Asgard Capital Management Limited v Maher [2002] FCA 1329 (29 October 2002)

Last Updated: 30 October 2002

FEDERAL COURT OF AUSTRALIA

Asgard Capital Management Limited v Maher [2002] FCA 1329

SUPERANNUATION - fund member retiree instructed financial adviser to apply existing superannuation fund entitlement for three purposes - two purposes required cash outlays out of proceeds of fund to be made by fund manager - third and major purpose required only internal fund transfer to new account to be conducted by existing fund manager and therefore no withdrawal of cash - fund member signed fund manager's authority form in blank and handed same to fund member's financial adviser - financial adviser thereafter filled in authority wholly in favour of his business bank account without knowledge of fund member - financial adviser wholly misappropriated funds the subject of the third and major purpose - whether fund manager liable to make good to fund member misappropriated funds by reason of fund manager permitting funds to be transferred from fund member's superannuation account direct to third party and not to fund member - fund manager denied liability - fund member's appeal to Superannuation Complaints Tribunal upheld - fund manager's appeal to Court disallowed - consideration of superannuation trust deed and applicable legislation and subordinate legislation.

Superannuation (Resolution of Complaints) Act 1993 (Cth) ss 37, 46(1)

Superannuation Industry (Supervision) Act 1993 (Cth) ss 3(1), 58, 62

Superannuation Industry (Supervision)Regulations 1994 regs 6.22 and 6.22B

Melsom v Vanpress Pty Ltd (1990) 3 ACSR 109 distinguished

H Meyer & Co Ltd v Jules Decroix, Verley et Cie [1891] AC 520 distinguished

Retail Employees Superannuation Pty Ltd v Crocker (2001) 48 ATR 359 cited

National Mutual Life Association of Australia Ltd v Jevtovic [1997] 359 FCA (8 May 1997, Sundberg J) cited

ASGARD CAPITAL MANAGEMENT LIMITED v BARRY RICHARD MAHER

N 853 OF 2002

CONTI J

29 OCTOBER 2002

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 853 OF 2002

ON APPEAL FROM THE SUPERANNUATION COMPLAINTS TRIBUNAL CONSTITUTED BY GRAHAM McDONALD, COLIN GRENFELL AND ROSS CHRISTIE

BETWEEN:	ASGARD CAPITAL MANAGEMENT LIMITED APPLICANT
AND:	BARRY RICHARD MAHER RESPONDENT
JUDGE:	CONTI J
DATE OF ORDER:	29 OCTOBER 2002
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The application be dismissed.

2. The applicant pay the respondent's costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 853 OF 2002

ON APPEAL FROM THE SUPERANNUATION COMPLAINTS TRIBUNAL CONSTITUTED BY GRAHAM McDONALD, COLIN GRENFELL AND ROSS CHRISTIE

BETWEEN:	ASGARD CAPITAL MANAGEMENT LIMITED APPLICANT
AND:	BARRY RICHARD MAHER RESPONDENT

JUDGE:	CONTI J
DATE:	29 OCTOBER 2002
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Background circumstances

1 Asgard Capital Management Limited ("Asgard") is the publicly listed fund manager and trustee of the Asgard Independence Superannuation Plan ("the Plan") constituted under and pursuant to Trust Deed dated 12 May 1988 made between Asgard of the first part, National Mutual Life Nominees Limited of the second part and The National Mutual Life Association of Australasia Limited of the third part. The respondent to these proceedings ("Mr Maher"), being the complainant to the Superannuation Complaints Tribunal ("the Tribunal"), had been a member of the Plan since October 1997, by virtue of his holding two accounts conducted by Asgard, one being a so-called superannuation account, and the other being a so-called unit trust account. Mr Maher had attained the age of sixty-five years prior to the events giving rise to the present dispute, and was at least by that time entitled to deal freely with his superannuation entitlements.

2 Mr Maher had a business relationship with Mr Burke of KBA Financial Services. The length of time of the relationship does not appear from the Appeal Book. Mr Maher requested Mr Burke to re-organise his superannuation accounts conducted with Asgard, then having an approximate monetary value of $280,000.00 as follows:

(i) by placing $30,000 to the credit of a joint bank account conducted by Mr Maher and his wife;

(ii) by applying $5000 in the purchase of Coles Myer shares; and

(iii) by applying the balance of $245,000 in the establishment of a new joint investment account with Asgard in the name of Mr Maher and his wife, by way of internal transfer by way of book entry within Asgard's records.

3 For the purpose of implementing those instructions, Mr Maher signed in blank a printed form headed "ASGARD SUPERANNUATION ACCOUNT Payment Request", apparently at the direction of Mr Burke, and wrote next to his signature the date 1 October 1999. No other handwriting of Mr Maher appears on the document. That form contained the following printed matter, inter alia:

" Please pay my entire benefit. We will close your account and cancel your insurance

Please pay $ Gross of Tax OR $ Net of Tax

...

Undeducted Component $

Pre/Post Component $

...

Option 1: Rollover to Another Fund

...

Option 2: Rollover Only My Preserved Benefit To the Fund Indicated and send the non-preserved benefit in cash

...

Option 3: Cash Withdrawal

...

Option 4: Transfer to Another ASGARD Account

...

Please send the cheque to my postal address in the Account Details section.

OR

Please credit the benefit to my bank account as detailed below.

Bank Name Branch

Account Name

BSB Number Account Number

..."

