Supreme Court New South Wales Medium Neutral Citation: KCA Super Pty Limited as Trustee of the Superannuation Fund Known as 'KCA Super' [2011] NSWSC 1204 Hearing dates: Monday, 26 September 2011 Decision date: 26 September 2011 Jurisdiction: Equity Division - Duty List Before: Brereton J Decision: By order, pursuant to (NSW) Trustee Act (1923), s 63, I advise that the plaintiff would be justified in communicating with members of the Defined Benefit Division of KCA Super to following effect: (a) The Trustee has been advised by the Fund Actuary that it is unable to express an opinion upon the offer contained in the Offer Documents, including amounts proposed to be credited to the Accumulation Account of a Defined Benefit Member transferring to the Accumulation Division, until the Fund Actuary receives the actuarial model used by the Company to calculate the transfer values. The Fund Actuary, on behalf of the Trustee, has requested this actuarial model but, at this time, the Trustee has not received this model. Accordingly, the Trustee is not presently in a position to form an opinion as to whether it will, or is likely to, give consent to any determination that may be made by the Company. (b) You should be aware that matters discussed between the Company and Trustee prior to 16 September 2011 concerned, among other things, the amount to be credited to the Accumulation Account of a Defined Benefit Member reclassified as an Accumulation Division member. The Trustee considered that the amounts proposed by the Company during those discussions were inadequate. Such discussions are referred to at page 21 of the Offer Document ('Changes to your super') wherein reference is made to 'extensive discussions with the Trustee... concerning the closure of the Defined Benefit Division' and that '[w]hilst those discussions were held in good faith, terms could not be agreed. (c) You should be aware that: (i) The Trustee understands that the uplift is supposed to compensate you for the investment risk, expenses, costs and potential personal tax liability that a member will incur by transferring from the Defined Benefits Division to the Accumulation Division; and (ii) On reaching the age 55, a Defined Benefit Member accrues superannuation at the rate of 17.5% multiplied by years of membership of KCA Super multiplied by their Final Average Earnings compared to a member of the Accumulation Division for whom the Company will make superannuation contributions of 10% of their Accumulation Super Earnings. (d) You should be aware that there is considerable doubt as to the validity of that term of the offer that provides for you to be deemed to have consented to a variation of your employment contract resulting in a salary freeze if you do not accept the offer. The trustee is seeking further advice and considering further action in this and other respects. (e) While you must bear in mind that at present the offer expires on 14 October 2011, you may wish to consider deferring your decision whether or not to accept it until these matters have been clarified or until you have heard further from us in the meantime. Catchwords: TRUSTS - Trustees - Application for judicial advice - trustee of superannuation fund seeks judicial advice as to whether it can communicate with members of fund, whether it should accept an offer from company employing employees who are members of fund and whether it should commence proceedings against company - trustee justified in communicating with members as to proposed transaction - trustee should also communicate that proposed unilateral variation of contracts of employment of dubious validity. Legislation Cited: (NSW) Trustee Act 1923, s 63 Category: Principal judgment Parties: KCA Super Pty Limited as Trustee of the Superannuation Fund Known as 'KCA Super' (applicant) Kimberley-Clark Australia Pty Ltd (interested party) Representation: Counsel: Mr Fernon SC (applicant) Mr Gleeson SC w Mr Izzo (interested party) Solicitors: Freehills (applicant) Herbert Geer (interested party) File Number(s): 2011/305970 Judgment (ex tempore) 1HIS HONOUR: On 22 September 2011 the plaintiff KCA Super Pty Limited, the trustee of a superannuation fund called KCA Super, filed a summons seeking judicial advice pursuant to (NSW) Trustee Act 1923, s63, as to whether the plaintiff was justified in making an application for orders against Kimberly Clark Pty Ltd ('the Company'), being the employer company in respect of the superannuation trust, and giving the usual undertaking as to damages on an application for interlocutory relief in such proceedings. The summons returns before the court today, when the plaintiff seeks leave to file an amended summons seeking judicial advice as to whether it would be justified in communicating, with certain members of the fund in terms set out in the summons, further advice in respect of an offer made by the Company to those members on 16 September 2011 and, finally, whether it would be justified in commencing proceedings against the Company. 2Today, as I understand it, I am asked to deal only with the claim in paragraph 1 of the summons. In any event, in the absence of counsel's advice - which the court would normally expect to be tendered in an application of this type, particularly one involving the complexities of some of the issues arising in this case - the court would not be in a position to address the claims raised in paragraphs two and three. In particular, it seems to me doubtful whether the claims in 2(a) and 2(b) are suitable for resolution by way of judicial advice: they seem to involve rights and interests of the Company as well as the trustee, and should be resolved in inter partes litigation. In addition, they seek to lay the groundwork for the proceedings contemplated in paragraph 2(e), and it would be inappropriate to adopt a course of proffering advice in that respect. Further, they are framed as advices on questions of law, rather than advices as to whether the trustee would be justified in adopting a particular course of action. 