APPENDIX B
BACKGROUND PAPER PREPARED FOR THE COMMITTEE BY IFS FAIRLEY
SUPERANNNUATION COMPLAINTS TRIBUNAL
ROUND TABLE DISCUSSION WITH SENATE SELECT COMMITTEE ON SUPERANNUATION
TUESDAY, 28 APRIL, 1998
A. INTRODUCTION
A round table discussion has been convened by the Senate Select Committee
on Superannuation to canvass all the options currently available to the
Government and the superannuation industry to provide a dispute resolution
mechanism to deal with superannuation complaints by members. The forum
follows the decision of the Full Federal Court in Wilkinson v CARE
(Wilkinson), handed down in February, 1998.
Participants at the round table discussion comprise a broad representation
of industry stakeholders.
Where this paper refers to "trustees", it incorporates a reference
to trustees, RSA providers, superannuation providers and other decision
makers.
B. BACKGROUND TO ISSUE - DECISION OF FULL FEDERAL COURT
1. Under the Superannuation (Resolution of Complaints) Act 1993 ("Complaints
Act") the Superannuation Complaints Tribunal was created to hear
complaints from members concerning decisions made by the trustees of regulated
superannuation funds. The Complaints Act allowed for a conciliation process.
In the event of the conciliation process failing to resolve the dispute,
the Tribunal made a formal determination after assessing whether decisions
made by trustees were fair and reasonable. (In some circumstances complaints
could be made about the decisions of the fund insurer).
2. Under the Complaints Act the Tribunal could affirm or vary or set
aside the decision of the trustees. Any new determination took effect
as a new decision of the trustees. The Tribunal had no power to enforce
its own decisions but the determination was in fact enforceable in a number
of ways. First, it was an operating standard under the Superannuation
Industry (Supervision) Act 1993 (SIS) and Regulations for trustees
to comply with determinations of the Tribunal. Second, it was an offence
under s.34(2) of SIS for the trustees to fail to comply with the determination.
Third, persons affected by a determination of the Insurance and Superannuation
Commissioner (ISC) could seek an injunction from the Federal Court to
compel the carrying-out of a determination (s.315 of SIS). Fourth, s.65
of the Complaints Act required the Tribunal to report to the ISC any non-compliance
with the determination by a trustee, and the ISC could determine to investigate.
Fifth, since the determination took effect as a new decision of the trustees,
the determination was enforceable on that basis in the State Supreme Courts.
Sixth, court action could be commenced under S289(3), S.313(1A) by the
ISC, or an investigation could be commenced under S263 of SIS.
3. In Wilkinson, the Full Federal Court (Lockhart, Heerey and
Sundberg JJ) made the following key findings:
(a) It was found that as a matter of interpretation of the Complaints
Act, the Tribunal was only entitled to receive complaints concerning discretionary
decisions made by trustees as opposed to decisions which were not discretionary.
A discretionary decision is one where the trustee is lawfully entitled
to choose between different results (for example, the allocation of a
death benefit among one or more deserving dependants of a deceased member
of a fund). A non-discretionary decision is one where the law allows there
to be only one correct decision (for example, whether or not the death
of a member of a fund gave rise to a death benefit or not).
(b) The finding that the Tribunal was only entitled to receive complaints
concerning discretionary decisions was a unanimous finding of the Court.
(c) It was found (by majority; Sundberg J dissenting) that any exercise
by the Tribunal of its determination-making power under s.37 of the Complaints
Act was an invalid exercise of the judicial power of the Commonwealth.
The majority judgements relied upon the following factors:
(i) First, that disputes between trustees and members have the character
of private disputes between citizens in relation to property. Disputes
of that kind belong in the courts and have always been dealt with in the
courts and are quite unlike the disputes that are dealt with by the Commonwealth
Administrative Appeals Tribunal or tribunals such as the Social Security
Appeals Tribunal. Trustees of uperannuation funds don't make administrative
decisions of any governmental kind.