4 After signing that form in blank, Mr Maher handed the same to Mr Burke. Thereafter Mr Maher, filled in the following details on the form in handwriting, without the knowledge or consent of Mr Maher, as follows:

(i) against the second box appearing above, after "ticking" the same, the sum of $280,000.00 before the words "Net of Tax";

(ii) against the fifth box appearing above as "Option 3: Cash Withdrawal", by ticking the same;

(iii) against the eighth box appearing above, after "ticking" the same, the following words or figures in sequence underneath, namely "Commonwealth Bank", "Tweed Heads", "KBA Financial Services", "062-682" and "10018732", respectively adjacent to "Bank Name", "Branch", "Account Name", "BSB Number" and "Account Number".

Those bank account details related to Mr Burke's bank account conducted in the name of his firm KBA Financial Services, and not to any bank account conducted by Mr Maher.

5 In the events which happened, the whole of the sum of $280,000 was transferred to the bank account of Mr Burke conducted in the name of "KBA Financial Services". Although the first and second elements of Mr Maher's actual instructions set out in [2] above, namely those relating to the sums of $30,000 and $5000, were carried out by Mr Burke, the third element of Mr Maher's instructions was not carried into effect, being the creation by internal Asgard book entries, of a new joint investment account for Mr and Mrs Maher to be conducted by Asgard. Instead Mr Burke filled out a further Asgard printed form evidently never produced to Mr Maher, headed "The ASGARD Investment Funds Account Application", initially referring to the sum of $240,000, then amending that figure to read $245,000, and then amending that figure again to read (finally) $245,050.65, being a form upon which appears the signatures of both Mr and Mrs Maher, and adjacent thereto the date 10 November 1999, and also reference by this time to Kerry Burke & Associates under the heading "Adviser Details", instead of KBA Financial Services. This latter or second form was then forwarded by Mr Burke to Asgard, as was subsequently acknowledged by Asgard by letter dated 12 November 1999 addressed to Mr and Mrs Maher, in relation to the sum of $245,050.65. Thus Mr Burke omitted to fill out Options 1 and 2 on the Asgard form in conformity with his instructions, in order to create a new investment account with Asgard in the names of Mr and Mrs Maher.

6 A file note of Asgard bearing date 13 June 2000, prepared in relation to Mr and Mrs Maher, records the ensuing events purportedly from its perspective as follows:

"The above account was opened on the 12^th November 1999 with a deposit of $245050.65. This cheque then dishonoured and after that there was a sequences of events.

1. Cheque deposited for $245,050.65 on the 12/11/1999.

2. Dishonour of cheque came through on the 16/11/1999.

3. Kerry Burke rang client services and said that this cheque had had a Stop Notice placed on it and a second cheque had been banked 18/11/1999.

4. The second cheque was dishonoured and he said a third cheque was to be sent in its replacement on 15/11/1999.

5. The banking schedules were checked for several days and no cheques had been banked.

6. After another week or so I ask Danielle from client services to call the adviser once again and ask if the cheque was going to be banked as we where (sic) waiting to process a journal for the original cheque deposit. Danielle only got to speak to his assistant who said Kerry Burke was not in the office and another cheque was on its way.

7. Another week went by and once again Danielle rang and was told "No the client did not want to go ahead with the account" I requested that we have a fax from the adviser concerning this matter.

8. Once again we rang to ask for the fax and were told that Kerry Burke was in Sydney and unfortunately his office had burnt out.

9. On the 30/11/1999 I processed the journal to reverse the original $245,050.65. Once this account had been settled I then checked to see if there was a loss or gain on the account. As it turned out there was a balance of $3313.82 as of 31/12/1999.

10. I had spoken to Tony Richards regarding the gain and he advised that the funds should be placed back into the AIFA account as they (sic) money was made on ASGARD money not the client. This was fine and it was taking sometime to find a way to do this.

11. Unfortunately when another issue concerning a client of Kerry Burkes was bought (sic) to my attention, I then checked this client only to find that a Payment Request had been lodged and a payment of $2933.72 was made and the account closed.

12. The clients were never entitled to these funds and therefore the advisor should have not submitted a Payment Request."

7 In the result, Mr Maher was defrauded by Mr Kerry Burke of KBA Financial Services of the sum of $245,050.65, by Mr Burke's misappropriation of the same out of the amount of $280,000 (plus $50.65 accrued interest) transferred in cash from Mr Maher's superannuation account with Asgard into Mr Burke's own bank account. On 27 August 2001, Mr Burke pleaded guilty in the Tweed Heads Local Court to 39 counts of obtaining $4,490,563.88 by deception and 11 counts of using false documents to withdraw $923,150.62. Mr Maher's abovementioned funds of $245,050.65 presumably comprised an element of those misappropriated sums.

8 The then solicitors for Mr Maher wrote to Asgard on 18 July 2000 as follows inter alia:

"We are instructed by our clients that a Mr Kerry Burke of Kerry Burke & Associates fraudulently withdrew an amount of $245,000.00 from our client's account with you and that you paid this sum directly to him when in fact our client's instructions are that it was to remain invested with your company."

That letter was strictly or technically inaccurate, in that the total amount actually withdrawn was the sum above referred to of $280,050.65, but of course, the sums of $30,000 and $5000 referred to in [2] were duly applied by Mr Burke in accordance with Mr Maher's instructions. The response of Asgard by letter dated 28 July 2000 was as follows, inter alia:

"I enclose a copy of the Payment Request signed by Mr Maher seeking the withdrawal of $280,000.00 from his super account (0136571-D2-01). As directed, this amount was paid to the credit of a bank account in the name of KBA Financial Services.

As I understand it, $245,000.00 of this amount was to be paid into an investment account in your clients' joint names (0527066-D5-01). However, the cheque for this amount (which was a Mr Burke cheque) to open their investment account was dishonoured and, despite a number of follows ups to Mr Burke, no new cheque was received. Therefore, your clients' investment account never had any money in it to withdraw. Mr Maher has a copy of all relevant papers."

