Trustees Incidental Errors do not Undermine Genuine Consideration - Telstra Super Pty Ltd v Finch By John Myatt | January 2010 Area of Expertise | Financial Services & Life Insurance
Summary We previously reported on the two earlier judgments handed down in 2008 in relation to this contested claim for total and permanent invalidity. Please click on the following links to see our earlier TurkAlerts: ‘Remittance of a Decision to the Trustee is the Rule, not the Exception’ and ‘Focus on a Trustee’s Obligations When Assessing a Claim.’ The judgment of the Victorian Court of Appeal was published just before Christmas. The main legal issue decided was one regarding the construction of the deed in question and this makes the judgment of limited relevance as a precedent. It nevertheless includes a useful commentary regarding the circumstances in which a court may intervene in a discretionary decision on the ground the discretion was not exercised in good faith, upon real and genuine consideration. Importantly, the Victorian Court of Appeal has signalled that not all departures from ‘procedural fairness’ will vitiate a decision on this ground. Harassed trustees can take comfort from the Court’s observation that the fact that a trustee makes an incidental factual error or does not undertake every possible inquiry is not sufficient reason for it to set aside a decision that was made in good faith, on real and genuine consideration and for a proper purpose.
Who Does This Impact? Superannuation trustees, fund administrators, group life insurers and their legal advisers.
What Action Should Be Taken? The judgments in this case at first instance created some disquiet that even apparently minor transgressions of a procedural nature could invalidate a discretionary decision affecting a member. The comments made by the Court of Appeal may show the tide of commonsense is turning in this increasingly technical debate.
Background The plaintiff, Mr Finch, was employed by Telstra from 1 October 1992 until 23 January 1998. Although born as Alan Finch, in 1988 he underwent gender reassignment surgery so commenced his employment with Telstra as a woman, Helen Finch. In October 1996, the plaintiff was experiencing dissatisfaction with his female sexuality and resumed a male personality, name and dress. He developed severe depression during this time and commenced sick leave from Telstra. Mr Finch underwent a rehabilitation program in February 1997, working from home initially for 2 hours a day, with a view to returning
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Trustees Incidental Errors do not Undermine Genuine Consideration - Telstra Super Pty Ltd v Finch by John Myatt
to work, which he did on 24 March 1997. He underwent a double mastectomy and had surgery to masculinise his nose. Mr Finch was very depressed from March 1997 to the end of 1997, being very conscious of his genital mutilation and sensitive of his appearance in the eyes of others and he considered that other employees discriminated against him. This was the subject of a complaint to the Equal Opportunity Commission which settled on confidential terms. On 23 January 1998, Mr Finch ceased employment with Telstra by accepting an offer of redundancy. His supervisor indicated that he was not unfit for his duties with Telstra at that time. Mr Finch commenced work (as a male) with Foxtel on 22 February 1999 as a team leader in its call centre, on a full time basis. He resigned on 26 March 1999 for ‘personal reasons’. On 23 November 1999, Mr Finch applied for his preserved benefit under the Telstra Superannuation Scheme on the basis of permanent incapacity. This benefit was paid by the trustee on 5 January 2000. On 29 November 1999, Mr Finch had commenced work (once again as a male) with Qantas as a domestic sales consultant, 20 hours a week which increased to 24 hours a week from 16 February 2000. He took one day’s sick leave on 27 March 2000, 4 days sick leave beginning 8 April 2000 and 5 days sick in May 2000, as well as one day’s unexplained absence. His employment with Qantas was terminated on 16 May 2000 ‘for personal health reasons’. Whist at Qantas, Mr Finch had come into contact with a male who he previously had an intimate relationship with whilst Mr Finch was living as a female. He had received death threats and both employees were reported to be ‘psychologically devastated’ following the encounter. On 19 May 2000, a claim for Total and Permanent Invalidity (‘TPI’) was lodged on the Telstra Superannuation Scheme. The trustee declined the TPI claim by way of a letter dated 28 March 2002, on the grounds that Mr Finch: ..had completed a rehabilitation program and was capable of performing his duties without restriction; and ..had successfully applied for the job at Telstra Mobilenet but accepted the offer of redundancy instead, which showed that he had capacity for gainful work at the date he ceased employment at Telstra; and ..had worked since the cessation of his employment with Telstra, which showed that he was qualified for and had the capacity to engage in gainful employment when he ceased work for Telstra, and thereafter.
