Supreme Court New South Wales Medium Neutral Citation: BT Funds Management Limited (ACN 002 916 458) as trustee for the Retirement Wrap Superannuation Fund [2022] NSWSC 401 Hearing dates: 22 March 2022 Date of orders: 23 March 2022 Decision date: 22 March 2022 Jurisdiction: Equity - Commercial List Before: Ball J Decision: See paragraph [22] Catchwords: EQUITY — Trusts and trustees — Superannuation funds — Application by trustee for Supreme Court consent pursuant to s 249E of the Crimes Act 1900 (NSW) and similar provisions in other State jurisdictions to receive and give a benefit in the context of a successor fund transfer CIVIL PROCEDURE — Cross-vesting — Supreme Court's power to grant consent under legislation of other States Legislation Cited: Crimes Act 1900 (NSW) Crimes Act 1958 (Vic) Criminal Code Act 1899 (Qld) Criminal Code Act Compilation Act 1913 (WA) Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) Secret Commissions Prohibition Act 1905 (Vic) Secret Commissions Prohibition Act 1919 (NSW) Superannuation Industry (Supervision) Act 1993 (Cth) Cases Cited: Australia City Properties Management Pty Ltd v Owners of Strata Plan No 65111 [2021] NSWCA 162 Baba v Sheehan [2021] NSWCA 58 SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362 Texts Cited: Secret Commissions Prohibition Bill (NSW), Second Reading, Hansard, 21 November 1919 Category: Principal judgment Parties: BT Funds Management Limited (ACN 002 916 458) as trustee for the Retirement Wrap Superannuation Fund (Plaintiff) Representation: Counsel: IM Jackman SC with A Smith (Plaintiff) Solicitors: Herbert Smith Freehills (Plaintiff) File Number(s): 2022/81776 Publication restriction: None Judgment Introduction 1. On 23 March 2022 the Court made orders giving its consent to certain conduct engaged in or proposed to be engaged in by the plaintiff, BT Funds Management Limited (ACN 002 916 458) (BTFM) as trustee for the Retirement Wrap Superannuation Fund (Retirement Wrap), which, absent consent, may have amounted to a breach of s 249E of the Crimes Act 1900 (NSW) and similar provisions in Queensland (Criminal Code Act 1899 (Qld), Sch 1, s 442F), Victoria (Crimes Act 1958 (Vic), s 180) and Western Australia (Criminal Code Act Compilation Act 1913 (WA), s 535) (together, the Provisions). Those orders are attached as Annexure 1 to this judgment. This judgment sets out the reasons those orders were made. Background 1. BTFM is a wholly owned subsidiary of Westpac Banking Corporation (Westpac). Retirement Wrap is currently divided into two parts (referred to as "plans" in the Retirement Wrap trust deed), one of which is known as the BT Super for Life Plan (the Plan). As at 31 January 2022, there were approximately 580,000 members of the Plan who held accounts with an aggregate value of $37.6 billion (the Fund). 2. On 31 August 2021, the Australian Prudential Regulation Authority (APRA) published the results of its annual performance test of superannuation funds conducted pursuant to Part 6A of the Superannuation Industry (Supervision) Act 1993 (Cth). That review concluded that two of the products in which contributions of members of the Plan are invested did not meet the minimum requirements of that test, and that a third product had only marginally passed that test. 3. Following publication of those results, BTFM decided to investigate what strategies it should pursue in order to improve the return to members who had invested in those products, including the possible transfer of all of the members of the Plan to another superannuation fund. 4. The investigation of a possible transfer has progressed substantially to the point where a shortlist of potential transferees has been identified. 5. A transfer of members and the Fund, if it proceeds, will involve two types of cost. First, there will be the transaction costs incurred by BTFM associated with the transfer. In the normal course of events, BTFM will be entitled to be indemnified against those costs out of the Fund. Second, there are what BTFM has described as "Special Costs and Losses". Those are costs and losses that individual members may suffer on transfer of the Fund depending on the precise form of the transfer and the precise circumstances of the individual member. They could include, for example, tax liabilities arising on the transfer of assets or the sale of assets before the transfer takes place. In addition to those costs and losses, following transfer, BTFM could remain exposed to claims against it arising out of its conduct as trustee of the Plan in respect of which it is entitled under the Retirement Wrap trust deed to be indemnified out of the Fund. 6. As part of the negotiations for the transfer of the Fund and its members to another trustee, BTFM would like to pursue negotiations with potential transferees and Westpac concerning the possibility of the transferee or Westpac (1) paying all or part of BTFM's own costs of the transaction; (2) compensating members for any losses they suffer as a consequence of the transfer; and (3) indemnifying BTFM in respect of claims against it in respect of which it would otherwise be entitled to be indemnified out of the assets of the Fund. In each case, the intention is that those benefits would be passed on to members of the Plan, either through a reduction in the amount that BTFM would be entitled to recover from the Fund or the payment of compensation to individual members for the loss that they suffer. 