Re Retail Employees Superannuation Pty Ltd [2013] NSWSC 1681

Supreme Court New South Wales

Medium Neutral Citation: Re Retail Employees Superannuation Pty Ltd [2013] NSWSC 1681 Hearing dates: 13 November 2013 Decision date: 14 November 2013 Jurisdiction: Equity Division Before: Darke J Decision: (1) Pursuant to s 63 of the Trustee Act 1925 the Court advises that the plaintiff would be justified in amending the trust deed of the Retail Employees Superannuation Trust in the manner set out in the Draft Deed of Amendment which is contained behind tab 44 of Confidential Exhibit A (being Exhibit RJ-1 to the affidavit of Rohan Kenneth Stretton Jeffs sworn 12 November 2013). (2) Order that the plaintiff's costs of the proceedings be paid out of the trust fund of the Trust on the trustee basis. Catchwords: EQUITY - trusts and trustees - applications to the court for advice - large superannuation fund - trustee and directors of trustee acting gratuitously - burdensome obligations of management - whether trustee justified in effecting amendment to trust deed to facilitate payment of remuneration - advice given that trustee would be so justified. Legislation Cited: Superannuation Industry (Supervision) Act 1993 (Cth) Trustee Act 1925 Cases Cited: Cuesuper Pty Ltd [2009] NSWSC 981 Category: Principal judgment Parties: Retail Employees Superannuation Pty Ltd Representation: Counsel: HK Insall SC Solicitors: King & Wood Mallesons File Number(s): SC: 2013/343293 Publication restriction: Nil