On 10 September 2002, Mr Finch made a second claim for the TPI benefit, which the trustee rejected on 20 March 2003. The trustee had not obtained a report from an independent doctor prior to making either of its decisions. It had before it evidence of three of Mr Finch’s treating doctors, Dr Doswell, Dr Syrota and Dr Rigby. This medical evidence was in the initial trial judge’s view: ..unanimously to the effect that Mr Finch was suffering from a severe psychological condition and that this had the consequence that he would, from a medical point of view at least, be unlikely ever to work again.
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Trustees Incidental Errors do not Undermine Genuine Consideration - Telstra Super Pty Ltd v Finch by John Myatt
The trustee was also in possession of a report from Telstra Management outlining Mr Finch’s duties and stating that at the time of his redundancy, he was fit for duty and ‘not a TPI candidate’. This report made no reference at all to the medical conditions that Mr Finch’s doctors emphasised were affecting him at the time he accepted redundancy. A statement from Centrelink showing that Mr Finch was in receipt of a Disability Support Pension had also been provided, as well as a statement from Qantas that Mr Finch had performed his duties adequately and had the skills and expertise necessary for the role. Finally, a statement and a statutory declaration by Mr Finch himself were provided, in which he originally omitted to mention his work with Foxtel and Qantas. Prior to making the second decision to decline the claim, the trustee received an additional report from Dr Rigby emphasising that the returns to work were a failed rehabilitation attempt. Mr McCredden, a director of the trustee, also participated in a phone call instigated by Mr Finch in which Mr Finch ‘volunteered the statement that his employment with Qantas had been a real job’. Proceedings were commenced against the trustee by Mr Finch in the Supreme Court of Victoria and on 28 November 2008 he gave judgment in favour of Mr Finch1. Telstra appealed to the Court of Appeal.
The Decision In finding in favour of the plaintiff, the judge at first instance, Justice Byrne, rejected Telstra’s construction of the relevant provisions of the trust deed, ruling that the period of at least six months during which the plaintiff must be absent from all work to be eligible for the benefit did not have to occur while he was still employed by Telstra. This was described in the judgment as ‘the construction point’. He also concluded that the trustee’s decision to decline his claim had miscarried because it had not exercised its discretion in good faith and upon real and genuine consideration because of errors in the process which the trustee had used to investigate it. In particular, the trustee had been found wanting in having placed emphasis on the comment that the employment with Qantas had been ‘a real job’ during the conversation with Mr McCredden. Mr Finch had not had the opportunity to explain or contextualise this remark. Justice Byrne was also critical of the trustee’s failure to ask questions about the circumstances of the plaintiff’s last months of employment with Telstra.
THE CONSTRUCTION POINT The Trust Deed relevantly provided in Clause 2.3.3 that: ... if a Member ceases to be an Employee... because of Total and Permanent Invalidity, there is payable to the Member from the Fund a lump sum benefit ... (details of the benefit are specified).
The expression Total and Permanent Invalidity was defined in Clause 2.1.2 as follows: ‘Total and Permanent Invalidity’ means, in relation to a Member, disablement as a result of which – (a) Unless otherwise agreed between the Trustee and the Principal Employer from time to time either generally or in any particular
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case, the Member has been continuously absent from all active Work for a period of at least six months and has been required by the Employer to participate in a Rehabilitation Program; and (b) In the opinion of the Trustee after consideration of any information, evidence and advice provided to the Trustee by the Employer and any other information, evidence and advice the Trustee may consider relevant, the Member has ceased to be an Employee and is unlikely ever to engage in any gainful Work for which the Member is for the time being reasonably qualified by education, training or experience.
Justice Byrne had found that under Clause 2.3.3 of the trust deed, the relevant incapacity must already exist as at the date of cessation of employment, but that six month period required in paragraph (a) of the definition of Total and Permanent Invalidity could occur after the cessation of employment with Telstra. In the Court of Appeal, Acting Justice Hansen, who wrote the leading judgment, reasoned that the second of these conclusions could not be supported, despite the fact the deed’s definition of ‘Work’ was not confined to work with Telstra. He noted that paragraph (a) of the definition of Total and Permanent Invalidity had two cumulative requirements, that the member be absent from work for six months and they had undergone a Rehabilitation Program. He inferred such a program must be to rehabilitate the employee for work with Telstra and therefore both requirements were premised on the basis that the member remained in Telstra’s employment. This conclusion was sufficient to disentitle the plaintiff to the benefit claimed, as the relevant absence from work had occurred in his case after Mr Finch had accepted the redundancy package. Justice Hansen nevertheless made some further observations in passing about the findings that had been made at first instance about the trustee’s failure to exercise its discretion in good faith, and upon real and genuine consideration.