7. The language of the Provisions differs, but in substance each of the Provisions makes it a crime for a trustee to receive or to solicit a benefit from a person as an inducement or reward for the appointment of any other person to be a person entrusted with the property without the consent of either each person beneficially entitled to the property or of the Supreme Court. Section 249E of the Crimes Act for example provides: 249E Corrupt benefits for trustees and others (1) In this section, a reference to a person entrusted with property is a reference to— (a) a trustee of the property, (b) an executor or administrator appointed for the purpose of dealing with the property, (c) a person who, because of a power of attorney or a power of appointment, has authority over the property, and (d) a person managing or administering the property (or appointed or employed to manage or administer the property) under the NSW Trustee and Guardian Act 2009. (2) Any person who offers or gives a benefit to a person entrusted with property, and any person entrusted with property who receives or solicits a benefit for anyone, without the consent— (a) of each person beneficially entitled to the property, or (b) of the Supreme Court, as an inducement or reward for the appointment of any person to be a person entrusted with the property, are each liable to imprisonment for 7 years. (3) In this section, a reference to the appointment of a person includes a reference to— (a) joining in the appointment of the person, and (b) assisting in the appointment of the person. (4) Proceedings for an offence under this section shall not be commenced without the consent of the Attorney General. (5) A consent to commence any such proceedings purporting to have been signed by the Attorney General is evidence of that consent without proof of the signature of the Attorney General. 1. "Benefit" is defined in s 249A to include "money and any contingent benefit". 2. BTFM is concerned that the Provisions apply to the solicitation from or payment by a potential transferee or Westpac of the costs, losses or indemnities earlier described. Accordingly, it sought the consent of this Court to the solicitation and payment of those amounts, and any agreement to pay those amounts by the potential transferees or Westpac. Decision 1. Before explaining why the Court gave its consent, some preliminary points need to be made. 2. First, there appear to be no decided cases dealing with any of the Provisions, and little secondary material explaining their legislative purpose. In particular, there is nothing which explains why the legislatures chose to frame the Provisions broadly (so that their application was not, for example, dependent on proof of "corrupt" conduct, as is the case of other provisions directed at secret commissions received by agents) and to ameliorate their broad effect through a mechanism of approval by the Supreme Court. It appears that the Provisions were modelled on s 6 of the (now repealed) Secret Commissions Prohibition Act 1905 (Vic), which in turn originated as a response to findings of the 1905 Royal Commission on the Butter Industry. Section 6 of that Act was adopted in New South Wales following a Premiers conference that took place in Sydney in 1919: see Secret Commissions Prohibition Bill (NSW), Second Reading, Hansard, 21 November 1919, 2905. In New South Wales, the provision was first enacted in s 7 of the (now repealed) Secret Commissions Prohibition Act 1919 (NSW). Similar provisions were enacted in Western Australia and Queensland in 1905 and 1931, respectively. However, none of legislative history sheds light on the circumstances in which the Court should exercise the discretion conferred by the Provisions. Those circumstances must be determined by considering the purpose of the Provisions as ascertained from their terms and the context in which they appear: SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362 at [14]; Australia City Properties Management Pty Ltd v Owners of Strata Plan No 65111 [2021] NSWCA 162 at [330]. 