The Federal Court of Australia recently reviewed a decision of the Superannuation Complaints Tribunal (Tribunal) concerning a trustee’s decision-making process when deciding whom to distribute a death benefit to. The case is important as it looks at the process that the Tribunal (and now, of course, the Australian Financial Complaints Authority) should follow when considering the fairness and reasonableness of a trustee’s decision. The Court also considered some of the issues that can arise in a disputed death benefit distribution – including when a deceased member’s will governs the distribution and when expectations of future financial support are relevant considerations.
Background
The case is known as Bullivant v Australian Meat Industry Superannuation Pty Ltd and the fund in question was the Australian Meat Industry Superannuation Trust (fund).
The deceased became a member of the fund in 2005. At the time of joining, he named his three children as his preferred beneficiaries with his two sons to receive 33 per cent each and his daughter 34 per cent of the death benefit. This nomination was made prior to the commencement of the deceased’s relationship with Ms Bullivant in 2007. Although not legally married to Bullivant, the deceased and Bullivant had lived together in a bona fide relationship as a couple.
A few months before his death, the member made a will by which he left specific lump sum amounts to each of his three children, Bullivant and his ex-wife. He then left the residue of his estate to be shared equally between Bullivant and his three children.
The trustee initially decided to pay the death benefit to Bullivant as she was in a spousal relationship with the deceased at the time of his death. This decision was objected to by the deceased’s children and his legal personal representative on the basis that the deceased made loans to Bullivant (for approximately $200,000) which were not repaid and which the deceased forgave prior to his death. As such, they argued that payment of the benefit to Bullivant would result in a disproportionate distribution of the deceased’s assets to her.
The trustee considered these arguments but didn’t give Bullivant an opportunity to put her side of the story before it made a new decision. The trustee reversed its earlier decision and determined to pay the benefit to the deceased’s estate to be distributed in accordance with the will on the grounds that would provide for a fairer and more equitable distribution (as compared to its initial decision to pay the entire death benefit to Bullivant).
The trustee’s decision to pay the death benefit to the deceased’s estate was brought before the Tribunal D17-18211 by Bullivant on the basis that the trustee’s decision when made was based on a factual error, being that Bullivant had in fact repaid the loans prior to the deceased’s death. As such, Bullivant argued that the trustee’s initial decision should stand.
The Tribunal, in considering whether the trustee’s decision invoked its jurisdiction, drew a distinction between the fairness and reasonableness of the process followed by the trustee in making the decision and the decision that was actually made. In doing so, the Tribunal considered that the trustee’s ultimate decision was fair and reasonable in all the circumstances, because neither Bullivant nor the deceased’s children were financially dependent on the deceased and the deceased’s will was a strong indication of the deceased’s wishes, given that it was completed in anticipation of his death.
However, irrespective of the fact that ultimately, the trustee’s decision was fair and reasonable, because of the trustee’s failure to follow a fair and reasonable decision making process, the Tribunal considered that its jurisdiction under section 37(4) of the Superannuation (Resolution of Complaints) Act 1993 (Complaints Act) had been invoked. The Tribunal considered that it was required to set aside the trustee’s decision, and make a decision that would place Bullivant as nearly as practicable, in the position that she would have been in but for the unfairness and unreasonableness of the trustee. It was irrelevant that the decision would result in the same outcome.
The dispute before the Federal Court
The Tribunal’s decision was brought before the Federal Court by Bullivant on the basis that the Tribunal had made errors of law, particularly with respect to misconstruing its jurisdiction. This resulted in the Federal Court considering three questions of law, namely:
- whether the Tribunal ought to have set aside the trustee’s decision on the basis of procedural unfairness when the Tribunal found the decision itself to be fair and reasonable in the circumstances;
- whether the spouse had an expectation of future financial support from the deceased (having regard to whether Bullivant and the deceased had a relationship as a couple and/or with reference to the meaning of an ‘interdependency relationship’ given in s 10 of the Superannuation Industry (Supervision) Act 1993)); and
- whether, in applying the criteria of fairness and reasonableness under s 37(6) of the Complaints Act, the Tribunal should have considered the deceased’s will and whether the spouse had repaid outstanding debts she owed to the deceased.
The Federal Court’s decision
The Federal Court found that the Tribunal had misunderstood the statutory concept of “fairness and reasonable in the circumstances” by looking only at the procedural unfairness in isolation, rather than looking to see whether that procedural unfairness resulted in the decision itself not being fair and reasonable. The Court held that a determination as to whether a decision is fair and reasonable should be based on the actual decision and not the process which led to the decision. Since the Tribunal had failed to ask itself the right question, the Court concluded that the Tribunal had made an error of law and its decision should be set aside.
Further, the Court found that the Tribunal is required to inform its decision having reference to the facts and circumstances of the matter. As such, the Tribunal could not set aside a trustee’s decision unless it found that the decision was not fair and reasonable, having regard to the facts and circumstances. In this regard, the Federal Court found that each of the following matters were relevant considerations that should have been taken into account:
- expectations of future financial support, which cannot be ruled out by a lack of direct evidence that a spouse had such an expectation, as doing so would conceptualise the concept of future financial support overly narrowly;
- the deceased’s will, although noting that the terms of the will should not be of themselves determinative; and
- the practical operation of the decision, which could not be determined without making a finding on the issue of whether or not Bullivant still owed the debt to the deceased at the time of his death.
On this basis, Justice Robertson allowed the appeal and set aside the determination of the Tribunal, remitting the matter back to the Tribunal to be determined again in accordance with the law.
Implications
The case has reaffirmed the principle originally set down by the Board of Superannuation Trustees of the State Public Sector Superannuation Scheme v Edington (Federal Court of Australia – Full Court). That is when a Court or Tribunal considers the concept of “fairness and reasonableness”, it must have regard to the practical application of the decision as a pre-condition to the exercise of its power to set aside a decision. Such powers cannot be exercised on the basis that the process followed in making the decision alone was unfair and unreasonable, in circumstances where the decision itself cannot be said to have been unfair and unreasonable. Further, in making conclusions as to whether a decision was unfair and unreasonable, a Court or Tribunal cannot draw these conclusions without maki
ng a finding in relation to key factual questions. With respect to the payment of a death benefit, such questions would involve, amongst other things, expectations of future financial support and the deceased’s will.