There is also an inaccuracy in this letter, in that the sum of $245,000 was to be appropriated by Asgard by way of internal book entry within Asgard's internal accounts, and not to be made the subject of payment in cash in the first place into a bank account controlled by Mr Burke.

9 Mr Maher referred the dispute thus arising to the Tribunal, pursuant to s 37 of the Superannuation (Resolution of Complaints) Act 1993 (Cth) ("the Complaints Act"), sub-sections (1), (3), (4) and (6) whereof reading as follows:

"(1) For the purpose of reviewing a decision of the trustee of a fund that is the subject of a complaint under section 14:

(a) the Tribunal has all the powers, obligations and discretions that are conferred on the trustee; and

(b) subject to subsection (6), must make a determination in accordance with subsection (3).

...

(3) On reviewing the decision of a trustee, insurer or other decision-maker that is the subject of, or relevant to, a complaint under section 14, the Tribunal must make a determination in writing:

(a) affirming the decision; or

(b) remitting the matter to which the decision relates to the trustee, insurer or other decision-maker for reconsideration in accordance with the directions of the Tribunal; or

(c) varying the decision; or

(d) setting aside the decision and substituting a decision for the decision so set aside.

(4) The Tribunal may only exercise its determination-making power under subsection (3) for the purpose of placing the complainant as nearly as practicable in such a position that the unfairness, unreasonableness, or both, that the Tribunal has determined to exist in relation to the trustee's decision that is the subject of the complaint no longer exists.

...

(6) The Tribunal must affirm a decision referred to under subsection (3) if it is satisfied that the decision, in its operation in relation to:

(a) the complainant; and

...

was fair and reasonable in the circumstances."

The Tribunal's decision the subject of appeal to this Court was purportedly made by reference to subsection (4) above.

10 Accompanying the referral to the Tribunal was a lengthy statement signed by Mr Maher, containing (inter alia) the following:

"In October 1997 my then Financial Adviser recommended that I switch my Superannuation and other Unit Investments to Asgard. This I agreed to do. The two account numbers are Superannuation 0136571-D2-01, Unit trust Investment 0141186-D5-01.

Over a period of time I instructed my Financial Adviser to draw down from the Unit Trust Investment. All Asgard withdrawal forms submitted clearly instructed Asgard to deposit the funds into my joint Commonwealth Bank account No. 2682 10017836. Three withdrawals occurred on three separate dates: 6/11/98 $55,000, 16/3/99 $60,000, 7/7/99 $35,000. This should have created a clear pattern to Asgard as to where any funds withdrawn from my account were to be paid.

On the 1/10/99 I again signed an Asgard withdrawal form, this time from my Superannuation. This time for $280,000. My instruction to my Financial Adviser was that $30,000 was to be paid into my joint Commonwealth Bank account, approximately $5,000 was to purchase Coles Myer Shares. The balance $245,050.65 was to be used to set up a new joint Investment Account within Asgard. Asgard issued a certificate (item 5) crediting my business to Infocus Financial Planning instead of Security Financial Planning. The advisor showed me this piece of negligence by Asgard, which allowed the advisor stalling time by blaming Asgard's incompetence for the non issue of the correct documents. This money, $245,050.65 was never to leave Asgard, but simply to be transferred from my Superannuation Fund. Asgard paid all of this money $280,000 from my Superannuation directly into a 3^rd party account, that of the Financial Adviser, KBA Financial Services. I learned later that the Financial Adviser deposited $30,000 into my joint Commonwealth Bank Account, and purchased the Coles Myer Shares. The fact that the $30,000 went into the bank and I received the Share certificate covered his deception.

Asgard made no attempt to contact me to inquire as to why I would want to deposit $280,000 from my Superannuation into a (sic) advisors business account...

...

The Financial Planner then forwarded his own cheque for $245,050.65 to Asgard, to marry up with the documentations for setting up of the new account (item 6), Asgard forwarded a receipt to me for this amount (item 7)...

...

I have since learned that Asgard changed the address of all of this Planners clients to his address, and surprisingly this did not `ring alarm bells within Asgard'...

..."

It is apparent that the Tribunal accepted as accurate Mr Maher's account of the events set out above. A revision of the original statement was later made by or on behalf of Mr Maher, but not to an extent of material variance, for present purposes at least, from his original statement.

11 Asgard for its part provided a submission to the Tribunal on 3 April 2002 containing (inter alia) the following:

"1. (a) Mr Maher's superannuation account was 0136571-D2-01.

(b) Mr Maher intended that money from this account go into an investment account, but the proceeds from the closure of his superannuation account were fraudulently converted by Mr Maher's financial adviser, Kerry Burke, and were not applied as instructed by Mr Maher.

(c) Mr Maher admits that he signed the relevant Payment Request to close the account, which contained an instruction to draw a cheque for the benefit paid in favour of "KBA Financial Services".

(d) There was nothing in, on or about the Payment Request to alert ASGARD to any potential foul play. Third party Payment Requests are not uncommon and this did not arouse any suspicion of itself.

(e) ASGARD acted on this instruction in good faith and without any want of prudence or diligence on its part.

2. (a) Account 527066-D5-01 is the investment account established in Mr & Mrs Maher's name into which most of the proceeds from Mr Maher's superannuation account were to be deposited.

(b) This investment account is not part of a superannuation fund.

(c) The initial deposit to this account was a Mr Burke cheque for $245,050.65, which dishonoured, so the investment account never had any money in it.

3. ASGARD submits there was no "decision" involved in ASGARD's acceptance of Mr Maher's written instruction. If a "decision" was made, it was not certainly not a discretionary decision and was clearly not contrary to law."