3The superannuation fund in question has two main categories of membership: members who are designated as accumulation members and to which the Accumulation Division applies (of which there are approximately 816), and members designated as defined benefit members to which the Defined Benefits Division applies (of which there are approximately 175 members). The Defined Benefits Division was closed to new members in 1999. 4Clause 18 of the Trust Deed provides as follows: CLASSIFICATION OF MEMBERS The Members will be divided into categories. The number and designation of categories and the conditions for entry to and exit from a particular category shall be as determined by the Company, and at any particular time a Member shall be classified into the category of Members determined by the Company. 5Clause 47 of the Trust Deed provides as follows: If a Member is reclassified to another category of membership pursuant to Clause 18 then, subject to the Statutory Requirements and with the consent of the Trustee, the Company shall: (1) determine the extent to which (if at all) and the basis upon which the Member's Benefit in any existing category of membership is to continue; and (2) in lieu of providing all or part of the Member's existing Benefit: (a) in the case of a Member who is reclassified as an Accumulation Member - (i) determine the amount (if any) to the credit to the Member's Accumulation Account; and (ii) determine the period (if any) of deemed membership of this Fund for the purposes of calculating Benefits hereunder subject to such conditions as the Company may impose. 6"Defined Benefit Member" is defined in clause 3(1) of the Trust Deed as follows: ... an Employee who is a Defined Benefit Member and who has become and is for the time being a contributor to the Defined Benefit Division of the Fund. A Contributing Member can also be an Award Member. 7In late 2010, the Company developed a proposal to close the Defined Benefit Division. Since then, negotiations have proceeded between the Company and the trustee with a view to reaching agreement upon the terms of an offer to be made by the company to members of the Defined Benefits Division. Ultimately, in September 2011, it became clear that such agreement could not be reached, and, on 16 September 2011, the company sent to DBD members a letter enclosing a document entitled "Changes to your Super", a statement of advice and a transfer offer form. 8This was a unilateral offer that did not enjoy the support or concurrence of the trustee. The Company's position, as I understand it, is that it is an offer by it to Defined Benefit Members and does not, at this stage, require any consent or concurrence on the part of the trustee, although when it comes to transferring their benefits from the Defined Benefit Division to the Accumulation Division for the purposes of clause 47, the consent of the trustee would then be required. As I understand it, the trustee and the Company agree that - absent consent of the trustee, and notwithstanding acceptance of the offer by a member - a member will retain his or her existing benefit entitlement in the Defined Benefits Division. 9In summary, the offer provides to Defined Benefit Division members two options, in the alternative. The first is to change to accumulation style superannuation with effect from 1 December 2011: And receive an immediate uplift to your current super entitlement. Under the terms of the offer, your Defined Benefits Super, together with the additional uplift amount, will be transferred to the Accumulation Division KCA super. 10The alternative is to: Remain in the Defined Benefit Division and your salary will be frozen. Under the terms of the offer, if you choose to remain with Defined Benefits Super, or don't respond you will be deemed to have consented to a variation in your employment contract from 15 October 2011 to the effect that any eligibility you may otherwise have had or become due for in future for a salary review is removed from your contract of employment other than increases required to comply with any minimum wage required under relevant awards, industrial agreements or legislation. Eligible employees will still receive bonuses to which they become entitled, subject to applicable company policies as vary from time to time. 11While this is explained in a little more detail in the "Detail of the Offer", that sufficiently summarises it for present purposes. 12I am fully conscious that I have not at this stage heard full argument or even seen all the relevant evidence on this question. It is conceivable that, if there is only a general entitlement to be considered for a review on a periodic bases, and no absolute entitlement to an increase in salary, the alternative offer may be able to be justified on the bases that it is no more than a statement that the Company, to the extent that it has any discretion in the matter, will not grant salary increases to those who remain in the Defined Benefit Division, although even then, questions would arise as to whether the Company would thereby inappropriately be fettering its discretion for the future. 