Reviewing a trustee's decision

Contributed by Paul Bingham and Graham Young and current to 1 September 2005

HOW TRUSTEES SHOULD MAKE DECISIONS

Trustees are required by law to make decisions solely with the interests of the beneficiaries in mind. They must exercise any powers and discretions under the trust deed in good faith, and for the purpose for which the powers were granted.

Trustees must also give real and genuine consideration to the exercise of their discretion. They must not simply rely on the opinion of another person, such as the opinion of the insurer or of the insurer’s medical practitioner, for example.

Even where the trust deed gives the trustee the power to delegate the making of decisions, the decision has to be made within the delegation given. It may be possible to argue, depending on the terms of the trust deed, that a decision cannot properly be, but has been, delegated.

A trustee will also fail to give a matter real and genuine consideration if the trustee asks itself the wrong question. One example would be a trustee refusing to pay total and permanent disability benefit on the ground that the member could be retrained for a different job, when the definition required the trustee to ask itself whether the member was capable of carrying on his or her usual occupation.

However, there are many cases in which judges have stated that trustees’ decisions are not required to be correct, in accordance with the weight of the evidence, or even fair. Trustees’ decisions cannot be challenged on the ground that they have failed to inform themselves properly concerning a matter. They are not required to give reasons for their decisions. However, if a trustee’s conduct is sufficiently unreasonable or unfair, it may suggest that the trustee is not acting in good faith.

Although trustees cannot be required to give reasons for their decisions, if they do so voluntarily the reasons must be sound. If they are not, a court may set aside the decision.

Numerous observers have noted that these principles are quite inappropriate for determining rights to benefits provided in a commercial context, often as part of a contract of employment. It is completely unacceptable for members to be refused a payment when they are objectively disabled within the definition in the trust deed, because they are unable to show that the trustee’s decision was made in bad faith (even though it is shown to be wrong, careless, or based on inadequate evidence). Although no English or Australian court has yet held that the traditional principles do not apply to superannuation trusts, in practice, Australian courts appear to interpret them in a way favourable to beneficiaries where it is clear that the trustee’s decision was not justified by the facts.

INTERNAL REVIEW

The first step in challenging a trustee’s decision concerning a benefit is to request reconsideration of the decision. Section 101 of the Superannuation Industry (Supervision) Act requires regulated funds to ensure that enquiries or complaints made by beneficiaries are properly dealt with within 90 days. Before requesting reconsideration, it is a good idea to ask the trustee to provide:

• a copy of the trust deed;
• a copy of any relevant insurance policy;
• an up-to-date statement of benefits;
• reasons for its decision; and
• copies of any documents it used in making its decision.

A member or other beneficiary is entitled to copies of the first three documents, according to both the law of trusts and the Superannuation Industry (Supervision) Regulations 1994, but cannot force the trustee to provide the last two.

The next step is to write to the trustee requesting reconsideration, setting out the reasons why you believe the original decision is wrong. In the case of total and permanent disability benefit, you should mention any factors that limit your employment prospects, including your age, extent of educational and vocational qualifications, and your experience and ability to speak and write English. You should include copies of any supportive medical reports. It would be prudent to obtain legal advice at this stage.

REVIEW BY THE COURTS

If internal review is unsuccessful, the next step to consider is legal action. It is essential to obtain advice from a solicitor experienced in acting for members of superannuation funds before undertaking this step. Some firms of solicitors will act in these matters without payment until the matter is resolved. Nevertheless, substantial costs may be incurred and, if unsuccessful, a member may have to pay the legal costs of both parties to the dispute.

A court will only review a decision of a trustee on the basis of the principles set out in the section ‘HOW TRUSTEES SHOULD MAKE DECISIONS’. This means that if the trustee has not voluntarily given reasons for its decision, you will have to show that the trustee failed to give the matter real and genuine consideration, acted in bad faith or acted for an improper purpose. If the trustee gave reasons for its decision, it will be set aside if the court accepts that the reasons were not sound. Statements by trustees that “the medical evidence does not establish that you are disabled within the meaning of the trust deed”, or that “in our opinion you are not disabled within the meaning of the trust deed” have been held to be reasons by the courts. However, a court will not set aside a trustee’s decision simply because the judge would have made a different decision. Even if the court does set aside the decision, it may not always substitute its own decision for that of the trustee. It may instead allow the trustee to make the decision again.

