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Superannuation Legislation Amendment (Resolution of Complaints) Bill 1998
Bills Digest No. 43 1998-99
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does no t have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
To introduce an interim solution to the difficulties encountered by the Superannuation Complaints Tribunal (the Tribunal) as a result of Federal Court decisions which have effectively stripped the Tribunal of its review powers leaving it w ith an inquiry and conciliation role only.
The intention of the Superannuation Legislation Amendment (Resolution of Complaints) Bill 1998 (the Bill), is to allow the Tribunal to arbitrate disputes by consent. This represents an interim solution to provide a form of superannuation complaints dispute resolution.
On 14 February 1998, the Federal Court found that section 37 of the Superannuation (Resolution of Complaints) Act 1993 (SRC Act) purported to confer on the Tribunal judicial power of the Commonwealth contrary to Chapter III of the Constitution.(1)
In addition, the Federal Court found that as a matter of interpretation of the SRC Act the Tribunal is only entitled to receive complaints concerning discretionary decisions made by a trustee as opposed to decisions which are not discretionary.
2.1 The Doctrine of the Separation of Powers
It is now generally accepted by commentators on the Constitution and the courts that the doctrine of separation of powers applies at the federal level in Australia in relation to the distinction between executive and judicial functions. This is a longstanding doctrine which owes its genesis to the philosopher Montesquieu:
As Brazier(2) explains, the doctrine of the separation of powers asserts that governmental functions can be divided into three categories: legislative, executive and judicial; that the organs of government should similarly be divided into the legislature, the executive and the judiciary; and that each function of government should be exercised only by the relevant organ of government - so that the functions and institutions of government are kept strictly separate.(3)
2.2 Judicial Power May Only be Exercised by Courts
The High Court and the Privy Co uncil have established two basic propositions reflecting the structural separation of the judicial powers of the Commonwealth from its other powers:
â¢ First, that the functions of government that are properly characterised as judicial functions may only be given to, and exercised by courts,(4) and
â¢ Secondly, that the functions of government that are properly characterised as non-judicial may not be gi ven to, or exercised by, courts.(5)
The proposition that only courts may be authorised to exercise the judicial power of the Commonwealth, is deeply entrenched in Australian constitutional orthodoxy.(6)
There is no standard description, let alone definitio n, of judicial power for the purposes of the Constitution. The apparently simple descriptions of judicial power mask the complexities and ambiguities of the concept.(7)
The reality is that, in this area, one must move with considerable care, particularly when drafting Commonwealth legislation, to draw a sharp distinction between judicial and non-judicial functions, so as to ensure that the former are not given to the bodies which are not courts and that the latter are not given to bodies which are courts.
Under the SCR Act the Tribunal was established to hear complaints from members concerning decisions made by the trustees of regulated superannuation funds. The SRC Act allows for an inquiry and concil iation process. In the event of the conciliation process failing to resolve a dispute, the Tribunal makes a formal determination, after reviewing the matter, as to whether a decision made by trustees was fair and reasonable.
Statistics published by the Tribunal show that approximately 79 per cent of all ‘within jurisdiction’ complaints have been resolved at the inquiry and complaint stages, with the remaining 21 per cent of complaints proceeding to review.(8)
The Federal Court’s ruling removed the Tribunals determinations power and consequently no Tribunal review meetings have been held since February 1998 and no further determinations have been released. As at 31 March 1998 the Tribunal had a backlog of 211 matters awaiting review and by 23 November 1998 the number had increased to nearly 300 matters.
The Tribunal is placing greater emphasis on inquiry and conciliation in an effort to resolve more complaints prior to review. The Tribunal’s inquiry and conciliation role is apparently unaffected by the Court’s ruling on the validity of its review powers.
Following the Federal Court decision both the government and the superannuation industry have been working to address the problems which the ruling has created for dispute resolution in the industry.