(ii) The jurisdiction of the Tribunal is activated by a complaint by
a member. Accordingly to Heerey J, only a government body can bring such
a complaint, thus the procedure in the Tribunal resembles that of a plaintiff
bringing a proceeding in a court.
(iii) The Tribunal makes binding adjudications upon rights and obligations
of members and trustees arising from past events by applying the Complaints
Act and the general law.
(iv) The Tribunal's determinations don't involve the application of policy
considerations.
(v) The Tribunal's determinations are enforceable by civil injunctions
and criminal penalties.
4. The effect of the decision of the Federal Court is as follows:
(a) the Tribunal has no power to make any determinations whatsoever;
(b) the Tribunal may only have power to deal with complaints concerning
discretionary decisions made by trustees (or insurers);
(c) if conciliation by the Tribunal does not resolve a dispute, then
the members and the trustees can only resolve their disputes by agreement
or by bringing proceedings in the courts;
(d) every determination made in the past by the Tribunal was made invalidly
and should not have been acted upon by trustees of funds. Members who
have been disadvantaged by determinations of the Tribunal may be able
to sue the trustees;
(e) members who have benefited from determination of the Tribunal may
be required to hand the benefit they received back to the trustees.
C. OUTCOMES SOUGHT
In bringing together key stakeholders in the industry to discuss the
alternative courses of action that are available to Government, before
the High Court Appeal is heard in Wilkinson, the Senate Committee is recognising
the need for a pro active approach to dealing with the problem. It could
be a period of up to 18 months before any finality is reached by the High
Court, and during that time, no effective dispute resolution mechanism
is available to members of superannuation funds outside the court system.
The Senate Committee believes that by bringing parties together to talk
through the issues, it can make recommendations to Government on a new
approach.
The outcomes sought by the Senate Select Committee from the round table
discussion are as follows:-
1. to obtain a complete understanding of the options that Government
has available to it to provide a complaints resolution mechanism for superannuation
fund members;
2. to seek to achieve a consensus view amongst the industry on the most
appropriate option for the Government to proceed with;
3. to ensure that the preferred system to be pursued by Government for
the implementation of a superannuation complaints scheme for members is
acceptable under the Constitution;
- to establish an implementation process for the preferred system.
D. ESSENTIAL ELEMENTS OF SUPERANNUATION COMPLAINTS HANDLING SCHEME
The Committee believes that there are a number of essential elements
which must be met in a successful alternative superannuation complaints
scheme. It is proposed to set out brief details of each of those elements,
and to then reference any options back to the achievement of those criteria.
The essential elements are as follows :-
1. Accessibility
The complaints scheme must be easily accessible by complainants with
minimal bureaucratic or legal requirements. It should not be necessary
for a complainant to require legal advice or representation.
Forms and procedures should be designed to be user friendly, with a transparent
process.
2. Independence
Any scheme must be seen to be independent of the industry or any sectional
group. The existing Tribunal includes members who were stakeholders in
the industry, including lawyers and trustees. These people were not perceived
to lack any independence, and were in fact selected for their experience
and skill in the industry.
The selection was made by the Governor in Council pursuant to the Complaints
Act, and there is thus a public perception of independence.
For any scheme to retain credibility, this perceived independence from
employers, insurers, consumer groups and other interest groups must be
maintained at all costs.
3. Procedural Fairness
It is essential that the principles of procedural fairness be accorded
to all parties. A government body is under a duty to accord procedural
fairness and a private body is not.
Fundamentally, procedural fairness requires that the Review Panel Members
are, and are perceived to be, free from bias. Also, a fair hearing requires
that each party knows what is put by another party and is given adequate
opportunity to reply.
What the duty to act fairly requires must be determined in the circumstances
of a particular case. Whilst it is acknowledged that most of the issues
arising from complaints can be dealt with by written submissions, there
may be a need,from time to time, for appearance e.g. where there is a
conflict of evidence, where credibility or personal characteristics are
at issue, where allegations are grave, or where parties cannot express
themselves effectively in writing. Where requested by a party and the
circumstances of a case warrant it, scope must be provided to allow this
to happen, in a cost-effective way. Scope must also be available for representation
if the circumstances warrant it.