It may be observed that in sub-paragraph 1(d) above, Asgard used the expression "Third party Payment Requests", thereby implicitly withholding from any explicit admission to the effect that it knew at all material times that "KBA Financial Services" was a firm or business name used by Mr Maher. However I think that it may be inferred, by reason of the absence of denial made in any of the material in evidence to the contrary, that Asgard was either aware of Mr Burke's association with KBA Financial Services at all material times, or that in any event it was not a firm name used by Mr Maher. The Tribunal decision was implicitly predicated upon at least one of those circumstances.

12 I have not extracted the totality of the correspondence between Asgard and Mr Maher which occurred after Mr Burke's misconduct came to light, nor the totality of what was placed before the Tribunal, but what I have extracted or referred to already suffices to reflect the essence of at least the factual accounts placed before the Tribunal by Mr Maher and Asgard, except perhaps for the following part of a letter sent on 19 September 2001 by Asgard to Mr Maher, after his complaint had been placed before the Tribunal:

"In your "Annexe for question 4" in the complaint to the Tribunal, you make a number of statements. I will deal with these statements in turn. You refer to the fact that a number of earlier withdrawals from your investment account were deposited to Commonwealth Bank Account 2682 10017836. You believe these withdrawals should have created a clear pattern to ASGARD as to where any funds withdrawn from your accounts were to be paid. Unfortunately, while we obviously keep a record of withdrawals, I believe it is unrealistic to expect ASGARD to check payment patterns, every time ASGARD receives a withdrawal, in an attempt to draw a conclusion as to whether the current payment request is consistent with that pattern.

You go on to say that ASGARD made no attempt to contact you to inquire to (sic) as to why you would want to deposit $280,000.00 from your superannuation account into a third party account (in your adviser's name). Clearly you suggest that ASGARD should query every third party account instruction that it receives, before it is actioned. Again, while this might be a worthwhile security measure, it is not a realistic business proposition and I think it is unfair to suggest, because we do not undertake this checking, that ASGARD's prudential standards are not up to scratch. It is not unusual for a member to instruct ASGARD to make a third party payment. I also do not accept that "the vast majority of fund managers are far more responsible and would not allow superannuation monies to be paid to a third party, without reference to the fund member". ASGARD honoured the instruction that you gave in writing. We did not expect to have to query that written instruction with you."

It will be observed therefrom that Asgard chose to treat, as a component of its response, the interpolated details fraudulently inserted on the standard form of Asgard Superannuation Account Payment Request by Mr Burke, as part of the "...the instruction that you gave in writing". Asgard's submissions to the Court tended to be to similar effect, in that the same purported in a somewhat equivocal way to treat or characterise Mr Burke's instructions as to the application of Mr Maher's residual funds in favour of KBA Financial Services, as those of Mr Maher, despite what I have pointed out at the conclusion of [11] above.

The Tribunal's review determination and reasons

13 The Tribunal declined to accept the contentions of Asgard for the reasons I shall now summarise. The Tribunal first made the following critical factual finding in favour of Mr Maher, which I reproduce below:

"Whilst the Complainant signed the form authorising the withdrawal of $280,000 from his superannuation account it appears that the Financial Adviser completed the details indicating that the payment was to be made to the Financial Advice Company. The Financial Adviser was then to place some in the bank, buy some shares, and set up an investment account for the Complainant and his wife with the balance of this money. The Financial Adviser did so in respect of the first two requests but $245,050.46 was not applied as the Complainant requested."

The above reference to "Financial Advice Company" was of course to `KBA Financial Services'.

14 The Tribunal next referred to the following provisions of the Asgard Superannuation Trust Deed ("the Trust Deed"):

"9.2 Compliance with Superannuation Law

The Trustee shall take such action as it considers necessary and appropriate to ensure that it is constituted in a manner which complies with the Superannuation Law including, without limitation, appropriate action in respect of the Memorandum and Articles of Association of the Trustee and the appointment and composition of, and filling of vacancies on the board of directors of the Trustee.

9.3 Covenants by Trustee

The Trustee covenants with the intent that the benefit of this covenant shall ensure to each Participant and Member severally that:

9.3.1 The Trustee will act continuously as Trustee under the trusts of this Deed and will carry out and perform the duties and obligations on its part as Trustee until such trusts are determined as herein provided or it has retired as Trustee in the manner herein provided.

9.3.2 The Trustee shall retain the Assets of each Division in safe custody and shall hold them as Trustee for the Participants and Members entitled thereto upon the terms of this Deed.

....

9.3.4 The Trustee will:

(a) exercise all due diligence and vigilance in carrying out its functions and duties under this Deed and in protecting the rights and interests of the Participants and Members;

...

Second Schedule

6.3 Payment of Benefit

Where a Condition of Release is satisfied by the Participating Person or Employer Sponsored Participant, as the case requires, then, upon determination of the Benefit, the Trustee shall pay an amount equal to his Benefit (or such other amount as is equal to the amount of his Benefit less any Taxation Amount deducted pursuant to Clause 20.2):

...

in the following manner:-

(d) Where the Participating Person or Employer Sponsored Participant, as the case requires, satisfies a Condition of Release, pay the Benefit to the Participating Person or Employer Sponsored Participant, as the case requires."

The absence from par (d) above of words such as "or as the Participating Person or Employer Sponsored Participant may otherwise direct", before the concluding words of par (d) above "as the case requires", should be observed. Asgard contended, to my understanding, though somewhat faintly, that Mr Maher was not a "Participating Person" or "Employer Sponsored Participant" by the time of occurrence of the events in issue in the proceedings. "Participating Person" is defined by the Trust Deed as "... any person who is Gainfully Employed and admitted to participate in Division 2 for the purpose of obtaining or providing superannuation benefits". I do not think that the submission is correct. There was no evidence that I can distil that Mr Maher was not at least self-employed at the time Asgard made the payment in question, and in any event it seems to me that even if a member ceases to be employed or self-employed after joining the Asgard Superannuation Plan, Asgard's obligations thereunder continue to apply to that person until his or her entitlements have been fully satisfied.

