The fund permitted individual share trade investments. Due to a system error, fewer shares were able to be purchased on a particular day. Did this cause a loss?
Interestingly, it was the member’s son who identified the error and advised the trustee. He was also representing his mother in the Tribunal. There is a flavour in this decision that the son was making the actual investment decisions, but the Tribunal does not comment on this nor are we advised whether the son had a power of attorney for his mother. Clearly, it was the son interacting with the trustee not his mother.
The fund permitted share trades in stocks in the S&P/ASX 300 Index, Exchange Traded Funds and term deposits (Platform). This Platform was managed by [XXX] Australia Limited for the trustee and it permitted no more than 20 per cent of a member’s fund balance to be invested in any one company. On 30 October 2015, the son attempted to apply the 20per cent maximum limit in Dick Smith Holdings Limited shares but a Platform coding error exposed a fault that had existed since a system upgrade and he was unable to purchase the shares. In fact, the member was the first person, since the upgrade, to apply for shares utilising the full 20 per cent upper limit. The trustee fully accepted the error had occurred, but it disputed the quantum of the losses the son attributed to the error. The son argued that the decision to not compensate due to the trustee’s own error was not fair and reasonable.
The trustee indicated to the Tribunal that its assessment of any loss was based on a review of the share price of Dick Smith Holdings Limited over the period in question. Had the error not occurred, the Platform should have allowed approximately a further $9,000 of shares to have been purchased. These shares, however, fell dramatically in value in the ensuing months and the overall effect of not purchasing the shares (albeit by virtue of an error) was that the member was better off by approximately $4,000. The trustee also reviewed other share trades that may have been impacted by the error. This involved three other companies the member was invested in where share prices went up in one and down in two. Had the member purchased more shares in all three companies up to the maximum limit, an overall gain of approximately $2,900 would have followed. However, the trustee had no evidence of the member’s intention to purchase these shares. Only one additional transaction occurred after the trustee and son had discussed the fault in the Platform. In these circumstances, the trustee argued it was reasonable to expect the son would have contacted it if his mother wished to make larger trades in all three companies. This did not happen.
The Tribunal agreed with the Trustee’s logic making special mention that it was reasonable to expect the son to have contacted the trustee if further maximum share trades were intended because he had knowledge of the error in the Platform coding at the relevant time. The Tribunal concluded that the son’s contrary rationale was “predominately grounded in the wisdom provided by hindsight, rather than contemporaneous risk acceptance”. The trustee’s decision to not compromise the claim was fair and reasonable in the circumstances.
As is often the case when reviewing Tribunal decisions concerning total and permanent disablement (TPD) benefits, the ill-health facts are incredibly sad and humbling. Here the member was diagnosed with ‘metastatic thyroid cancer’, which required surgery. She was experiencing left sided hemiplegia (total paralysis of left arm and partial paralysis of left leg), plus significant visual loss and this all resulted in her lodging a claim with her fund. It was clear, on the medical evidence, that the member was unlikely because of ill-heath, to engage in gainful employment to which she was reasonably qualified by education, training or experience. While she had finished year 12, she had no subsequent training.
At the time her illness was first diagnosed, the member was working at a local high school 24 hours a week doing clerical work. On reviewing her claim, the trustee found that the last time the member had worked full-time was some 5 years earlier and, based on the fund rules, she only had insurance for 71 days after ceasing her full-time employment due to her account balance being less than $3,000.
However, the trustee had been deducting insurance premiums for the past 5 years, and during this time, the member’s statements (a total of 11) had shown she had an insured TPD benefit. As under the fund rules she should not have had insurance cover, the trustee refunded the deducted premiums to her account and closed her claim.
The product disclosure document that applied when the member joined the fund did not describe the $3,000 account balance rule as that had been introduced after she joined. Her total account balance was $2,137 and the insured amount in dispute was $64,500. Some years earlier, the member had transferred $22,000 to another fund but then she did not know about the minimum account balance rule and all information from the trustee since then showed she had cover.
There were three decisions for the Tribunal to review for fairness and reasonableness. Namely:
- The decision of the insurer that TPD cover had lapsed under the policy terms;
- The trustee’s agreement with the insurer; and
- The trustee’s decision to not compromise the claim by paying the member $64,500.
The Tribunal concluded that the decision of the insurer that the cover had lapsed under the policy terms was a correct construction and, therefore, fair and reasonable. Similarly, the trustee agreeing with the insurer’s decision was fair and reasonable, but the decision of the trustee to not compromise the claim was not fair and reasonable. The Tribunal formed this view after applying the principles in Retail Employees Superannuation Pty Ltd v Crocker  FCA 1330 and Commonwealth Superannuation Scheme Board v Dexter  FCA 1434.
The Tribunal gave weight to the fact that the trustee had not informed the member of the $3000 account minimum rule. The trustee argued it had not been advised by the previous employer that her employment had ceased. The evidence of the member was the previous employer had indicated its practise was to advise the fund of the cessation of employment and, on this point, the Tribunal believed the member’s evidence over that of the trustee. The Tribunal was also at a loss to understand why the cessation of an employer’s superannuation guarantee contributions in respect of a member, had not alerted the fund administrator to the member’s cessation of employment, which should then have triggered contacting the member. The fact the annual statements included words to the effect that insurance cover was not guaranteed and subject to the policy terms was not a sufficient excuse for the trustee to not compromise the claim. In these circumstances, the trustee refusing to compromise the claim was unfair and unreasonable. The Tribunal substituted its own decision for that of the trustee, and that was for the trustee to pay the member $64,500 plus interest at the fund’s cash rate from the date the member’s husband was first advised of its decision to the date of actual payment.