4.1 Appeal to the High Court
The government lodged an application to the High Court for special leave to appeal the Federal Court decision, which the Court has granted. Mr John Larkin, ISC Assistant Commissioner has note d, however, that the case is not likely to be heard until the end of 1998, and a decision could be delayed for a further few months.(9)
4.2 Senate Select Committee on Superannuation ‘Round Table Forum’
The Senate Select Committee considered that the most a ppropriate way of considering options for dispute resolution following the Federal Court decision was to conduct a ‘round table’ forum, for which a legal and structural framework was provided by the preparation of a background briefing paper.(10)
The Committee made recommendations in relation to long term and short term strategies.
4.3 Interim Solution
The forum participants supported an initiative to urgently implement an interim solution to the current impasse, pending determination of a longer-term solut ion to the problem.
Discussion of a possible interim solution focussed on two models:
â¢ A non-legislative voluntary arrangement using Tribunal facilities, and
â¢ Amending the SRC Act to enable the Tribunal to arbitrate with parties’ consent.
The Committee considered that the most feasible interim solution would to be to introduce legislation allowing the Tribunal to arbitrate disputes by consent.
Parties would enter into agreements to be bound by a Tribunal award on a case-by-case basis and the award would be enforceable under contract law and State arbitration laws.(11)
Some forum participants raised the concern that agreement to such an arbitration system would constitute a fundamental breach of trustees’ fiduciary duties. It is for this reason that an amendment to the Superannuation Industry (Supervision) Act 1993 was also suggested to override any restriction arising from trustees’ equitable obligations and any restriction on trustees entering into such arbitration agreements on a voluntary basis.
1.1 Amendment of the Objectives and Functions of the Tribunal
To reflect the conferral of arbitration powers on the Tribunal:
â¢ Item 5 repeals the existing paragraph 11(b) and substitutes new paragraph 11(b) , which states that the Tribunal must, in carrying out its functions or exercising its powers, pursue the objectives of providing mechanisms for the conciliation of a complaint or the arbitration of a complaint.
â¢ Item 6 repeals existing paragraphs 12(1)(a) and (b) and substitutes new paragraphs 12(1)(a) and (b) which state that the functions of the Tribunal are to try to resolve complaints by conciliation and if this is not possible to conduct an arbitration in respect of the complaint.
References to the review powers of the T ribunal remain. This is appropriate because the outcome of the High Court challenge is not yet known and the resolution of the problem in respect of a long term solution remains outstanding.
1.2 Complaints may be made about Discretionary or Non-Discretionary Decisions
To ensure that the Tribunal’s ongoing functions of inquiry, conciliation and arbitration, extend to non-discretionary decisions Item 8 inserts new section 14AA which states that to avoid doubt, a complaint may be made about a decision whether or not the decision involved the exercise of a discretion.
It continues in new subsection 14AA(2) to specify that a non-discretionary decision is taken to have been unfair and unreasonable if the decision was contrary to law. This should resolve the tension between the requirement to determine a complaint by reference to the ‘fair and reasonable test’ and the requirement not to do anything that is contrary to law.
1.3 Part 7A - Arbitration
Item 1 of Schedule 1 inserts new Part 7A , which confers arbitration powers on the Tribunal.
1.3.1 Notification of Entitlement to Refer Complaint to Arbitration
Pursuant to new subsection 48B(2) , where the Tribunal has unsuccessfully tried to settle a dispute by conciliation, it must give a notice to the parties telling them that they may, within 28 days, enter into an agreement to refer the complaint to arbitration by the Tribunal.
1.3.2 Obligation to Conduct Arbitration
If the arbitration agreement is lodged with the Tribunal, the Tribunal must conduct an arbitration. New subsection 48B(5) .
1.3.3 Nomination of State or Territory Law to Apply
Under new subsection 48B(4) an arbitration agreement must be executed under seal as a deed and nominate the law of a particular State or Territory as being the law that is to govern the operation of the agreement.
1.3.4 How Arbitration is to be conducted
Pursuant to new subsection 48C(1) arbitration is to be conducted by the Tribunal, as it thinks fit in accordance with the law of the nominated State or Territory relating to commercial arbitration. The appropriate State or Territory Law will therefore also govern procedural matters.