15 The Tribunal referred thereafter to regulations 6.22 and 6.22B of the Superannuation Industry (Supervision) Regulations 1994 ("SIS Regulations"), made pursuant to the Superannuation Industry (Supervision) Act 1993 ("SIS Act"), which, to adopt the description of the Tribunal, "...provide rules which limit the cashing of benefits":

"REG 6.22 Limitation on cashing of benefits in regulated superannuation funds in favour of persons other than members or their legal personal representatives.

(1) Subject to regulation 6.22B, a member's benefits in a regulated superannuation fund must not be cashed in favour of a person other than the member or the member's legal personal representative unless:

(a) the member has died; and

(b) the conditions of subregulation (2) or (3) are satisfied.

(2) The conditions of this subregulation are satisfied if the benefits are cashed in favour of either or both of the following:

(a) the member's legal personal representative; and

(b) one or more of the member's dependants.

(3) The conditions of this subregulation are satisfied if:

(a) the trustee has not, after making reasonable enquiries, found either a legal personal representative, or a dependent, of the member; and

(b) the person in whose favour benefits are cashed is an individual.

REG 6.22B When benefits in regulated superannuation funds may be cashed in favour of persons except members.

A member's benefits in a regulated superannuation fund may be cashed in favour of a person other than the member if:

(a) the cashing is expressly permitted by the Regulator in a written approval for the purposes of subparagraph 62(1)(b)(v) of the Act; and

(b) the benefits are cashed only to the extent of that approval."

16 The reference to the "Regulator" in regulation 6.22B is to the Australian Prudential Regulation Authority ("APRA"). Those critical regulations 6.22 and 6.22B spring from s 62 of the SIS Act, headed "Sole purpose test". Material provisions of s 62 of the SIS Act provide as follows:

"62(1) The trustee of a regulated superannuation fund must ensure that the fund is maintained solely:

(a) for one or more of the following purposes (the core purposes):

(i) the provision of benefits for each member of the fund on or after the member's retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged (whether the member's retirement occurred before, or occurred after, the member joined the fund);

(ii) the provision of benefits for each member of the fund on or after the member's attainment of an age not less than the age specified in the regulations;

(iii) the provision of benefits for each member of the fund on or after whichever is the earlier of:

(A) the member's retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged; or

(B) the member's attainment of an age not less than the age prescribed for the purposes of subparagraph (ii);

(iv) the provision of benefits in respect of each member of the fund on or after the member's death, if:

(A) the death occurred before the member's retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged; and

(B) the benefits are provided to the member's legal personal representative, to any or all of the member's dependents, or to both;

(v) the provision of benefits in respect of each member of the fund on or after the member's death, if:

(A) the death occurred before the member attained the age prescribed for the purposes of subparagraph (ii); and

(B) the benefits are provided to the member's legal personal representative, to any or all of the member's dependants, or to both; or

(b) for one or more of the core purposes and for one or more of the following purposes (the ancillary purposes):

(i) the provision of benefits for each member of the fund on or after the termination of the member's employment with an employer who had, or any of whose associates had, at any time, contributed to the fund in relation to the member;

(ii) the provision of benefits for each member of the fund on or after the member's cessation of work, if the work was for gain or reward in any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged and the cessation is on account of ill-health (whether physical or mental);

(iii) the provision of benefits in respect of each member of the fund on or after the member's death, if:

(A) the death occurred after the member's retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged (whether the member's retirement occurred before, or occurred after, the member joined the fund); and

(B) the benefits are provided to the member's legal personal representative, to any or all of the member's dependants, or to both;

(iv) the provision of the benefits in respect of each member of the fund on or after the member's death, if:

(A) the death occurred after the member attained the age prescribed for the purposes of subparagraph (a)(ii); and

(B) the benefits are provided to the member's legal personal representative, to any or all of the member's dependants, or to both;

(v) the provision of such other benefits as the Regulator approves in writing.

..."

17 The main findings of the Tribunal were as follows:

"What is clear from the evidence is that the Complainant was less than diligent in signing the Request for Payment form either in leaving the payment details open so that the Financial Adviser could later add the Financial Advice Company as the payee or not checking carefully its contents. Notwithstanding that serious omission by the Complainant the Trustee had a duty to act fairly and reasonably with the Complainant in accordance with its Deed and Superannuation Law as defined.

The rules of the Fund relating to the payment of benefits as quoted above clearly indicate that, except where a payment can be made to a participating employer (which does not apply in this case) it must be made to the `Participating Person'. The `Participating Person' in this case is the Complainant.

Clause 9.2 of the Schedule to the Deed requires the Trustee to comply with Superannuation Law. For the purposes of this determination the Tribunal sees the SIS Act Regulation 6.22 as relevant. This regulation limits the ability of the Trustee to make payments from a superannuation fund other than to the member or the member's legal personal representative. The reading of this provision in conjunction with Regulation 6.22B suggests to the Tribunal that, in the absence of specific approval from the Regulator and having regard to the specific circumstances, the Trustee is only empowered to make payments to the member.

The Tribunal therefore concludes that it is unfair and unreasonable for the Trustee to make a payment that is not in accordance with its Deed and the Superannuation Law. It is further of the view that the amount of the payment that did not end up as a benefit for the Complainant must be regarded as still remaining in the superannuation account in the name of the Complainant as it has never been paid to the Complainant as required."

