Edington Revisited – Full Federal Court Clarifies the Role of the SCT by TurksLegal

CLIENT UPDATE 25 February 2011

Edington Revisited - Full Federal Court Clarifies the Role of the SCT Board of Trustees of the State Public Sector Superannuation Scheme v Edington [2011] FCAFC 8

Summary The Full Federal Court has allowed an appeal by a trustee in relation to its decision to decline a member’s total and permanent disability (TPD) claim. In doing so, the Court has given guidance about the role of the Superannuation Complaints Tribunal (SCT) in reviewing trustee decisions. In particular, the Court has ruled that since the SCT undertakes a fresh hearing for the purpose of determining for itself whether a trustee’s decision was fair and reasonable, the SCT is not obliged to scrutinise the reasoning process of the trustee.

Background The member was diagnosed with schizophrenia in 1994. He commenced work with the relevant employer and membership of the State Public Sector Superannuation Scheme (Qsuper) in 2001. However, he did not disclose his pre-existing condition to Qsuper at that time. Following an incident with dogs at his work in 2002, the member ceased work. He claimed a TPD benefit on the basis that he had experienced either post-traumatic stress disorder (PTSD) or an anxiety disorder as a result of the incident. The trustee considered the member’s TPD claim and determined that: 1. The member was TPD under Qsuper’s governing rules; 2. However, the TPD resulted from the member’s pre-existing condition, not from PTSD or an anxiety disorder as a result of the incident; and 3. The member should have disclosed his pre-existing condition when he joined QSuper. The trustee therefore declined the claim. The member complained to the SCT. On its review of the evidence, the SCT reached the same decision as the trustee. It confirmed the trustee’s decision as fair and reasonable in its operation in relation to the member. The member then appealed to the Federal Court under s46(1) of the SRC Act (see our TurkAlert: SRC Act Revisited - Edington v Superannuation Complaints Tribunal [2010] FCA 504).

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At first instance, the Federal Court set aside the SCT’s decision. The Court found that the SCT was required to identify how the trustee came to its decision, as this would enable the SCT to properly assess whether, having regard to that reasoning process, the trustee’s decision was fair and reasonable. The Court found that although the SCT had stated what the trustee’s decision was, it had not described the reasoning process employed to come to that determination. The trustee then appealed to the Full Federal Court against the judgment at first instance, challenging the finding that the SCT did not properly exercise its powers and that it had misconstrued its function when reviewing the decision of the trustee.

The Decision of the Full Federal Court On appeal, the Full Federal Court set aside the first instance decision. It found that the SCT had properly conducted its review of the decision of the Board of Trustees in accordance with s37 of the Superannuation (Resolution of Complaints) Act 1993 (Cth) (SRC Act). In particular, the Full Court said that under s37 of the SRC Act, the role of the SCT is to undertake a de novo (fresh) hearing for the purpose of determining for itself whether the decision of the trustee was fair and reasonable: ‘A hearing before the [SCT] is a hearing de novo, following which the [SCT] makes findings of fact relevant to its deliberations… [T]he words ‘the decision ... was fair and reasonable’ in s37(6) [are] directed to whether the actual decision, rather than the process that led to it, was fair and reasonable, a proposition that has subsequently been accepted as correct…’ (at [45-46], emphasis added). On that basis, the Full Court held that the SCT was therefore not required to focus on the reasoning process underlying the trustee’s decision - rather, the role of the SCT is to decide, on the material before it, whether the decision of the trustee was fair and reasonable: ‘Nothing in the [SRC] Act expressly required the [SCT] to consider whether or not the reasoning process adopted by [the] trustee in reaching the impugned decision was fair and reasonable; and no such obligation should be implied (at [53]).’

Commentary Appeal on question of law – preparation of notice of appeal The Full Court considered a further critical issue in this case, namely, whether a question of law of the kind necessary to found the court’s jurisdiction under s46(1) of the SRC Act had been identified. The Full Court said that the question whether or not the SCT had asked itself the correct question and misdirected itself as to the nature of its powers of review was capable of being characterised as a question of law, however, the notice of appeal was defective in this regard. ‘[T]he formal notice of appeal displayed an absence of understanding as to how the court’s appellate jurisdiction was invoked’ (Logan J at [86]). However, notwithstanding its doubts about the constitution of the appeal the Full Court considered that on balance, the proceeding was not entirely incompetent. Practitioners should ensure that the Court’s jurisdiction is properly founded when preparing a notice of appeal.

