FACTS
The deceased died on 22 November 2016.
He was survived by his de facto wife, Ms Murray and his daughter, Ms Hill.
Ms Murray was a party to the proceedings in her capacity as the sole director of the corporate trustee of the deceased’s self-managed superannuation fund (SMSF), in her personal capacity and in her capacity as executor of his estate.
The deceased and Ms Murray were the only members of the SMSF at the date of the deceased’s death.
The SMSF Deed contained the following clauses:
5 Despite anything else in the trust deed or Rules, if either of Alec Kumar Sodhy or Jennifer Patricia Murray dies, then the Trustee must distribute the whole of the deceased Member’s Account Balance to the other Member and may pay any part of the benefit as a lump sum or as a pension as the Trustee considers appropriate.
6. Clause 5 is a Binding Death Benefit Nomination for the purpose of the Rules.
Rule 5 of the SMSF Rules, provided that if the Trustee had accepted a Binding Death Benefit Nomination (BDBN), then it must follow the BDBN.
Relying on Clauses 5 and 6 of the Deed, which are expressed to operate as a BDBN and to prevail over the SMSF Rules, Ms Murray caused Zuda to transfer the entirety of the deceased’s member account to herself.
Ms Hill contended that this transfer was invalid, relying upon ss31 and 55A of the SIS Act and Reg 6.17A and 6.22 of the SIS Regulations.
Zuda’s Construction
Zuda’s construction argument was neatly summarised by the Court as follows:[1]
26. On the respondents’ construction, reg 6.17A(6) and (7) of the SIS Regulations do not apply to a self managed superannuation fund on the following basis:
(1) Section 59(1) of the SIS Act expressly excludes self managed superannuation funds from its application.
(2) Therefore, the proviso in s 59(1A) of the SIS Act does not apply to govern the way in which a member of a self managed superannuation fund may make a binding death benefit nomination.
(3) Regulation 6.17A operates only for the purpose of prescribing the form of a notice which may be given to a trustee, or conditions, for the purposes of s 59(1A) of the SIS Act.
(4) Because reg 6.17A operates only for the purposes of a proviso to a requirement that does not apply to self managed superannuation funds, those regulations do not apply to self managed superannuation funds.
This is the reasoning adopted in Queensland by Mullins J in Munro v Munro[2] and by Bowskill J in Re Narumon Pty Ltd[3]and in South Australia by Kourakis CJ (with Peek and Nicholson JJ) in Cantor Management Services Pty Ltd v Booth[4].
Ms Hill’s Construction
Ms Hill contends that clauses 5 and 6 of the Deed purport to be a BDBN but are incapable of being treated as one, as they do not comply with the requirements set out in regs6.17A. Namely, the deed was signed longer than 3 years before the deceased’s death and were not executed in the way required by the regulations.
She then argued that the SIS Regulations do apply to SMSFs, on the following basis:[5]
27 On the appellant’s construction, reg 6.17A(6) and (7) of the SIS Regulations do apply to a self managed superannuation fund on the following basis:
(1) Regulations 6.17A(6) and (7) do not operate only for the purpose of s 59(1A) of the SIS Act. Rather, they add content to the standard set out in reg 6.17A(4). By reg 6.17A(1), the standard set out in reg 6.17A(4) is relevantly prescribed for the purposes of s 31(1) of the SIS Act.
(2) The trustee of a self managed superannuation fund is prohibited by s 55A(1) of the SIS Act from permitting a fund member’s benefits to be cashed after the member’s death otherwise in accordance with standards prescribed for the purposes of s 31 of the SIS Act.
(3) The governing rules of a fund will be invalid to the extent of any inconsistency with s 55A(1).
Ms Hill argued that the decisions in Munro, Narumon and Cantor Management were wrongly decided and instead relied upon a decision of Blue J in Retail Employees Superannuation Pty Ltd v Pain[6].
FIRST INSTANCE DECISION
At first instance, the Master agreed with the Zuda’s arguments, and found that the relevant legislation and regulations do not apply to SMSFs. Although reliance was placed on Pain by Ms Hill, the Master determined that it was not on point, and therefore not binding. He said:[7]
The position then is this: The authorities are all one way and favour the [respondents]. As the law stands in Australia at the moment, the [appellant’s] claim cannot succeed. While the argument detailed in Blue J’s judgment in Pain is of interest it cannot provide a basis upon which the [appellant’s] action can succeed. Accordingly, the [respondents] are entitled to an order for summary judgment.
APPEAL DECISION
In Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[8] the High Court said:
Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong. (citation omitted)
The significant of this for this case is that the decision in Cantor Management must be followed unless it is plainly wrong.
There was some debate as to what the ratio of Cantor Management was. It clearly determined that the Regulations did not apply to SMSFs, but did not address the argument about ss31 and 55A of the SIS Act.
Ms Hill argued that Bowskill J in Narumon considered the argument as to ss31 and 55 of the SIS Act on their merits and this decision came after Cantor Management. It was argued this was because Bowskill J did not consider Cantor Management dealt with the issue in a way which bound her.
Ultimately the Court determined that Cantor Management did determine that the regulations and in particular Reg6.17A did not apply to SMSFs.
Accordingly, Ms Hill’s appeal failed.
SPECIAL LEAVE APPLICATION
Special leave has been granted for an appeal to the High Court.
It is likely that the basis for this appeal is to be discerned from the following:
44 Counsel for the appellant also submitted that, if the court in Cantor Managementis to be regarded as determining that reg 6.17A does not apply to self managed superannuation funds, then that decision was plainly wrong.[9] We do not accept this submission. There is force in the appellant’s argument in favour of its construction of the SIS Act and the SIS Regulations. However, in our view, the competing construction is also reasonably open, essentially for the reasons explained by Bowskill J in Narumon.
Read the first instance decision here.
Read the appeal here.
Read the transcript of the special leave application here.
High Court Appeal Submissions can be found here.
[1] At [26].
[2] [2015] QSC 61.
[3] [2018] QSC 185.
[4] [2017] SASCFC 122.
[5] At [27].
[6] [2016] SASC 121.
[7] At [31].
[8] (2007) 230 CLR 89 at [135].
[9] Appeal at 24.