Citation: LGSS v Egan [2002] NSWSC 1171
Court: Supreme Court of New South Wales (Equity Division)
Date: 4 December 2002
Judge(s): Austin J
Background
The plaintiff was the trustee of the Local Government Superannuation Scheme, a defined benefit superannuation scheme covering employees in the NSW local government sector. The defendant was the NSW Treasurer, who held a statutory power under the Scheme's governing deed to consent to, and agree on the purposes of, any application of surplus assets held in the Scheme.
A substantial surplus had accumulated in the Scheme, largely originating from older public sector superannuation funds that had been transferred when the Scheme was established in 1997. The trustee proposed applying part of that surplus for the benefit of employee members. The Treasurer refused to give his consent, citing concerns about the public interest and the precedent it would set for other State superannuation schemes.
The trustee commenced proceedings seeking declarations that the Treasurer's consent power was invalid under federal superannuation law, or alternatively that the Treasurer had exercised it unlawfully. The central question was whether the trustee was free to apply the surplus without the Treasurer's approval.
Legal Issues
- Whether clause 8.2 of the Scheme deed, requiring the Treasurer's consent before the trustee could apply surplus assets, amounted to an impermissible "direction" to the trustee inconsistent with section 58(3) of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act)
- Whether the clause conferred on the Treasurer a "discretion" that was inconsistent with section 59(2) of the SIS Act
- Whether the clause was invalidated by section 127(5) of the Superannuation Administration Act 1996 (NSW) as a consequence of any inconsistency with the SIS Act
- Whether the Treasurer owed fiduciary duties to the members of the Scheme
- Whether the Treasurer's refusal to consent was unreasonable, made on irrelevant grounds, exercised by inflexible policy, or made in breach of fiduciary duty
Decision
On inconsistency with the SIS Act: Austin J found no inconsistency between clause 8.2 and either section 58 or section 59 of the SIS Act. The clause did not constitute a direction to the trustee in the sense prohibited by section 58(3), nor did it confer a discretion on a non-trustee that fell within the prohibition in section 59(2). The statutory construction question was resolved against the trustee.
On fiduciary duties: The court held that the Treasurer did not owe fiduciary duties to the members of the Scheme. The Treasurer's role under the deed and the SAA was to act in the public interest, not in the exclusive interest of scheme beneficiaries. The nature of that role, and the legislative context in which the consent power was granted, were inconsistent with the imposition of fiduciary obligations.
On the exercise of the Treasurer's power: Austin J rejected the argument that the Treasurer's refusal was legally flawed. The Treasurer was entitled to take into account the general public interest, including the implications of the proposed application for other State superannuation schemes. His Honour found the Treasurer's view that the surplus was wholly attributable to employer contributions was not unreasonable or implausible, even if the trustee's actuary held a different opinion.
Overall: All of the plaintiff's claims failed. The amended summons was dismissed, and Austin J indicated a preliminary view that costs should follow the event, with the parties given an opportunity to make submissions on that question.
Orders Made
- Amended summons dismissed
- Parties given the opportunity to make submissions on costs (no final costs order recorded in the provided text)
Key Takeaways
- A deed provision requiring a Minister's consent before a superannuation trustee applies surplus assets does not automatically constitute a prohibited "direction" to the trustee under section 58(3) of the SIS Act. Whether it does depends on careful statutory construction.
- Under section 59(2) of the SIS Act, not every power held by a non-trustee over a fund will constitute an impermissible discretion. The precise nature and scope of the power in question matters.
- Where a Minister holds a consent power over a superannuation fund in the public interest, rather than as a representative of beneficiaries, fiduciary duties to scheme members will not ordinarily attach to the exercise of that power.
- The Supreme Court confirmed that a Minister acting under such a power may properly consider the general public interest, including policy implications for other State schemes, without that consideration rendering the decision legally unreasonable.
- The historical context of surplus assets can be relevant. Austin J noted that it was consistent with the legislative arrangements for the State to retain oversight through a consent mechanism when large surpluses were transferred from Crown-controlled trustees to a private corporate trustee.
Legislation and Cases Referenced
Legislation:
- Superannuation Administration Act 1996 (NSW), ss 7, 48, 127
- Superannuation Industry (Supervision) Act 1993 (Cth), ss 3, 7, 10, 19, 52, 58, 59
Cases:
- Attorney-General v Breckler (1999) 197 CLR 83
- Breen v Williams (1996) 186 CLR 71
- Cowan v Scargill [1985] 1 Ch 270
- Imperial Group Pension Fund Ltd v Imperial Tobacco Ltd [1991] 1 WLR 589
- Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587
- Re Courage Group's Pension Schemes [1987] 1 WLR 495
- Seafarers' Retirement Fund Pty Ltd v Oppenhuis (1999) 94 FCR 594
- Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd (1998) 79 FCR 469
- Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165
- Minister for Aboriginal Affairs v Peko Wallsend Ltd (1986) 162 CLR 254
- Lutheran Church of Australia v Farmers' Co-operative Executors & Trustees Ltd (1970) 121 CLR 628
- Swan Hill Corporation v Bradbury (1937) 56 CLR 746
- Lock v Westpac Banking Corporation (1991) 25 NSWLR 593
- Karger v Paul [1984] VR 161