4. Economical Forum
Section 11 of the Complaints Act requires the Tribunal to pursue the
objective of economy. Any system considered should continue to strive
for that objective. This can be achieved through :-
(a) rules and process which do not require a complainant to necessarily
engage legal assistance;
(b) use of video conferencing facilities for hearings around Australia
where hearings are required;
(c) maintenance of existing criteria as to the issues a member can bring
before the body as a complaint rather than expanding jurisdiction to include
"fund as a whole" issues.
5. Quick Decision Making
Section 11 of the Complaints Act also sets the objective of speed or
quickness in both conciliation and review. This requires process which
is uncomplicated, transparent, consistent and flexible.
With increased hearings, it may be necessary for members of the Tribunal
to conduct review meetings in places other than Melbourne more frequently,
or use video conferencing as a method of providing accessibility. The
provisions of Superannuation Legislation Amendment Bill 1997 presently
before the Senate provide for a proposed change for section 9 of the Complaints
Act, to allow the Tribunal to be constituted by one, two or three members
as selected by the Chairperson. This will assist in quick decision making.
The requirement for quick decision making may also lead to a review to
some of the time limits which are presently in place under the Complaints
Act, to shorten them, where consistent with principles of procedural fairness.
6. Constitutional Validity
Following the decision in Wilkinson, and the fact that the issues in
that
decision are to be considered by the High Court, it is essential that
any
system adopted outside the courts is unlikely to be successfully challenged
in the courts.
Accordingly, the system must try to ensure that there is no exercise
of
judicial power, and that the breadth of decision making for the body
encompasses both discretionary and non discretionary trustee decisions.
7. Limits on Jurisdiction - Reflect Existing Complaint Criteria
Members and persons affected by a decision should be able to continue
to
complain in relation to the decisions of trustees as it relates to that
member.
The complaints process ought not to extend to trustee decisions outside
section 14(6) of the Complaints Act, that relate to the management of
a fund as a whole.
One method of ensuring the retention of this limit is to include in any
legislation a list of those trustee decisions which are reviewable, and
those
which are not reviewable, plus defined standing provisions.
8. Decision Binding on Trustee
Under the general law of trusts, if a decision made by a third party
(such as the Tribunal) is not binding on the trustee, then the trustee
is not obliged to carry it out. Trustees would in fact act in breach of
trust if they acted in accordance with a non-binding decision of a Tribunal
or other body.
Under the Complaints Act, section 41(3) has the effect that the determination
of the Tribunal stands as a decision of the trustees, and the Full Court
has decided that section 41(3) means a determination is binding on the
trustee.
9. Specialist Expertise
It is essential that appointees to any body possess appropriate and necessary
expertise. There is a specialist and technical area of law and practice
that applies to trustees of superannuation funds.
10. Costs to be Met by Fund Levy
At present the costs of funding the Tribunal fall on the ISC, which costs
are in turn met directly or indirectly by the levy exacted from superannuation
funds annually. Any new system should continue to rely on funding, directly
or indirectly, from the superannuation levy paid by fund trustees. There
should not be an imposition of a specific charge on a per complaint basis
on the trustee of a fund in respect of which a complaint is made.
E. ALTERNATIVES TO BE CONSIDERED
The three alternatives which are the only serious options for consideration
by Government, and which should form the basis of discussion appear to
be as follows:-
1. Industry Complaints Body
(a) Existing Precedents
There are already in operation in Australia a number of industry complaints
bodies, including the General Insurance Enquiries and Complaints Scheme,
the Life Insurance Complaints Service, and the Australian Banking Industry
Ombudsman.
These bodies are all voluntary private industry bodies established by
consenting decision makers.
They contain conciliation procedures and arbitration procedures, and
the parties are expected to abide by the decisions of the panels or boards
that make the decision. However, there is no legal requirement for either
party to comply.
