Appellant Challenges Validity of Death Benefit Clause
Hill v Zuda Pty Ltd [2022] HCA 21 (15 June 2022)
Reg 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth) prescribed standards for, relevantly, regulated superannuation funds for payment of member's superannuation benefits to nominated person on or after member's death. The trust deed for a self-managed superannuation fund was amended to insert a "binding death benefit nomination" clause directing the trustee as to payment of member's benefits upon member's death. The appellant challenged the validity of the binding death benefit nomination clause on the basis that it did not comply with the requirements of reg 6.17A.
Facts:
Zuda Pty Ltd ("Zuda") is the trustee of an SMSF known as the Holly Superannuation Fund ("the Fund") which was created by a deed dated 14 June 2000 ("the Trust Deed"). Mr. Alec Kumar Sodhy and his de facto partner Ms. Jennifer Patricia Murray were each a member of the Fund and a director of Zuda. Ms. Claire Elizabeth Hill is the only child of Mr. Sodhy.
On 13 December 2011, the Trust Deed was amended to insert a clause described as a "binding death benefit nomination" ("BDBN") according to which, if either Mr. Sodhy or Ms. Murray died, Zuda was required to distribute the whole of the deceased member's balance in the Fund to the surviving member.
Mr. Sodhy died on 22 November 2016. Ms. Hill subsequently commenced a proceeding in the Supreme Court of Western Australia seeking declaratory and injunctive relief against Zuda and Ms. Murray. Ms. Hill sought that relief on the basis that the BDBN was of no force and effect by reason of the BDBN having been a notice given to Zuda by each of Mr. Sodhy and Ms. Murray for the purpose of reg 6.17A(4) which failed to comply with either reg 6.17A(6)(b) or (c) (as to its form) or reg 6.17A(7)(a) (as to its timing). The BDBN was a notice given to Zuda by each of Mr. Sodhy and Ms. Murray was undisputed before the Master and the Court of Appeal, and (notwithstanding an attempt by Zuda and Ms. Murray to resile from what had been common ground manifested in an application for revocation of special leave to appeal, which is refused).
The notice was not in accordance with reg 6.17A(6)(b) or (c) or reg 6.17A(7)(a). Holding that reg 6.17A had no application to an SMSF, the Master summarily dismissed the proceeding, the Court of Appeal concluded that there was no error in that holding and so dismissed an appeal from that order for summary dismissal.
Issue:
Whether or not the Court of Appeal was correct to conclude that reg 6.17A of the Regulations has no application to a superannuation fund referred to in the Act as a "self-managed superannuation fund".
Applicable law:
Superannuation Industry (Supervision) Act 1993 (Cth), s 55A - provides that the governing rules of a regulated superannuation fund must not permit a fund member's benefits to be cashed after the member's death otherwise than in accordance with standards prescribed for the purposes of section 31.
Superannuation Industry (Supervision) Act 1993 (Cth), s 59 - provides that subject to subsection (1A), the governing rules of a superannuation entity other than a self managed superannuation fund must not permit a discretion under those rules that is exercisable by a person other than a trustee of the entity to be exercised unless:
(a) those rules require the consent of the trustee, or the trustees, of the entity to the exercise of that discretion; or
(b) if the entity is an employer-sponsored fund:
(i) the exercise of the discretion relates to the contributions that an employer-sponsor will, after the discretion is exercised, be required or permitted to pay to the fund; or(ii) the exercise of the discretion relates solely to a decision to terminate the fund; or
(iii) the circumstances in which the discretion was exercised are covered by regulations made for the purposes of this subparagraph.
Superannuation Industry (Supervision) Regulations 1994 (Cth), reg 6.17A - prescribed standards for, relevantly, regulated superannuation funds for payment of member's superannuation benefits to nominated person on or after member's death.
Munro v Munro [2015] QSC 61; (2015) 306 FLR 93 at 100 [36] - acknowledged that the view that reg 6.17A had no application to an SMSF had first been expressed by a single judge of the Supreme Court of Queensland.
Cantor Management Services Pty Ltd v Booth (2017) 16 ASTLR 489 - provides the view that reg 6.17A had no application to an SMSF had subsequently been accepted sequentially in an observation in the Full Court of the Supreme Court of South Australia.
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 - identified two decision-making principles. The first is that an intermediate appellate court should not depart from seriously considered dicta of a majority of this Court. The second is that neither an intermediate appellate court nor a trial judge should depart from a decision of another intermediate appellate court on the interpretation of Commonwealth legislation, uniform national legislation or the common law of Australia unless convinced that the interpretation is plainly wrong.
Analysis:
The requirements of reg 6.17A(4) concerning the giving of notice by a member of a regulated superannuation fund to the trustee of that fund do not apply to an SMSF. An SMSF is, by definition, a superannuation fund in which members of the fund are also directors of the corporate trustee of the fund.
In the context of an SMSF, giving notice of the kind envisaged by reg 6.17A(4) as expounded in reg 6.17A(6) and (7) would be at best an exercise in formality and at worst redundant. The conclusion that reg 6.17A(1) does not apply to an SMSF does not deprive s 55A of operation in relation to an SMSF. The operation of s 55A to a superannuation fund, including an SMSF, is not through the application of reg 6.17A but relevantly through the application of reg 6.17 in conjunction with regs 6.21 and 6.22.
Conclusion:
The appeal must be dismissed with costs.