Judgment 1By a Summons filed on 13 November 2013 the plaintiff, which is the trustee of Retail Employees Superannuation Trust ("the Trust"), seeks orders pursuant to the Trustee Act 1925 ("the Act") so as to facilitate the payment of remuneration to it and its directors for carrying out duties in relation to the Trust. The plaintiff primarily seeks the advice of the Court pursuant to s 63 of the Act, and in the alternative, seeks an order pursuant to s 81 of the Act. 2The Summons was heard yesterday in the Duty Judge List. There is some urgency in the matter arising from the fact that the plaintiff has experienced, and is likely to continue to experience, difficulties in recruiting suitable board members who are prepared to serve without remuneration. Mr HK Insall of senior counsel, who appeared for the plaintiff, read two affidavits sworn by Mr Rohan Jeffs on 12 November 2013, and an affidavit sworn by Mr Noel Davis on 12 November 2013. An exhibit to one of Mr Jeffs' affidavits was tendered and became Confidential Exhibit A. 3The evidence discloses that the essential basis for the application is as follows: (a)There is no power under the trust deed for the trustee to receive remuneration out of the trust fund; (b)The trustee is not presently paid any remuneration in relation to the administration of the Trust; (c)The trustee does not pay any remuneration to its directors; (d)The obligations of the trustee have increased very significantly since the Trust was established in 1987, and this has imposed significant additional obligations on the directors of the trustee; (e)The Trust has grown very significantly in size and membership since its establishment such that it now has over 1.9 million members and $29 billion in funds invested; (f)Accordingly, the trustee, through its directors, expends significant time and effort in performing duties in overseeing the control and management of the Trust; (g)The trustee is concerned, and recent experience in seeking to appoint a new director to the trustee suggests, that due to the significant time which directors need to devote to the performance of their obligations it is likely that, unless remuneration is provided, it will become increasingly difficult to attract persons of suitable background and experience to act as directors of the trustee; and (h)The proposed amendment to the trust deed contemplates that the levels of remuneration would be consistent with the remuneration paid to trustees of funds of a comparable size and complexity. 4The Trust is a "regulated superannuation fund" within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cth). The management and administration of the Trust is carried out by the trustee through its directors, or by delegates and agents supervised by the trustee through its directors. The roles performed by, and the attendant responsibilities of, the directors are plainly considerable and call for high level of diligence and expertise. In addition to the board itself (which consists of eight directors and six alternate directors) there has been a delegation of powers and authorities to eleven committees including an Audit, Risk and Compliance Committee, an Insurance Committee, an Investment Committee, a Tax Planning Committee, and a Strategy Review Committee. These committees are themselves comprised of directors of the trustee. 5As a "regulated superannuation fund" the Trust is subject to a comprehensive regulatory environment which is overseen by the Australian Prudential Regulation Authority ("APRA"). 6The trust deed contains no provision which entitles the trustee to remuneration (other than for fees in relation to processing Family Court orders and family law agreements, or for providing information on request to members). However, clause 5.2(c) of the trust deed contemplates that the trustee may use the trust funds to pay the expenses of performing its duties under the trust deed including "remuneration payable by the Trustee in respect of its directors and officers". 7The trustee has not, to date, paid any remuneration to its directors. The trustee wishes to avoid any suggestion of acting in a position of conflict (between duties owed by the directors and the personal interests of the directors), and therefore considers it appropriate to seek the direction of the Court in relation to the issue of paying remuneration to the directors. 8In this regard, the trustee considers that as a matter of good order the appropriate means of paying remuneration to the directors would be for the trustee itself to be paid a fee for acting as trustee, and for the trustee to be empowered to apply some or all of that fee towards the payment of remuneration to its directors. 9The trustee proposes that an amendment to the trust deed be effected pursuant to the provisions of clause 19 of the trust deed which would provide for the payment of such a fee to the trustee and permit some or all of such fee to be applied towards the remuneration of directors. 10I agree with the submission made by Mr Insall that, in view of the power of amendment contained within clause 19 of the trust deed, the present situation is not one where there is a lack of power, in which case the provisions s 81(1) of the Act may be engaged. In particular, I do not think that the proposed amendments to the trust deed would fall within the prohibition, contained in clause 19.4 of the trust deed, against amendments which have a particular effect. Rather, the present situation, which raises questions respecting the management or administration of trust property, falls squarely within the ambit of s 63(1) of the Act. 11The proposed Deed of Amendment (which is contained behind tab 44 of Confidential Exhibit A) would, if made, amend the trust deed by adding a new clause 24B in the following terms: 24B.1 The Trustee is entitled to be paid a fee for acting as trustee of the Plan ("Trustee Fee") and the Trustee may deduct that fee from the Plan at such times and in such manner as it determines. The amount of the fee must be an amount which the Trustee determines is fair and reasonable. 24B.2 The Trustee may apply some or all of the Trustee Fee to provide remuneration to the directors of the Trustee in respect of the performance of their obligations as directors of the Trustee or as members of committees of the Board of the Trustee. 24B.3 Subject to the Applicable Requirements, the Trustee and directors may determine the amount of the Trustee Fee notwithstanding that they have an interest in the result of that determination. 12The proposed Deed of Amendment would also insert a new clause 2.7 into the trust deed so as to permit, in addition to Employer Directors and Member Directors, independent directors (as that term is defined in the Superannuation Industry (Supervision) Act) to be appointed to the board of the trustee, provided that such independent directors may not exercise any casting vote. Some other amendments of an apparently minor nature are also proposed. Mr Insall did not suggest that they were material, and they can be put to one side. 13The trustee has sent letters to APRA and each of the trustee's sponsoring organisations (being organisations that hold a share in the trustee and have nominated a director to the board of trustee) providing details of the proposed amendment and proposed application to the Court, and asking whether there is any objection. I do not see any need for wider notification of the proceedings to be given. 14APRA has stated that it has no objection in principle to the proposed application. APRA further referred to its relevant Prudential Standard which concerns the requirements which relate to remuneration. Four of the sponsoring organisations indicated that they did not have any objection to either the introduction of the Trustee Fee or to the application to the Court. One of the sponsoring organisations notified an objection to the proposed introduction of the Trustee Fee on the basis that it would result in a reduction of the amount that goes to members of the fund. The belief was expressed that "for industry super funds, directors of a Trustee should continue to provide their services on a gratuitous basis". The trustee then asked whether that organisation wished to be joined as a defendant to the proceedings, but the organisation stated that it was content to have made its point as contained in its response which I have referred to above. 15In my view, having considered the evidence adduced by the trustee, including evidence to the effect that it is now generally accepted in the superannuation industry that directors of substantial superannuation trustees are entitled to be remunerated for their services, it would be appropriate for the directors of the trustee, which is the trustee of an extremely large trust fund, to themselves be remunerated. The obligations which are cast upon such directors are significant, and even burdensome, and it is reasonable to expect that directors of the requisite quality will require remuneration. Moreover, that the proposed mechanism for the payment of such remuneration, namely, payment out of a Trustee Fee which is in the first instance paid to the Trustee and which must be determined to be fair and reasonable, appears to me to be appropriate. 16In circumstances where the exercise by the trustee of its power of amendment pursuant to clause 19 of the trust deed could give rise to questions of conflict between duties and personal interests, it is also sensible for the trustee to seek the direction of the Court pursuant to s 63 of the Act. The situation is in many respects similar to that which was dealt with by Palmer J in Cuesuper Pty Ltd [2009] NSWSC 981 (see at [12] - [14] and [21] - [22]). 17For these reasons, the Court will advise the plaintiff, pursuant to s 63 of the Act, that the plaintiff would be justified in amending the trust deed of the Retail Employees Superannuation Trust in the manner set out in the Draft Deed of Amendment which is contained behind tab 44 of Confidential Exhibit A (being Exhibit RJ-1 to the affidavit of Rohan Kenneth Stretton Jeffs sworn 12 November 2013). 18I further order that the plaintiff's costs of these proceedings be paid out of the trust fund of the Trust on the trustee basis. 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: 14 November 2013