13But at first sight that is not how it is expressed; the offer is not expressed as the Company simply stating what it may do in the future, but as a (deemed) consent to a variation in the employment contract. As presently advised, it seems to me very difficult to see how there could be any such contractual consent founded in a party not accepting an enticement offered by the employer to change to accumulation style superannuation. It seems to me very doubtful that that provision of the offer could be valid. That is important, because it has the appearance of serving as a deterrent to remaining in the Defined Benefit Division, and an incentive to accept the offer and change to the Accumulation Division. 14At this stage, the trustee seeks advice to the effect that it would be justified in communicating with members of the Defined Benefit Division in certain terms set out in paragraph one of the summons. The first matter that the trustee wishes to communicate is to the effect that, not having received the actuarial model used by the company to calculate the transfer values, it is not in a position at present to form an opinion as to whether it will, or is likely, to consent to any determination that the company may make for the purposes of clause 47. 15The second matter upon which it wishes to communicate advice is, in effect, to clarify or explain a reference in the offer documentation which refers at page 21 to the company having had extensive discussions with the trustee during the first half of 2011 and that "While those discussions were held in good faith, terms could not be agreed". The trustee wishes to explain that a fundamental matter of disagreement was whether the uplift amounts proposed by the Company during those discussions were adequate to compensate members for the consequences of transfer to the Defined Benefits Division. 16The further matter on which the trustee seeks to communicate is to give the members some idea of the bases of calculation of their benefits as a Defined Benefit Member so as to permit some comparison to be made between those entitlements and the "uplift" proposed in the offer, and thereby inform a judgment on the part of the member. 17Although it may be questioned whether, at least under the documentation that governs this superannuation scheme, the trustee has a role in communication with members, it has in their interests communicated with them to this point, and the company has no objection to its continuing to do so. In those circumstances, I think it would be justified in communicating with members substantially in the form proposed, although I will substitute the word "supposed" for the word "designed" in paragraph (c)(i) of the summons. 18In addition it seems to me that members should also be informed that the validity of the term to which I have referred is at least doubtful, and that the trustee is seeking further advice and considering further action in that respect. 19By order, pursuant to (NSW) Trustee Act (1923), s 63, I advise that the plaintiff would be justified in communicating with members of the Defined Benefit Division of KCA Super to following effect: (a) The Trustee has been advised by the Fund Actuary that it is unable to express an opinion upon the offer contained in the Offer Documents, including amounts proposed to be credited to the Accumulation Account of a Defined Benefit Member transferring to the Accumulation Division, until the Fund Actuary receives the actuarial model used by the Company to calculate the transfer values. The Fund Actuary, on behalf of the Trustee, has requested this actuarial model but, at this time, the Trustee has not received this model. Accordingly, the Trustee is not presently in a position to form an opinion as to whether it will, or is likely to, give consent to any determination that may be made by the Company. (b) You should be aware that matters discussed between the Company and Trustee prior to 16 September 2011 concerned, among other things, the amount to be credited to the Accumulation Account of a Defined Benefit Member reclassified as an Accumulation Division member. The Trustee considered that the amounts proposed by the Company during those discussions were inadequate. Such discussions are referred to at page 21 of the Offer Document ('Changes to your super') wherein reference is made to 'extensive discussions with the Trustee... concerning the closure of the Defined Benefit Division' and that '[w]hilst those discussions were held in good faith, terms could not be agreed. (c) You should be aware that: (i) The Trustee understands that the uplift is supposed to compensate you for the investment risk, expenses, costs and potential personal tax liability that a member will incur by transferring from the Defined Benefits Division to the Accumulation Division; and (ii) On reaching the age 55, a Defined Benefit Member accrues superannuation at the rate of 17.5% multiplied by years of membership of KCA Super multiplied by their Final Average Earnings compared to a member of the Accumulation Division for whom the Company will make superannuation contributions of 10% of their Accumulation Super Earnings. (d) You should be aware that there is considerable doubt as to the validity of that term of the offer that provides for you to be deemed to have consented to a variation of your employment contract resulting in a salary freeze if you do not accept the offer. The trustee is seeking further advice and considering further action in this and other respects. (e) While you must bear in mind that at present the offer expires on 14 October 2011, you may wish to consider deferring your decision whether or not to accept it until these matters have been clarified or until you have heard further from us in the meantime. 20I adjourn the application to Tuesday 4 October 2011 before me in the Duty Judge list. 21I direct that any further evidence be served and lodged with my Associate by Friday 30 September 2011. ********** 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: 19 October 2011