Retail to amend the Trust Deed As above, the

Retail Employees Superannuation Pty Ltd v Pain 2016 SASC
121 (8 August 2016) Facts On 8 August 2016 was a case before an individual
Judge of the Supreme Court of South Australia concerned with the amendment of a
retail superannuation fund’s trust deed. The case dealt with, amongst other
issues, trust deed amendment and interpretation powers, transfer of financial
products for trust members, the validity of Death benefit nominations, and the
Court’s jurisdiction. Broadly, Justice Blue held that in most cases, the
Trustee had valid reasons for varying the trust deed, subject the particular
conditions set out in the judgement. These conditions were ones that the Court
considered Trustee’s would commonly follow. It must be noted that this case
dealt with very particular amendments over a long period of time and in
response to a number of legislative changes and operational nuances. For this
reason much of the judgement is not likely to become precedent due to this specificity
but provides some valuable observations for future cases.

Over the course of 15 years the REST Super fund trust deed
had been comprehensively amended by around 40 deeds of amendment. The Trustee,
Retail Employees Superannuation Pty Ltd, brought the case due to concerns that
a number of these amendments had been enacted beyond the power to amend given
by the appropriate clause of the trust deed (clause 19). The trustee applied for
orders under the Trustee Act amending
the trust deed to create a new clause 19, validate all prior amendments, and
also amend a number of the substantive provisions contained in the deed. The
exploration of this led the court to several key issues which will be discussed
below.

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The power to amend the
Trust Deed

As above, the trustee wanted to replace the existing clause
pertaining to the power to amend due to the limitations imposed on the power.
Justice Blue found that there were ‘uncertainties’ in some of the limitations,
and therefore that the clause should be replaced. The replacement was condoned
on the condition that other amendments were made to the deed.1
However, the court was clear to note that the trustee itself cannot replace the
clause and therefore remove restrictions on the power to amend.2
One of these restrictions, which interestingly the Trustee sought to make even
more restrictive, related to Superannuation Industry (Supervision) Regulations
1994 (Cth) (SIS Regulations) 13.16. The Trustee sought to amend the deed so
that, instead of requiring amendments at risk of breaching SIS Regulation 13.16
to be consented to by members of the trust, the power should be further
restricted to prevent the Trustee from making amendments in breach of SIS
Regulation 13.16 at all. The court noted that even though a past amendment in contravention
of 13.16 would not be invalid for that reason, it could expose the Trustee to criminal
proceedings. For this reason, and with guidance from APRA, the Court found the
restriction relating to the Trustee seeking consent to potentially contravene
13.16 should be removed from the trust deed.

Power to interpret
the Trust Deed

An amending deed inserted clause 6.3, which provided that
decisions by the Trustee regarding the interpretation and effect of the trust
deed would be final. The court found that, by enabling the Trustee to conclude
whether amendments complied with the clause 19 amendment power, clause 6.3 was
invalid because it had the potential to compromise the court’s jurisdiction and
was therefore not in members’ interests.

These discussions and decisions by the court made it clear
that trust deed amendments with the effect of removing restrictions on trustee
powers without court approval were not likely to be valid and would be subject
to legal challenges.

 

Jurisdiction

The court was also required to address it’s jurisdiction to
hear the matter. Although the Trust Deed was governed by the law of New South Wales,
the Court found that there was jurisdiction to hear the matter under section
15C of the Trustee Act 1936 (SA). This
was because 170,000 members of the super fund were residents of South
Australia, creating a real and substantial connection with South Australia nor
was bringing the action in this jurisdiction driven by any improper purpose.

This raises
an interesting point that, pending an individual trust deed’s governing rules,
different jurisdictions may be utilised by trustees to seek the directions of a
court. However, many trust deeds have specific rules which determine the
specific jurisdiction the trust deed will be governed by.

 

Death benefit
Nominations

The court also addressed ambiguities contained in section 59
of the Superannuation Industry (Supervision)  Act 1993 (Cth) (SIS Act) and regulation 6.16A
of the SIS regulations. The issues related to the power of the Trustee to allow
members to nominate death benefits under the trust deed. The court said the
regulatory and statutory uncertainties exposed the Trustee to potential claims
from members that the Trustee had used a discretion rather than a direction,
which would mean it had acted outside its powers under the trust deed when determining
the validity of death benefit nominations after the expiration of a three year
period.

This discussion led the court to determining that the trust
deed rules relating to death benefit nominations should be highly prescriptive,
rather than just requiring them to adhere to the regulations. This is interesting,
as ordinarily such prescriptiveness is not ideal, which the court acknowledged
when noting that if a law is clear, merely requiring the trustee to adhere to
the law is adequate. Overly prescriptive trust deeds are more difficult to
alter when laws change, and can unduly fetter trustee powers. As the court
found, such prescriptiveness when members have a right to direct the trustee is
preferable as it may prevent claims of trustees acting outside their powers.

 

 

1 Retail
Employees Superannuation Pty Ltd v Pain 2016 SASC 121, 613-708

2
Ibid, 714

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