A voluntary industry scheme is not considered to be a viable option,
in that the trustees of 4,500 superannuation funds cannot be expected
to all agree voluntarily to sign up with an industry complaints body,
and agree to be bound by their decisions. Accordingly, the only type of
industry body that should be considered is one which is supported by legislation,
to require, either directly or indirectly, participants to be bound by
decisions of that body.
(b) Structure of Body
None of the bodies currently in existence are appropriate precedents
for an industry complaints body for the reasons set out above. To establish
a complaints body, there would need to be a peak industry body established,
which was governed by representatives from various areas of the superannuation
industry, to be represented on a board of directors. This board of directors
may establish an independent council who would have responsibility for
the operations of any such industry complaints body. The council would
determine such matters as :-
(i) the structure of the complaints process;
(ii) the types of complaints heard;
(iii) enforcement arrangements;
- powers of the body;
(v) rules and evidence and method of operation;
(vi) membership of the decision making body;
vii) disciplinary powers for non-compliance.
(c) Binding Determinations
In order for such a body be effective, there would need to be an element
of compulsion for trustees of non-excluded superannuation funds joining
up. This could be done in a number of ways including:-
(i) providing a legislative sanction for failure to agree to be bound
by decisions of the body - either directly in SIS or indirectly through,
for example, the Superannuation Guarantee (Administration) Act 1992;
(ii) to require that every fund trust deed include a requirement that
the trustee would be bound by the decision of any such industry scheme.
(d) Measure Against Essential Elements
In measuring the industry option against the essential elements of a
superannuation complaints handling scheme, the following difficulties
arise:-
(i) Independence
An industry scheme carries with it the difficulty of a perceived lack
of independence - the industry sitting in judgement on the behaviour of
its own members. There would need to be a very careful selection of members
of any such body, and of any independent council controlling the body,
to ensure that any perceptions of lack of independence at a decision making
level were diminished. Even with this caution, such perceptions can be
fatal to independence.
(ii) Procedural Fairness
Any such industry body will establish its own processes, which may exclude
rights to hearings, representation etc. These will all be included in
terms of reference of any such body established. There will thus be no
guarantee of procedural fairness, under the Administrative Decision
(Judicial Review) Act or S 39 of the Judiciary Act.
(iii) Economical Forum
Existing industry complaint bodies impose a cost on the company being
complained against. If this model of payment was replicated, the funding
cost could impose very significant and unacceptable costs on trustees,
particularly where frequent complaints were made, some of which were vexatious
or of little moment. Whilst it may be economical for members, it would
not be economical for the industry, if trustees had to pay for the complaint
handling mechanism, and legal advice as well.
(iv) Constitutional Validity
In the event that legislation is enacted by the Federal Government which
either directly or indirectly seeks to impose a requirement on superannuation
fund trustees that they will be bound by and required to enforce any decisions
of such an industry tribunal, the same difficulties apply as were considered
in Wilkinson.
Whether the compulsion to comply is direct, as with the current provisions
of the Complaints Act, or indirect, such as using the Superannuation Guarantee
Legislation, on the current view of the Full Federal Court, there is a
grave danger that it would fail to be Constitutionally valid, on the basis
that it would be a divestment of judicial power.
In the event that trustees were required to include in their trust deed
a provision which obliged them to be bound by and to implement any decision
of such a body, there is a difficulty that any such provision could be
considered by the courts to be void as ousting the jurisdiction of the
court. There is a line of authority which is that it is repugnant to a
trust deed and contrary to public policy to grant legal rights to a member
of the trust and then include a provision in the trust deed that seeks
to deny the member access to the courts by providing that the decision
of some person or body is binding in the event of a dispute between members
and trustees: Re Raven (1915) 1 Ch 673; Mends v Stackhouse
(1948) 77 CLR 232.
(v) Decision Binding on Trustee
Existing industry models are not able to make any decisions binding on
the parties, except by gentleman's agreement. If any system is introduced
which will bind the trustee, then the issue of the exercise of a judicial
power arises, but in this instance, it could be considered to be judicial
power delegated to a non-government body rather than to a Commonwealth
Government Tribunal.
