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(February-2002) The all important trust deed
The recent Victorian Supreme Court decision of BHLSPF Pty Ltd v Brashs Pty Ltd [2001] VSC 512, BC200108205, sheds some further light on the difficult question of how and to who a fund surplus should be distributed, as well as on the scope of amendment powers. The case concerned the Brashs staff superannuation fund, which at the end of 2000, had a surplus of some $3,659,193.
The original 1966 trust deed of the fund benefited members by providing that on termination of the fund, the residue or surplus would go to members. The Trustee was also empowered to distribute unallocated amounts to members, former members or dependants. Interestingly, there was also provision for a refund of unallocated amounts to the employer, Brashs.
The 1966 deed was amended in 1974 to remove these provisions and new provisions were inserted. The new termination provisions did not carry across the same benefits for members.
In 1998, Brashs went into administration. Effectively, all employee member benefits were paid by early 1999 and a surplus remained.
The liquidator argued that the surplus should go back to it under a resulting trust on the basis that the provisions of the original 1966 deed dealing with surplus had been eliminated by the 1974 deed.
The trustee argued that the amendment power in the 1966 deed actually precluded the removal of the provisions dealing with the distribution of the surplus to members on winding up and of unallocated amounts generally. The amendment rule provided that the trustee could only amend the governing rules where such amendment would not “detract from the benefits secured to a member”. The trustee maintained that the surplus provisions therefore remained in force despite the 1974 deed purporting to remove them.
The court held that the 1974 amendments were invalid to the extent that they undermined the benefits secured to members, even though benefits in relation to surplus distribution were future or contingent benefits. However, the court held that the provision enabling a surplus refund to the employer did not survive because it did not benefit members and therefore, its removal did not contravene the amendment power.
As a result, the surplus distribution provisions for the benefit of members, former members or dependants, remained in force and the trustee could rely on them to pay surplus amounts accordingly.
The case illustrates the competition for surplus between liquidators who owe a duty to creditors to recover assets controlled by the employer, and employees who would argue that a surplus is an asset that should be used for their benefit. Of course, the application of surplus ultimately depends on the terms of the trust deed of the individual fund.
However, this case is extremely significant because while it confirms that the use and distribution of a surplus depends on the terms of the trust deed, it demonstrates that courts will adopt an interpretation of key provisions of the deed (in this case, the amendment power) which is favourable to members.
The case confirmed previous case law decisions, which have held that an amendment power which protected secured benefits, would operate to protect future or contingent benefits, such as the surplus on termination of the fund.
This is not to say that the same analysis would necessarily apply to amendment powers (as well as SIS provisions) which protect accrued benefits. It is submitted that accrued benefits are distinguishable in so far as they essentially involve benefits which would be payable if the person left service. Secured benefits on the other hand capture benefits which could be payable in any circumstances, including where the fund was wound up.
— Michael Vrisakis is a partner at Blake Dawson Waldron.
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