GOOD FAITH AND REAL AND GENUINE CONSIDERATION The Court of Appeal confirmed that as set out in Karger v Paul,2 it has power to set aside the discretionary decision of a trustee if the relevant discretion was not exercised by the trustee in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. However, the mere fact that a trustee makes an error as to a fact or some other matter, or does not make all the inquiries that may have been open to be made, is not sufficient reason for a court to set aside a determination that was made in good faith, upon real and genuine consideration and for a proper purpose. As Acting Justice Hansen observed, in Karger v Paul Paul, Justice McGarvie accepted that the trustee was wrong in some of his beliefs, nevertheless the Court did not conclude that these erroneous beliefs played any significant part in leading the trustee to exercise his discretion as he did. Consequently it let the decision stand. His Honour cited the following passage from the judgment of Justice McGarvie with approval: If the gaps and errors in (the trustee’s) information and belief upon matters relevant to the exercise of discretion were sufficiently extensive, it could found an inference that he had not been in a position to give real and genuine consideration to his exercise of the discretion. I do not draw that inference from the evidence before me as to (the trustee’s) information and belief3.
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Trustees Incidental Errors do not Undermine Genuine Consideration - Telstra Super Pty Ltd v Finch by John Myatt
It had been made clear by Justice Byrne that there was no intention to find actual mala fides on the part of the trustee4 and consequently the trustee’s failure was entirely confined to the trial judge’s ‘breach of process’ findings. These failures as examined by the Court of Appeal were: (1) The failure to further investigate the ‘real job’ statement, made during the conversation with Mr McCredden or inviting the plaintiff to comment on the matter; and (2) The failure to make an inquiry as to the circumstances of the plaintiff’s last months of employment at Telstra and the reasons he decided not to continue working within the Telstra organisation.
The second set of issues arose from what Justice Byrne described as ‘the bald statement of the relevant Telstra managers,’ to the effect that the plaintiff was fit for duty and ‘not a TPI candidate’ as at March 1997. He also criticised the trustee for failing to enquire about the plaintiff’s actual experience at Telstra in the last months of his employment, including the reason why he did not take up an alternative position. Acting Justice Hansen dealt with these matters in turn and was unconvinced in each case that they made any material difference to the way the trustee exercised its discretion. On that basis, the Court of Appeal concluded that there had been no failure to exercise real and genuine consideration, however, this result was purely dictated by the facts as according to Acting Justice Hansen: It is both impossible and undesirable to lay down prescriptive rules as to what constitutes a lack of real and genuine consideration by a trustee.5
Implications The outcome of this case at first instance caused considerable disquiet as it suggested that the exercise of discretion by a trustee could be overturned as a result of question marks over the process the trustee adopted for investigating the claim which had a dubious connection with the core issues the trustee was required to consider. The Court of Appeal decision therefore appears to be a strong and timely voice in favour of commonsense. Trustees can take comfort from the Court’s observation that the fact that a trustee makes an incidental factual error or does not undertake every possible inquiry, is not sufficient reason for a court to set aside a decision that was made in good faith, on real and genuine consideration and for a proper purpose.
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Trustees Incidental Errors do not Undermine Genuine Consideration - Telstra Super Pty Ltd v Finch by John Myatt
Citation Telstra Super Pty Ltd v Finch [2009] VSCA 318
Endnotes 1
Finch v Telstra Super Pty Ltd (2008) VSC 481
2
(1984) VR 161
3
supra at p 175
4
Finch v Telstra Super Pty Ltd (No 2) [2008] VSC 527 at par 9
5
par 66
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Trustees Incidental Errors do not Undermine Genuine Consideration - Telstra Super Pty Ltd v Finch by John Myatt
For more information, please contact: John Myatt Partner T: 02 8257 5740 john.myatt@turkslegal.com.au
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