Some Aspects of the Civil Liability Arising from Breach of Duty by a Superannuation Trustee

Abstract

- Under the general law the drafter of a trust deed has great freedom to decide what equitable duties the trustee will be under, subject only to the irreducible core of obligations of a trustee, and any duties imposed by state legislation that are incapable of being excluded. The drafter of a superannuation trust deed is more limited, because unexcludable statutory covenants in s 52 Superannuation Industry (Supervision) Act 1993 (Cth) (“SIS Act”) provide a minimum set of trustee’s obligations, and s 56(2) SIS Act imposes a further limit on what general law duties can be excluded. Section 56 SIS Act gives all superannuation trustees a right of indemnity from the assets of the trust fund even for liabilities that the trustee has incurred in breach of trust. The right of indemnity is the same for all the trustees, even though the circumstances that can sometimes justify such a right of indemnity are not the same for all trustees. An unsatisfactory consequence of the existence of the right of indemnity is that a professional indemnity insurer of the trustee would be entitled to be subrogated to that right of indemnity. Administrative powers of ASIC or APRA might deter a trustee from exercising its right of indemnity, but the criteria on which such administrative action might be taken are not articulated. The jurisdiction of the Superannuation Complaints Tribunal can not only result in the Tribunal making orders against a superannuation trustee, but can also give rise to an equitable duty on a trustee. There is considerable doubt about whether equity will require a trustee who breaches a trustee’s duty to pay compensation to an individual beneficiary for consequential financial loss, or for personal suffering that arises from the breach of a trustee’s duty. Equity will sometimes impose liability on people who are associated with a trustee’s breach, but only in quite specific types of circumstances. In contrast with the situation in equity, when there has been a breach of a statutory covenant section 55 SIS Act enables a trustee, a director of a corporate trustee, and a person involved in a trustee’s breach of a statutory covenant, to be held liable for all the loss or damage that anyone suffers in consequence of that breach. Persons involved in a breach of a statutory covenant will be under a statutory liability under s 55 in circumstances where they would not have had liability under the general law. The damages payable under s 55, by both trustees and persons involved, are compensation for all financial loss and personal suffering caused by the breach. These damages are likely to be larger, in some cases, than any equitable compensation that might be recoverable for the breach.