1.3.5 Sunset Clause
In view of the interim nature of the Tribunal’s arbitration powers pursuant to new section 48F , Part 7A will cease to have effect on a day to be fixed by proclamation.
The object of the Superannuation Industry (Supervision) Act 1993 is to make provision for the prudent management of certain superannuation funds, approved deposit funds and pooled superannuation trusts and for their supervision by the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.
Item 1 of Schedule 2 inserts new section 337A , which states that nothing in any law or in any governing rules of a fund, scheme or trust, shall prevent a trustee from entering into an arbitration agreement nor from giving effect to an award made by the Tribunal in an arbitration.
This is to ensure no occurrence of any fundamental breach of trustees’ fiduciary duties.(12)
In its report, the Senate Select Committee on Superannuation recommended that the government investigate the fea sibility of introducing legislation to validate the past decisions of the Tribunal.(13) The Bill does not address this issue.
Forum participants apparently expressed a range of different opinions as to whether this matter was of sufficient importance to warrant special legislation, however, on balance it was considered an appropriate course of action.
In any event it is possible that the current High Court appeal may be forestalling any litigation and it would seem to be a sensible approach to delay introducing legislation in this area until the outcome of the challenge is known.
1. Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd (1998) 152 ALR 332. See also the unreported decision of Brekler v Leshem  57 FCA (unreported, 12 February 1998) The Federal Court found that two aspects of the Tribunal’s work were found to breach the separation of powers doctrine in the Constitution. It was found the Tribunal’s ability to review the decision of a trustee on the basis that it was ‘fair and reasonable’ and the enforceable nature of its determinations indicated the exercise of judicial powers.
2. De Smith and Brazier R, Constitutional and Administrative Law, 6 th ed, Penguin, London, 1989.
3. Hanks P, Constitutional Law in Australia , 1996, p 464.
4. The proposition emerged in New South Wales v Commonwealth , the Wheat case (1915) 20 CLR 54.
5. The proposition was established in R v Kirby; Ex parte Boilermakers’ Society of Australia , the Boilermakers case, (1956) 94 CLR 254.
6. The decision of the High Court in Brandy v Human Rights and Equal Opportunity Commission (1995) 127 ALR 1, served to emphasise the entrenchment. The court was unanimous in holding that sections of the Racial Discrimination Act 1975 (Cth) were invalid because those sections had the effect of conferring judicial power on the Human Rights and Equal Opportunity Commission.
7. In Precision Data Holdings v Wills (1991) 173 CLR 167 the High Court referred to the acknowledged difficulty, if not impossibility, of framing a definition of judicial power that is at once exclusive and exhaustive. The difficulty they said, was caused by the fact that many features that were essential to the exercise of power were not by themselves conclusive of the question and could also be elements in executive or legislative power.
8. Superannuation Complaints Tribunal Annual Report , No 11, p 8-9.
9. John Larkin, 31 st Report of the Select Committee on Superannuation, Resolving Superannuation Complaints , Canberra, July 1998, Evidence p 3.
10. Superannuation Complaints Tribunal Round Table Discussion with Senate Select Committee on Superannuation, Sydney, Tuesday 28 th April 1998, Background Briefing Paper Prepared for the Committee by Andrew Fairley of IFS Fairley.
11. Select Committee on Superannuation, Resolving Superannuation Complaints , Canberra, July 1998, p 15.
12. George Raitt of Blake Dawson Waldron, Report of the Select Committee on Superannuation, Resolving Superannuation Complaints , Canberra, July 1998, p.16, drew attention to the power for a trustee to compromise disputes contained in many trust deeds and a similar implied power in most state trustee legislation. In his opinion: ‘…if those either expressed provisions or implied provisions under state law have sufficient coverage of the industry it may not be necessary to amend the act or the regulations.’
13. Report of the Select Committee on Superannuation, Resolving Superannuation Complaints , Canberra, July 1998, p 56.
30 November 199 8
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