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Difference between the role of the SCT and the AAT The Full Court carefully differentiated the role of the SCT from that of the Administrative Appeals Tribunal (AAT). The Full Court said: ‘Under the [SRC] Act, the [SCT] is not called on to make the same kind of determination as the [AAT] under its governing legislation. That is, in contrast to the [AAT], the [SCT] under the [SRC] Act is not called upon to determine whether the trustee made the correct or preferable decision… Rather, the [SCT] stands in the shoes of the trustee and determines, based on all the information before it, whether or not a decision taken by the trustee was fair or reasonable in the circumstances’ (at [45]).

What happens where the trustee’s reasons are available for the SCT to scrutinise? Should the SCT have regard for those reasons? In the judgment of Logan J: ‘[If the SCT’s jurisdiction] is as explained in Cameron v Board of Trustees, it was not, in my opinion, completely irrelevant for the Tribunal to understand the reasons of the trustee (or an insurer)’ (at [86]). Although Logan J did not go on to specify the use to which a consideration of the reasons of the trustee might be put by the SCT, in our view, it seems reasonable that where reasons are available, those reasons form a relevant part of the information which the SCT should consider in deciding whether a decision taken by the trustee was fair or reasonable. It may be that the SCT adopts the reasoning of the trustee, but only after reaching its own conclusion in relation to the trustee’s decision, based on all the information before it.

Clarification of section 37 of the SRC Act The judgment of Logan J was critical of the formulation of the external merits review under s37 of the SRC Act. In relation to the ‘fairness’ and ‘reasonableness’ criteria in s37, Logan J referred to the characterisation of these criteria by Kirby J in Attorney-General (Cth) v Breckler (at [90]) as: ‘[S]o general and controversial that the trustees’ assessment in a particular case might be quite different from that of the [SCT] whose decision alone would resolve the difference’ and Kirby J’s further comment (at [91]): ‘the applicable statutory norms are most imprecise’. Logan J considered that these statements, particularly the former: ‘…might be thought to reflect an understanding of the role of the Tribunal which is quite different to and wider than that set out in Cameron v Board of Trustees… In JC Campbell, ‘Exercise by Superannuation Trustees of Discretionary Powers’ (2009) 83 ALJ 159 at 179, his Honour, writing extra-judicially, remarked of s37 of the [SRC Act] that it ‘resists easy summarising’. I respectfully agree.’

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In light of the SCT’s ability to receive further evidence and the specialist composition of the SCT, Logan J said: ‘Another way of construing the references in s37 of the [SRC] Act to ‘fairness’ and ‘reasonableness’… may perhaps have been that these are used at a very general level of abstraction so as to describe a form of merits review that does indeed correspond with that of the [AAT]. As its jurisdiction is explained in Cameron v Board of Trustees, the [SCT], with great respect, exercises a very peculiar form of external merits review indeed.’ In summary, Logan J said of the language in s37 of the SRC Act (at [85]): ‘Such though is the obscurity and imprecision of the language of the section that it may well be that the only way in which any difference in understanding by Parliament as to its intended meaning when compared to that enunciated in Cameron v Board of Trustees is to be resolved is by legislative amendment.’

Statement of Parliamentary intent in relation to s37 of the SRC Act The judgment of Logan J was also critical of the statement of Parliamentary intent in respect to the nature of the external merits review under s37 of the SRC Act: ‘Such is the pervasiveness of occupational superannuation and associated disability insurance in Australia it is, with respect, unfortunate that the statement of Parliamentary intent as to the nature of the external merits review granted by the [SRC] Act is so obscure and imprecise.’ If s37 of the SRC Act is to be amended in light of the Full Court’s comments, any future statement of Parliamentary intent may clarify the position. TurksLegal will monitor any proposed amendments and statements of Parliamentary intent in relation to s37 in light of these comments and will update you accordingly.

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For more information, please contact: Paul Cleary Partner

T: 02 8257 5760 M: 0407 052 170 paul.cleary@turkslegal.com.au

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