Court considers nature of member’s interests in superannuation fund

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The Victorian Court of appeal in this case grappled with the nature of member’s interests in a superannuation fund prior to reaching retirement age.

This decision concerned an appeal from Shimshon v MLC Nominees Pty Ltd [2020] VSC 640 in which John Dixon J determined (in the context of a separate question application) that the proceeding had not been validly commenced as a group proceeding under Part 4A of the Supreme Court Act 1986 (Vic). In reaching this conclusion, his Honour found that the proceeding (which involves claims by beneficiaries for breach of superannuation trustee duties) fell within s 33B(2)(b)(ii) of the Act and were thus excluded from the operation of Part 4A as a proceeding “concerning property subject to a trust”.

While his Honour at first instance accepted the plaintiff’s submission that s 33B(2)(b)(ii) should be construed narrowly (in other words, the exception should capture only those proceedings that were about trust property rather than those which related to trust property), he nevertheless considered that the proceeding fell within the statutory carve out because:

(1) the claims made were, in his Honour’s view, claims to enforce causes of action to restore trust property diminished through breaches of duty by the trustee; and

(2) the claims were not about individual entitlements because such entitlements did not exist until the occurrence of a future event (for example, reaching retirement age) – before this time, beneficiaries had only a “contingent” interest in the trust property and were therefore unable to suffer loss and damage in respect of that interest.

Grounds of Appeal

On appeal, the plaintiff did not challenge the way in which the primary judge had construed s 33B(2)(b)(ii) but instead questioned his Honour’s application of the section to the facts of the proceeding. In particular, the plaintiff sought leave to appeal the primary judge’s finding that members of the relevant fund had not suffered loss or damage, either at general law or pursuant to s 55(3) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) (which provides a statutory remedy in relation to breaches of trustee covenants).

The defendants also filed a notice of contention claiming that while the primary judge’s decision should be upheld, his Honour had erred in adopting a narrow construction of s 33B(2)(b)(ii).

Construction of Section 33B(2)(b)(ii)

In the context of assessing the history of s 33B(2)(b)(ii), the Court acknowledged the unique peculiarity of the carve out (having no equivalent counterpart in other Australian jurisdictions), noting that a “striking feature of [the section] is that no one appears to have been able to clearly identify the rationale for the exclusion” (Whelan JA at [169]-[171]).

Despite these difficulties, the Court unanimously concluded that the primary judge had been correct to adopt a narrow construction of s 33B(2)(b)(ii), namely, that a proceeding will ‘concern’ property subject to a trust where the proceeding is about trust property rather than being simply related to trust property (Whelan JA at [176]). To adopt a broad application of the statutory carve out would “potentially undermine the primary object of Part 4A … by excluding grouped claims which appear to be otherwise perfectly appropriate to be regulated by the part” (Whelan JA at [181]).

Was the proceeding “concerning” property subject to a trust?

In considering whether the proceeding fell within the narrow construction discussed above, the Court emphasised that the primary judge had erred in his focus on the remedy sought in the proceeding (which included restoration of trust property), rather than a consideration of the precise nature of the proceeding. As Sifris and Walker JJA observed at [11]:

Further, it is important to observe at the outset that the question for the judge was not whether the applicant’s pleaded claim would succeed. That is a question for trial… In our view, the judge erred in embarking upon a consideration of the merits of the claims made by the applicant. The separate question was directed to the nature of the proceeding. That required attention to the matters pleaded in the amended statement of claim and an assessment of whether the claim, as pleaded, was a proceeding of the relevant kind. It was not appropriate for the judge to determine whether the applicant had a sufficient interest to bring the claim, or the remedy that might be granted if the claim succeeded, in order to determine the character of the proceeding.

The fact that the plaintiff sought relief at general law which included restoration of trust property did not, in the Court’s view, “convert” the proceeding into a proceeding which concerned property subject to a trust (at [12], [203]). No different conclusion was said to apply to proceedings which involved remedies sought under the SIS Act (at [208]).

The Nature of a Beneficiary’s Interest in a Superannuation Fund

As noted above, in concluding that the proceeding fell within the statutory carve out of s 33B(2)(b)(ii), the primary judge held that the plaintiff and other beneficiaries held merely ‘contingent’ interests in the superannuation fund prior to the occurrence of a future event that would entitle them to access their superannuation balance. Prior to this time, his Honour concluded, it was the trustee and not the beneficiary who suffered loss and damage in respect of those interests (see [2020] VSC 640 at [169]).

While the Court of Appeal held that they did not strictly need to consider this issue (having already concluded that the primary judge had erred in his determination of the separate question), their Honours nevertheless made a number of important findings in respect of the nature of beneficiaries’ interests prior to being eligible to access their superannuation funds.

In rejecting the primary judge’s characterisation of a member’s interest as ‘contingent’, Sifris and Walker JJA noted that (at [39]):

… [a superannuation interest] is more than a ‘mere expectancy’ or a ‘legitimate expectation’. It is an equitable proprietary interest in the fund, although there is no immediate right to payment. Prior to payment, the member has a right to preserve that interest and ensure that it is adequately reflected in the records of the fund and in particular the members account.

Further, the Court unanimously agreed that a superannuation interest was properly characterised as ‘prospective’ rather than ‘contingent’ (at [17] and [253], [263]).

The Nature of Relief under Section 55(3) of the SIS Act

Again, while the Court did not consider it strictly necessary to do so, Sifris and Walker JJA held that s 55(3) of the SIS Act was sufficiently broad so as to allow a claim for diminution in a member’s individual account within the fund, irrespective of whether or not that member had a present entitlement to payment. In their Honours’ view, this approach was consistent with the purpose of the section, namely to provide superannuation members with a “meaningful remedy” where their interests are affected by a breach of a statutory covenant (see [64]-[67]). In a separate judgment Whelan JA concluded the issue of the construction of s 55(3) of the SIS Act was a matter that ought to be considered and determined after trial, following a detailed analysis of the relevant provisions of the trust deed and position of the individual claimants.

Shimshon v MLC Nominees Pty Ltd [2021] VSCA 363

Victorian Court of Appeal, Sifris, Walker and Whelan JJA,
20 December 2021

Appellant’s Solicitors: Maurice Blackburn;
Respondent’s Solicitors: Allens Linklaters;
Appellant’s Funder: N/A

Austlii Link: Available here

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