could reasonably be found to satisfy the cl 1(6) definition. In these circumstances, if there was not counterveiling evidence – and there was some evidence of asserted fitness for work at the relevant time – the absence of reasons for a decision could assume uncommon significance. 23 Accepting that both under the general law and under cl 3(1) of the trust deed, MMA Super had no duty to give reasons for its adverse determination, a failure to give reasons in circumstances where explanation might be called for is another matter. As Young J observed in Maciejewski v Telstra Super Pty Ltd (1998) 44 NSWLR 601 at 604, in dealing with the suggestion that because a trustee is not bound to give any reasons, therefore the matter is completely unreviewable: Nothing could be further from the truth. Indeed, whilst trustees do not have to give reasons in a case where a plaintiff puts forward a prima facie case that the trustee's discretion has miscarried, the absence of reasons and the absence of any evidence before the Court as to what happened, will tend to make that prima facie case a virtual certainty. This view has been endorsed in many subsequent cases: see Baker v Local Government Superannuation Scheme Pty Ltd; Hay v Total Risk Management Pty Ltd; Alcoa of Australia Retirement Plan Pty Ltd v Thompson (2002) 116 FCR 139 at [37]; Flegeltaub v Telstra Super Pty Ltd; see also Butler LM, "Reviewing Trustees' Decisions: The Right to Reasons"(1999) 7 Aust Property LJ 251. 24 I am in no position, on the material before me, to determine whether such a prima facie case is discernible in the evidence before me. The amended statement of claim has not been prepared with such a claim in mind and no defence has been filed. And I have referred earlier to the lack of clarity in the evidence itself. 25 For present purposes, I accept that the grounds upon which a court will review an exercise of a superannuation trustee's discretionary determination are essentially those stated by McGarvie J in Karger v Paul [1984] VR 161, though they have been somewhat elaborated – if not adapted: see Baker v Local Government Superannuation Scheme Pty Ltd at [8] – in the superannuation context. They are that the discretion was not exercised in good faith; that there was not a real and genuine consideration of the correct question; that the discretion was not exercised for the purpose for which it was conferred; if the trustee has given reasons for its exercise of discretion, that those reasons were not sound; and, if the material before the trustee can be identified, that the trustee's decision was one that no reasonable person could come to on that material. 26 In applying these grounds it is important to have regard to the superannuation context in which the trustee's decision is to be made. As Bryson J commented in Vidovic v Email Superannuation Pty Ltd: It is a marked anomaly to use mechanisms drawn from fields of law remote from employment and relating to trusts for bounty or charity to administer important entitlements in an employment relationship. I find it difficult to understand why the entrenchment of such important rights against review is so usual, and why this kind of arrangement is so commonly found acceptable to employees in view of the economic significance of such decisions and the economic function of superannuation, not well represented in the terms of the documents, as a contracted employment benefit for which value is given. These anomalies appear particularly clearly where, as in this case, the fund out of which benefits are paid is contributory and an employee claiming benefits is claiming to be paid, at least in part, in his own coin. In an arrangement with a contractual character in which value is given in the expectation that a benefit will be available in stated circumstances, a construction in which one party has an entire and unreviewable power to determine whether that party will pay a sum of money to the other or retain it in its own funds has an element of absurdity. Language which appears to produce such a result serves to demonstrate the strength of the expectation of all concerned that the exercise of the power will be honest and reasonable. It is only on that expectation that the transaction could, as a practical matter, be expected to take place at all, and there would have to be an entirely explicit exclusion of such an expectation before language literally capable of excluding it should be given that construction. The context of the employment relationship has an influence which it is impossible to exclude from judicial scrutiny and perceptions of reasonableness of decisions under superannuation deeds. 27 I have dealt with judicial review of discretionary decisions at some length. It probably provides the appropriate rubric which Mr Kowalski has been seeking to divine to have the propriety of his denial of a TPD Benefit tested. I do not necessarily suggest that he will be able to plead a reasonably arguable case that the MMA Super's decision miscarried, let alone that he will succeed in establishing such a case. Nor do I suggest that MMA Super and AMP Super would have no defence to such a claim were it to be made. Nonetheless, in light of the material before me, I do think that the interests of justice require that Mr Kowalski be given one last opportunity – I emphasise this – to file and serve a further amended application and statement of claim. 28 For the sake of completeness, I should note that, at best, the claim for negligence Mr Kowalski has made hangs off the breach of trust he has alleged. In striking out that claim I necessarily will order that this claim be struck out. I express no view on the viability of any further negligence claim. 29 I will order that the amended statement of claim be struck out. I give leave to file and serve a further amended application and further amended statement of claim. I will order that the costs of this motion be the respondents' costs in the cause. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn. Associate: Dated: 20 May 2008 Counsel for the Applicant: The Applicant appeared in person. Counsel for the First and Second Respondents: Mr J White Solicitor for the First and Second Respondents: Thomson Playford Date of Hearing: 25 October 2007 Date of Judgment: 20 May 2008