(vi) Cost
Any such scheme would probably be unlikely to be funded by Government
but rather it would be expected to be funded by industry. This will have
significant cost implications for trustees, and will not meet the requirement
of being funded by the annual levy on superannuation funds.
2. Reconstitute the Tribunal as Part of the Federal Court
(a) Precedents for Approach
This solution would see the abolition of the Tribunal, and effectively
the creation of a division within the Federal Court dealing with superannuation.
This course has been implemented under the Workplace Relations Act, which
has transferred jurisdiction to the Federal Court from the Industrial
Relations Court and set up a system of Judicial Registrars who conduct
hearings in the same way as judges.
The system would constitute the Federal Court as the body which would
hear complaints from members. The Federal Court would be required to make
rules which would delegate certain judicial powers of the Judges of the
Federal Court to Judicial Registrars, who would hear the superannuation
complaints. As with the Workplace Relations arrangements, the Judicial
Registrars would have a limit, in dollar terms, for claims which they
could hear, and amounts over those limits would be heard by a Judge of
the Federal Court.
Judges would maintain a supervisory role over the activities and decisions
of the Judicial Registrars, with an automatic right of review existing
for parties in the Federal Court, on a de novo basis. This would involve
a review of both facts and law.
A system of Registrars has also been in operation under the provisions
of the Family Law Act for many years, and has worked successfully. The
decision of the High Court in Harris v Caladine (1991) 172 CLR
84 concerned the validity of Registrars in the Family Court. In that case
the High Court confirmed that power exists for Federal Court rules to
be made to delegate judicial power to registrars subject to certain limits:-
(i) Mason CJ and Deane J said that so long as two conditions are observed,
the delegation of some part of the jurisdiction, powers and functions
of a Federal Court to its officers is permissible and consistent with
the control and supervision of the court's jurisdiction by its judges:
- the first condition is that the delegation must not be to an extent
"where it can no longer properly be said that, as a practical as
well as a theoretical matter, the judges constitute the court. The judges
must continue to bear the major responsibility for the exercise of judicial
powers at least in relation to the more important aspects of contested
matters"
- the second condition is that the delegation must not be inconsistent
with the obligation of a court to act judicially and that the decisions
of the officers of the court in the exercise of their delegated jurisdiction,
powers and functions be subject to review or appeal by a judge or judges.
If the exercise of delegated jurisdictions, powers and functions by
a court officer is subject to review or appeal on questions of both
fact and law, the delegation will be valid. If the review is by way
of hearing de novo, the delegation will certainly be valid.
(ii) Dawson J said that a Federal Court could, subject to any restrictions
imposed by Parliament, delegate to suitable officers such of its functions
as it thinks fit, but Parliament can't compel the court to exercise any
of its judicial functions through such an officer.
(iii) Gaudron J said that a Federal Court may only delegate its powers
on terms designed to ensure that the judicial process will be observed.
Appropriate procedures must exist for supervision by the Court, both as
to the observance of the limits attached to the delegation and to the
exercise of those powers.
(b) Measure Against Essential Elements
In measuring the reconstituted Tribunal as a division of the Federal
Court against the essential elements of a superannuation complaints handling
scheme, the following difficulties arise :-
(i) Economical Forum
Special rules would need to be enacted by the Federal Court for Judicial
Registrars to hear cases. These rules would need to reflect the Federal
Court procedures, fees, and administrative process, unless other specific
arrangements could be negotiated to the contrary.
This would necessarily involve greater cost for a complainant, and difficulty
for a complainant not able to engage legal assistance.
The difficulty of economy maybe able to be overcome by special funding
from Australian Securities and Investment Commission (ASIC) to offset
the costs which would otherwise be required, such costs being a transfer
of the costs of operating the Tribunal to subsidising the superannuation
division of the Federal Court.
(ii) Quick Decision Making
The rules for the superannuation division of the Federal Court would
need to be changed significantly from the normal Federal Court rules,
in order to ensure speed of complaint hearing.