3. Second, it is unnecessary to explore the precise limits of the prohibition contained in the Provisions. It seems clear that the Provisions are broad enough to catch the payments or benefits which are in contemplation. Taking s 249E as an example, BTFM holds the assets of the Plan as trustee for the members. It is contemplating appointing another trustee to hold those assets on trust for the members in its place. It is seeking to solicit payments and indemnities in connection with that transaction; and those payments and indemnities are sought and will be made as an inducement for the appointment, at least in the sense that BTFM intends to take into account, among other things, the extent to which a potential transferee is willing to pay or provide that indemnity in deciding whether and, if so, to whom it will transfer the business. 4. Third, it is apparent that it would not be practical to obtain the consent of individual members to the conduct caught by the Provisions. Consequently, unless the Court gave its consent, it would not be open to BTFM to negotiate to recover the relevant costs and loss from a potential transferee or Westpac or to obtain the indemnity it seeks. Consequently, if the sale proceeds those costs and losses would have to be borne by the members. That, in turn, may affect the appropriateness of any transfer. 5. Fourth, this Court plainly has power to make the orders sought by BTFM. It is given that power directly by s 249E(2)(b) of the Crimes Act 1900 (NSW). In the case of the other provisions, it is given that power by a combination of the substantive provision which invests the power to give consent in the local Supreme Court and a combination of s 4 of the local Jurisdiction of Courts (Cross-vesting) Act 1987 and s 9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW). Section 4 of the other relevant State cross-vesting Acts relevantly provide that the Supreme Courts and State Family Courts of another State or Territory has and may exercise original and appellate jurisdiction with respect to State matters, other than in respect of criminal matters. 6. Section 9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) relevantly provides: Exercise of jurisdiction pursuant to cross-vesting laws The Supreme Court: (a) may exercise jurisdiction (whether original or appellate) conferred on that court by a provision of this Act or of a law of the Commonwealth or a State relating to cross-vesting of jurisdiction, and (b) may hear and determine a proceeding transferred to that court under such a provision. "State matter" is relevantly defined to mean a matter "in which the Supreme Court has jurisdiction otherwise than by reason of a law of the Commonwealth or of another State …". 1. The Cross-vesting legislation does not give another State court jurisdiction with respect to "criminal matters". That expression is not defined in the Acts. In my opinion, it must be interpreted as a reference to criminal prosecutions. It does not extend to an application for consent to conduct that would, absent the consent, be criminal. The application for that consent is an application for a decision which determines whether a matter is a criminal one. It is not itself a criminal matter. 2. The evident purpose of the Provisions is to prevent a trustee from being persuaded by the prospect of personal gain to exercise its power to appoint a substitute trustee. It would, therefore, normally be appropriate for the Court to give its consent to the proposed conduct if it was satisfied that the appointment of the new trustee was in the best interests of beneficiaries or if it was satisfied that the proposed conduct did not provide an inducement to the transferor to act other than in the best interests of the beneficiaries. In either case, the object of the prohibition contained in the Provisions would not be undermined. 3. There may be a question whether the Court should give its consent in circumstances where it was not satisfied that the proposed appointment was likely to be in the best interests of beneficiaries. The Provisions are directed at conduct which may induce a trustee not to act in the best interests of beneficiaries. If the relevant conduct provides no inducement, it might be thought that that should be sufficient. However, it is not necessary to address that question further in this case, since I was satisfied both that it was likely that the appointment of a new trustee, if it occurs, will be for the benefit of beneficiaries and that the benefits for which BTFM wished to negotiate could not serve as an inducement to it to act contrary to the interests of beneficiaries. 