Clause 9.2 of the Schedule to the Deed has been extracted in [14] above, and SIS regulations 6.22 and 6.22B have been extracted in [15] above.

18 After referring to the provisions of the Complaints Act which I have extracted in [9] above, the Tribunal therefore decided to set aside the subject decision of Asgard as Trustee of the [Asgard Superannuation] Trust Deed, on the grounds that it was not "fair and reasonable, in its operation in relation to [Mr Maher] in the circumstances", and substituted instead the decision that Mr Maher was "entitled to payment of a superannuation benefit from the Fund in respect of that portion of the payment that did not come under the control of [Mr Maher]", and further that "[t]he benefit must therefore be paid to [Mr Maher] based on the current value [as] if the amount of $245,050.46 had remained in the Fund until the date of payment". The Tribunal further directed that losses incurred by the administrator of the Fund must not impact on the value of the benefits of other members of the Fund.

Asgard's submissions to the Court, and my observations and responses in relation thereto

19 Asgard has appealed to the Court from the Tribunal's decision, pursuant to subs 46(1) of the Complaints Act, which provides that a party may appeal on a question of law. Asgard submitted in summary that irrespective of the absence of reference to the "KBA Financial Services" bank account on the Asgard Payment Request form at the time of Mr Maher's signing and handing the same to Mr Burke, and irrespective of his verbal instructions to Mr Burke, it should be concluded in law that Mr Maher thereby directed Asgard to appropriate out of Mr Maher's superannuation account the full amount of $280,000.00, and to deposit the same to the credit of that bank account. Asgard therefore further submitted that to the extent that Mr Burke misappropriated $245,000.00 of that amount, plus $50.65 interest, Asgard was not responsible in law to make good that loss to Mr Burke. The way in which that submission was expressed, and repeated, tends to conflate the content of the Asgard Payment Request, as it stood when signed by Mr Maher in blank, with the final appearance thereof after being subsequently filled in by Mr Burke in the absence of Mr Maher and lodged by Mr Burke with Asgard. The actual circumstances as accepted by the Tribunal were to the effect that Mr Maher did not in fact authorise the payment or transfer out of Mr Maher's superannuation account conducted with Asgard of any moneys into the control of Mr Burke, whether orally or in writing, other than to the extent that the sum of $30,000, which was to be (and in fact was) paid into a Commonwealth Bank account conducted jointly by Mr Maher and his wife, and the further sum of $5000, which was to be (and in fact was) applied in the purchase of shares in G J Coles by Mr Maher jointly with his wife. The remaining instruction of Mr Maher to Mr Burke, so the Tribunal further accepted, was to the effect that the balance of $245,000 remaining to the credit of Mr Maher's superannuation account, was to be wholly transferred by Asgard, by way of internal book entries within Asgard's records, to a new Asgard superannuation account to be thereupon opened in the joint names of Mr Maher and his wife. Hence as to that third critical component of Mr Maher's instructions, his statement extracted in [10] above indicates that "[t]his money, $245.050.65 was never to leave Asgard, but simply to be transferred from my Superannuation Fund". As I have earlier indicated in [10] above, it is readily apparent that the Tribunal accepted as accurate Mr Maher's account of those critical circumstances. Of course by imprudently signing the relevant "payment request" in blank, Mr Maher thereby enabled Mr Burke to fill in the details of Mr Burke's bank account conducted at the Tweed Heads Branch of the Commonwealth Bank of Australia in the name of "KBA Financial Services". However it is to be also observed that the printed Asgard Payment Request, summarised in [3] above, contained the words "Please credit the benefit to my bank account detailed below" (my emphasis), yet Mr Burke filled the blank space immediately below provided for "Account Name" with the words "KBA Financial Services", being words which did not indicate to Asgard the identity of a bank account conducted by Mr Maher. In summary, the Tribunal accepted Mr Maher's factual account set out in [10] above as truthful and accurate.

20 Asgard nevertheless advanced the submission that the payment which it made to the bank account of KBA Financial Services was undertaken consistently with the terms of s 62 of the SIS Act and the SIS Regulations 6.22 and 6.22B made pursuant thereto. The full text of subs 62(1) and of those regulations have been already respectively extracted in [16] and [15] above. That submission of Asgard directly confronts the finding made by the Tribunal as appears from [17] above. It can only be justified if there is to be read into s 62 of the SIS Act and SIS Regulations 6.22 and 6.22B an operation to the effect that superannuation entitlements are to be treated or regarded as advanced by the trustee of a superannuation fund to the member, in circumstances where the member has purportedly made a direction in writing to the trustee for the payment of that member's entitlements to any third party, such as here to the member's financial adviser. I do not think that an interpretation to that effect can rightly be adopted in the face of the wording in s 62 and regulations 6.22 and 6.22B. That interpretation is inconsistent with the "[s]ole purpose test" provisions of s 62, which focus upon "the provision of benefits for each member of the fund" during his or her lifetime, and the intractable prohibition evident in regulations 6.22 and 6.22B against the "cashing" of a member's benefits otherwise than in favour of a member or his or her legal personal representative. If it was open to a superannuation trustee to act upon a direction from a member of that kind in favour of the member's financial adviser, as occurred here, why not also in favour of a bookmaker or casino operator? As stated in subs 3(1) of the SIS Act, "[t]he object of this Act is to make provision for the prudent management of certain superannuation funds..." (my emphasis).