(c) Costs
Arrangements would need to be put in place to ensure that monies collected
by the ISC, and subsequently ASIC would be available to operate this Federal
Court option.
3. Amendment of Complaints Act Still Ensuring Constitutional Validity
(a) Speculative Discussion
Any discussion on this option must be seen as speculative, until such
time as the High Court has determined its position, from the appeal in
Wilkinson. What is clear is that the Government cannot afford to
proceed with a different option from the Tribunal, only to find that 3
years on, the process is challenged again, and is again found wanting
Constitutionally.
(b) New Provisions
Any amended Complaints Act must include the following :-
(i) The ability for the Tribunal to make decisions in relation to
non-discretionary trustee decisions, as well as discretionary decisions.
This was clearly the intention of Parliament, and can be accommodated
by amending the Act so that there is a full merits review of the decision.
(ii) The decision must be binding on the trustee as now; otherwise the
trustee cannot act on it.
(iii) It must remove the enforceability of the decision through SIS to
avoid at least part of the problem adverted to by the Full Court in Wilkinson.
(c) Enforceability Options
Where a decision of the Tribunal is binding on a trustee, but the decision
is not enforceable under SIS, then for the trustee not to act upon it
is a breach of trust. Rights are created in the person in who's favour
the Tribunal has made a determination. However, if the trustee does not
act upon it, what remedies are available ?
One option is to leave the beneficiary with the option of pursuing a
trustee who will not comply with a determination of the Tribunal through
the State Supreme Courts. This is costly, and involves significant delays
in achieving justice.
A second alternative in circumstances where a trustee does not comply
with a binding Tribunal determination is for ASIC to utilise monies that
it has accumulated from the annual superannuation levy to commence proceedings
in the Federal Court on behalf of the member in whose favour the Tribunal
has made a determination, funded by ASIC. The action would be a hearing
de novo in respect of the dispute which had been considered by the Tribunal.
It would not be an action seeking to enforce the decision of the Tribunal
per se.
(d) Measure Against Essential Elements
In measuring the amendment of the Complaints Act option against the essential
elements of a superannuation complaints handling scheme, the following
difficulties arise:-
(i) Economical Forum
The process of having the matter heard before the Tribunal would be economical.
However, if a trustee did not comply with the orders of the Tribunal,
unless ASIC were prepared to fund the action of the member before the
Federal Court, to have the matter heard on a de novo basis, considerable
court costs would need to incurred by a member, and there would be significant
delays through the State Courts.
(ii) Constitutional Validity
The constitutional validity of this alternative is uncertain. Although
there is a clear separation between the determination of the Tribunal,
and the enforcement of that determination, there is nevertheless a link.
There is also the concern that the enforcement of the decision of the
Tribunal is but one indicia of the exercise of judicial power, and it
may well be that judicial power has been exercised in the actual determination
by the Tribunal, without the need for enforcement.
Until the High Court has spoken, no firm conclusion seems likely. The
High Court might agree with the majority, or it might agree with Sundberg
J or it might decide the matter on a significantly different basis.
In the case that has just been decided, the High Court split 3-3 in an
appeal from the Full Court of the Federal Court on a question of judicial
power under the rules of the Federal Court : Gould v Brown (1998)
72 LJR 375.
(iii) Costs
A decision will clearly need to be made in principle, in relation to
this alternative, as to whether ASIC would be prepared to stand behind
members who needed to enforce decisions of a Tribunal, where the trustee
refused to implement same.
CONCLUSION
If the Commonwealth wishes to bypass the courts, there is no easy route
to solving the difficulties exposed by Wilkinson for the Complaints
Act. Whilst it is highly desirable to be pursuing the creation of a system
which replicates that of the Tribunal, it may be that the nature of Australia's
Constitutional arrangements is such that some elements of the Tribunal's
objectives (fair, just, economical, informal and quick) will need to be
sacrificed at the altar of practical expedience in the light of difficult
Constitutional issues.
Top
|