4. As to the first of these points, the evidence establishes that the motivation behind BTFM's decision to consider appointing an alternative trustee is the poor performance of products available to members of the Plan. The evidence also establishes that BTFM has embarked on an extensive evaluation process with the assistance of external advisors to determine whether it should appoint an alternative trustee and to create a shortlist of suitable candidates. It is apparent that in choosing those candidates emphasis has been placed on the financial interests of members. BTFM has also consulted with APRA in relation to the possible transfer. 5. As to the second of these points, I was satisfied that the benefits for which BTFM wished to negotiate are not benefits that accrued to it but rather are benefits that either will accrue directly to members of the Plan or are costs or liabilities for which BTFM would otherwise be entitled to an indemnity out of the assets of the Plan. The costs and losses that may be suffered by individual members falls into the first of these categories. The costs of the transaction and the indemnity in respect of claims fall into the second. These benefits provide an inducement to BTFM to appoint a new trustee. But they do not provide an inducement to act otherwise than in the best interests of beneficiaries in order to obtain the benefits, since they are not benefits that ultimately accrue to BTFM. 6. It is for those reasons that I made the orders set out in Annexure 1. ********** Annexure 1 Defined terms within these orders take their meaning from those contained in Annexure A (265134, pdf) . Transaction Costs Payment 1. The Court consents and assents to the plaintiff soliciting Transaction Costs Payments from the Prospective Successor Trustees (as trustees or in their personal capacities), their related parties and/or Westpac Banking Corporation. 2. The Court consents and assents to the plaintiff receiving Transaction Costs Payments from the Selected Successor Trustee (as trustee or in its personal capacity), its related parties and/or Westpac Banking Corporation. 3. The Court consents and assents to the Prospective Successor Trustees (as trustees or in their personal capacities), their related parties and/or Westpac Banking Corporation offering Transaction Costs Payments to the plaintiff. 4. The Court consents and assents to the Selected Successor Trustee (as trustee or in its personal capacity), its related parties and/or Westpac Banking Corporation giving Transaction Costs Payments to the plaintiff or members of Retirement Wrap (or some of them). Special Costs and Losses Payment 5. The Court consents and assents to the plaintiff soliciting Special Costs and Losses Payments from the Prospective Successor Trustees (as trustees or in their personal capacities), their related parties and/or Westpac Banking Corporation. 6. The Court consents and assents to the plaintiff receiving Special Costs and Losses Payments from the Selected Successor Trustee (as trustee or in its personal capacity), its related parties and/or Westpac Banking Corporation. 7. The Court consents and assents to the Prospective Successor Trustees (as trustees or in their personal capacities), their related parties and/or Westpac Banking Corporation offering Special Costs and Losses Payments to the plaintiff. 8. The Court consents and assents to the Selected Successor Trustee (as trustee or in its personal capacity), its related parties and/or Westpac Banking Corporation giving Special Costs and Losses Payments to the plaintiff or members of Retirement Wrap (or some of them). Transaction Documents 9. The Court consents and assents to the plaintiff soliciting the promises (or any of them) set out in Transaction Documents from the Prospective Successor Trustees (as trustees or in their personal capacities), their related parties and/or Westpac Banking Corporation. 10. The Court consents and assents to the plaintiff receiving and enforcing the promises (or any of them) set out in the Transaction Documents from the Selected Successor Trustee (as trustee or in its personal capacity), its related parties and/or Westpac Banking Corporation. 11. The Court consents and assents to the Prospective Successor Trustees (as trustees or in their personal capacities), their related parties and/or Westpac Banking Corporation offering the promises (or any of them) set out in the Transaction Documents to the plaintiff. 12. The Court consents and assents to the Selected Successor Trustee (as trustee or in its personal capacity), its related parties and/or Westpac Banking Corporation giving and performing the promises (or any of them) set out in the Transaction Documents to the plaintiff. Amendments 07 April 2022 - Annexure A now hyperlinked DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 April 2022