21 Counsel for Asgard rejoined to the effect that support for Asgard's submissions in relation to s 62 and regulations 6.22 and 6.22B was to be found in judicial authority upon the meaning of the words "in favour of", which, as has been seen, appear in both regulations 6.22 and 6.22B. That authority was primarily Melsom v Vanpress Pty Ltd (1990) 3 ACSR 109 at 112, where it was said by the Full Court of the Supreme Court of Western Australia (Malcolm CJ with whom Wallace J agreed) that the phrase "in favour of a creditor" contained in s 122 of the Bankruptcy Act 1966 (Cth), which relates to preferential conveyances of property and payment of money, should be construed widely so as to embrace the notion of "to or to the order of a creditor". Cited by the Chief Justice in that context was H Meyer & Co Ltd v Jules Decroix, Verley et Cie [1891] AC 520 at 528-529, where Lord Herschell had said in the context of bills of exchange that the latter expression did "... not ordinarily mean that it is payable only to the person in whose favour it is said to be drawn; the words are equally applied when the bill is made payable to his order. The words `in favour of', therefore, are properly paraphrased by `payable to, or to the order of'...". Purportedly in the light of that judicial dicta, Asgard submitted that the benefit of Mr Maher's superannuation entitlement had been "cashed in favour of the member" within regulation 6.22B, since funds had been transferred at Mr Maher's direction into the account specified by him, and that it was only subsequently to the financial adviser's cheques being dishonoured that the misappropriation could have been discovered, which was after the benefit had been cashed in favour of the member. But of course Mr Maher himself made no such direction, his dishonest financial adviser having purportedly filled in a direction by Mr Maher in favour of Mr Burke's business name, without the knowledge or consent of Mr Maher.

22 I do not think that the authorities cited by Asgard provide assistance to Asgard, being authorities which arose in statutory contexts radically divorced from the present. The policy of the bankruptcy law in relation to preferences has traditionally been widely framed so as to defeat avoidance of its beneficial operation in favour of unsecured creditors generally, and the policy of the law in relation to bills of exchange has been to facilitate and promote trade and commerce by negotiable instruments. The evident policy of s 62 of the SIS Act and SIS regulations 6.22 and 6.22B is in contrast to ensure that a superannuated person or his or her legal representatives in the event of death etc duly received their entitlements upon crystallisation, to the exclusion of any purported prior assignee thereof. Beyond that degree of protection, the law practically speaking cannot legislate further, though it should be observed that to allow a potentially further degree of protection, s 62(1)(b)(v) stipulates for "... the provision of such other benefits as the Regulator approves in writing", the Regulator being APRA.

23 Nevertheless Asgard submitted that its payment of that sum of $245,050.65 out of the Asgard Superannuation member's account, did reflect an industry practice approved by APRA, with s 62(1)(b)(v) of the SIS Act, in the light of APRA Superannuation Circular 1.C.2 stating as follows:

"Benefits must generally be cashed in favour of the member, the member's personal legal representative or one or more of the member's dependants. Benefits may be cashed in favour of someone else if the member has died (refer to paragraphs 12 to 16), if appropriate authorisation has been given by the member or if APRA has expressly permitted this under regulation 6.22B ie as an ancillary purpose under the sole purpose test (refer to paragraph 91)."

Asgard contended that it was "clear on the face" of that APRA Circular as to the authority of Asgard from APRA to make the payment to KBA Financial Services. The Circular does not in my opinion support that contention. It contains an abbreviated, if not partially imprecise, summary of the documentation which it identified, and which I have reviewed in these reasons for judgment, and it begs the question as to what constitutes an "appropriate authorisation... given by the member". The circumstances in the present case, as accepted by the Tribunal, are that no authorisation was actually furnished by Mr Maher to Asgard concerning payment of the subject sum by Asgard to Mr Burke, or to Mr Burke's firm KBA Financial Services, the only authority in relation thereto actually given by Mr Maher being that in the limited terms conveyed to Mr Burke as Mr Maher described. Asgard can only gain possible assistance from the APRA Circular if Asgard was lawfully entitled to rely on the Payment Request as "appropriate authorisation" (to cite the APRA description) in the terms ultimately filled in by Mr Burke on that form and presented to Asgard. That proposition begs the question of law which the Tribunal duly resolved in favour of Mr Maher.

24 Asgard also sought to invoke support from clause 6.3 of the Second Schedule to the Trust Deed, which so far as is material is extracted above at [14]. That submission of Asgard was to the effect that notwithstanding the presence of the words "... pay the benefit to the Participating person", clause 6.3 "... should be given an interpretation consistent with the principle that a payment at the direction of the member is tantamount to a payment to the member", and that such an interpretation was necessary "to allow payments to accounts or indeed to other superannuation funds which the member may instruct his or her benefit to be paid". One obstacle to that submission, I would think insurmountable, is that Asgard was nevertheless bound to observe and comply with the SIS Act and SIS Regulations. In any event, I do not understand how KBA Financial Services could have qualified as a "Participating Person", being the term defined in clause 1.1 of the Deed.

25 Asgard also sought assistance from the terms of subss 58(1) and (2) of the SIS Act, which read as follows:

"58(1) Subject to sub-section (2), the governing rules of a superannuation entity other than a superannuation fund with fewer than 5 members or an excluded approved deposit fund must not permit the trustee to be subject, in the exercise of any of the trustee's powers under those rules, to direction by any other person.

(2) Subsection (1) does not apply to:

...