In practice, very few of these cases go as far as a court hearing. Almost all are settled by agreement before trial. An experienced solicitor can advise you on the likelihood of your case being settled.

REVIEW IN THE SUPERANNUATION COMPLAINTS TRIBUNAL

The was set up under the Superannuation (Resolution of Complaints) Act 1993 (Cth) to provide a forum for the speedy, informal and inexpensive resolution of complaints about regulated superannuation funds.

One significant advantage of the Tribunal is that legal costs cannot be awarded against the complainant – but neither can the complainant recover legal costs from other parties to the dispute. The other main advantage is that the Tribunal can alter a decision that was not fair or reasonable. As mentioned above, a court has no power to set aside a decision by a trustee simply because it was unfair or unreasonable.

On the other hand, there is no right of oral advocacy to the Tribunal and no right of cross-examination. Some consider that a member may be better off choosing the court system as providing a greater likelihood of settlement and higher settlement amounts.

The High Court has recently found that Federal Court decisions to the effect that the Tribunal had no power to review trustee and insurer decisions were incorrect. The High Court has confirmed that the Tribunal has full power to review trustee and insurer decisions on their merits.

The Tribunal has power to resolve disputes with trustees whether that decision was made before or after the Act commenced on 1 July 1994, so long as the fund was a regulated fund. Since November 1995, the Tribunal has had power to determine disputes about whether a person is disabled. However, there are the following restrictions on the disability claims which the Tribunal can consider:

• the claim for disability benefit must be made to the superannuation fund within one year of the member permanently ceasing employment (a person on sick leave or in receipt of WorkCover payments may not have permanently ceased employment, although absent from work) (s.14(6B));
• the first decision of the trustee or insurer to refuse to pay the benefit must have been made on or after 1 November 1994; and
• the complaint to the Tribunal must be made within one year of the first decision of the trustee or insurer to refuse to pay the benefit (s.14(6A)).

Before the Tribunal can deal with a complaint, the beneficiary must have attempted to resolve it by making a complaint to the trustee. If the trustee has failed to resolve the matter satisfactorily within 90 days of the complaint being made, a complaint may be made to the Tribunal (s.19).

The complaint must be in writing. A Registration of Complaints form may be obtained from:

The Superannuation Complaints Tribunal
Locked Mail Bag 3060
GPO Melbourne VIC 3001
Ph: 1300 884 114 Fax: (03) 8663 5588

The complaint must allege that the trustee’s decision was unfair or unreasonable (s.14(2)). Fair means “just, unbiased, equitable, impartial”, and reasonable means “within the limits of reason; not greatly less or more than might be thought appropriate”: Pope v Lawler [1996] FCA 1446; (1996) 41 ALD 127, Nicholson J; National Mutual v Jevtovic (unreported decision of Sundberg J, Federal Court, 8 May 1997).

The Tribunal does not have the power to deal with complaints which relate to the management of the fund as a whole (for example, investment decisions) (s.14(6)).

A beneficiary is not entitled to legal representation unless the Tribunal is satisfied that he or she requires representation as a result of disability or for some other reason. The Tribunal will allow a solicitor to act for complainants who are unable to present their own cases effectively for any reason (including lack of fluency in written English or the complexity of the issues to be considered). However, the Tribunal cannot prevent a solicitor preparing a submission on a party’s behalf.

The Tribunal must attempt to resolve the complaint by conciliation. If this is unsuccessful, the Tribunal holds a “review meeting”. Submissions to the review meeting are in writing unless the Tribunal orders oral submissions (s.32). Prior to the review meeting, the Tribunal asks the complainant and the trustee to provide a written submission. Each submission is then sent to the other party, who is given an opportunity to reply in writing. If, as a result of the review meeting, the Tribunal decides that the trustee’s decision was not unfair or unreasonable in all the circumstances in relation to the complainant, it must affirm the decision. If the Tribunal does not decide that the decision was not unfair or unreasonable, it may substitute its own decision for that of the trustee.

The basis on which the Tribunal reviews decisions is more favourable to beneficiaries than review by the courts, because a Tribunal can look at the effect of the decision on the beneficiary. The courts, in contrast, can only look at the process by which the trustee made the decision. The Tribunal has frequently substituted its decision for that of the trustee in circumstances where the complainant may not have been successful in a court challenge.

The previous decisions of the Tribunal can be found on the website www.sct.gov.au.