(c) a direction given by a beneficiary or a group of beneficiaries that relates to benefits payable to that beneficiary or those beneficiaries, as the case may be;"

Two observations should be made. In the first place, the provisions of s 58 of the SIS Act must be read consistently with s 62 thereof. Secondly and in any event, Mr Maher did not in fact give any such direction, unless contrary to my view, the legislation can be so construed as to attribute the directions of a financial adviser to the member purportedly represented by that financial adviser. As I have already indicated, no such attribution is evident in the legislation, and indeed the contrary is the case. Moreover Asgard's Payment Request form did not in any event purportedly permit the payment to be made. As appears from what has been extracted from that form in [3] above, it was stipulated that payment of funds (as distinct from an internal transfer of funds) would be made by Asgard by cheque sent to the account holder's postal address, or else be credited to the account holder's bank account, and there was no basis for Asgard to think or assume that Mr Maher conducted a bank account in the name of "KBA Financial Services" at the material time. The Asgard submission that the words of its Payment Request form "credit my bank account" mean nothing different in meaning than to credit a nominated bank account cannot be justifiably sustained.

26 Finally I should record the assertion by Asgard to the circumstance that the events attending its payment of Mr Maher's superannuation account proceeds into Mr Burke's bank account styled KBA Financial Services was referred to the Australian Securities and Investment Commission, and also to APRA, neither of whom found the existence of any breach of the "superannuation law" by Asgard. Those matters however have no bearing upon the efficacy in law or otherwise of the Tribunal's decision.

Conclusion

27 For the reasons which I have already recorded above, I would conclude that the Tribunal's determination was correct and should be sustained. I would uphold the submissions of Counsel for Mr Maher to the effect that the Tribunal correctly applied relevant legal principles flowing from the SIS Act and SIS Regulations, and for that matter flowing also from relevant provisions of the Trust Deed, and in so doing resolved questions of law.

28 The Tribunal therefore correctly in my opinion exercised its authority conferred by s 37(3)(d) of the Complaints Act (cited in [9] above) by its determination to set aside the decision of Asgard to make payment of funds standing to the credit of Mr Maher's superannuation account with Asgard into the bank account of his financial adviser Mr Burke styled "KBA Financial Services", with the consequence that Asgard must repay so much of that sum to Mr Maher as was misappropriated by his financial adviser. Whilst the totality of the sum paid by Asgard into the bank account of KBA Financial Services occurred unlawfully, Mr Maher obtained for himself and his wife the financial benefit of two of the payments thereafter made out of that bank account, and obviously it would not be fair or reasonable within subs 37(6) of the Complaints Act that he recover an amount equal to those payments, and nor of course has Mr Maher ever suggested the contrary. Moreover that the Asgard letter reproduced in [8] evidenced in substance and reality the making of a decision relevantly on Asgard's part can scarcely be gainsaid. The Tribunal's determination clearly placed Mr Maher "nearly as practicable in such a position that the unfairness, unreasonableness, or both" of Asgard's decision "the subject of complaint no longer exists" (see subs 37(4)), in that the same would recoup to Mr Maher so much of the total sum paid into the bank account of KBA Financial Services as was not applied by Mr Burke in conformity with Mr Maher's instructions.

29 It therefore must be concluded that Asgard's decision failed to attract the statutory notion of "fair and reasonable in the circumstances" the subject of subs 37(6) of the Complaints Act, to the major extent which I have explained. Whether a decision is fair and reasonable in that context will at least normally involve a question of law. The issues which I have resolved, involving as they have the interpretation essentially of the SIS Act, the SIS Regulations and the Trust Deed, constitute questions of law. Although Clause 9.2 of the Trust Deed, to which the Tribunal referred in its conclusions extracted in [17] above, literally requires the trustee of a superannuation fund merely to take action concerning the framework of its constitution, so that the same "... is constituted in a manner which complies with the Superannuation Law...", it is tolerably clear that the Trust Deed obliges Asgard to fully comply with "Superannuation Law" as defined, which includes of course the SIS Act and SIS Regulations. Indeed the ensuing provisions of Clause 9.3.11 of the Trust Deed explicitly so stipulate as follows:

"Without limiting the other obligations and covenants herein contained on the part of the Trustee, the Trustee will ensure that at all times it complies to the fullest extent with the requirements of the Superannuation Law and that Divisions 1, 2 and 4 comply with the Superannuation Law."

30 I observe that in Retail Employees Superannuation Pty Ltd v Crocker (2001) 48 ATR 359 at [28], Allsop J said that "[t]he question as to whether a decision was unfair or unreasonable cannot be judged otherwise than having regard to the conformity of the decision with the governing rules of the fund and the terms of the policy". That is true, so long as of course the governing provisions of the superannuation trust deed in question conform to the requirements relevantly of the SIS Act and SIS Regulation, which is the case here, and doubtless was the situation in the proceedings determined by his Honour. Moreover the statutory unfairness which subs 37(6) addresses here related to the "actual decision" made by Asgard, and not merely "the process that led to it", to adopt the descriptions used in National Mutual Life Association of Australia Ltd v Jevtovic [1997] 359 FCA (8 May 1997, Sundberg J). The outcome might be thought to be harsh upon Asgard at least in a business or moral sense, since Mr Maher might be described as negligent in signing the Asgard Request Form in blank and entrusting the same to Mr Burke in the way which he did. However the legislative and regulatory requirement, as manifested in the SIS Act and Regulations and implemented by the Trust Deed, is too intractable in its operation upon superannuation fund managers to allow Asgard to avoid liability to Mr Maher in circumstances such as the present. The legislature has been clearly concerned to ensure that fund managers account for superannuation funds directly in favour of superannuants or their legal representatives in the strict sense of that expression.

31 The appeal of Asgard Capital Management Limited from the decision of the Superannuation Tribunal made on 28 June 2002 should be dismissed with costs.

I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.

Associate:

Dated: 29 October 2002

Counsel for the Applicant:	T Lupton
Solicitor for the Applicant:	Blake Dawson Waldron
Counsel for the Respondent:	J Smith
Solicitor for the Respondent:	McLaughlins
Date of Hearing:	8 October 2002
Date of Judgment:	29 October 2002