Steele v HostPlus - AFCA’s affirmation of super trustee’s decision to distribute 100% to current spouse - Death benefits wishes nomination by phone upheld

This decision of the Federal Court is an appeal from a decision of the Australian Financial Complaints Authority (AFCA) which affirmed the decision of the superannuation trustee HostPlus Superannuation Fund (HostPlus) to distribute 100% of the deceased member’s (Jennifer’s) death benefits to her surviving current spouse Stephen or ‘Steve’.

There was no binding death benefit nomination by Jennifer, only a nomination of her wishes to HostPlus by a phone call.

Before the Federal Court, Jennifer’s son Michael was the self-represented applicant, and his sister was named Amie, who was claimed by her brother to have bi-polar disorder and be unable to give evidence.

Jennifer made Steve the sole beneficiary of her will on 10 May 2005, and she phoned HostPlus on 31 May 2005 to nominate Steve as her preferred superannuation beneficiary, which was recorded on annual statements sent to Jennifer every year after the phone call in 2005. 

The Court noted parts of Michael’s submissions:

Steve and his family as our former neighbours have jumped our back fence whilst our backs were turned and cleaned us out of house and home, and I will feel robbed for the rest of my life because of it. That he has fleeced us of absolutely everything, is now also highly suspected of double dipping from his former wife, and the law seemingly recognises that disproportionalism and unfairness and supports it.

Our father [not named in the Judgment] who knew my mother [Jennifer] a hell of a lot longer than Steve ever did has been cleaned out by criminal defence lawyers, has no house because it has been stolen from him courtesy of the [...] bank enabling and facilitating that act, does not even have enough money to buy a cabin in a Caravan park, is almost 80yrs old

Is it fair that the spouse [Steve] and his children receive not only 100% of our mothers [Jennifer’s] house which she purchased for $85k after our parents separation a decade before the spouse even moved into it, and which is now worth between $700k and $800k, but that they also receive 100% of our mothers death benefit money and 100% of everything else that our mother ever owned and including everything from their own mother?

If the spouse has since altered and changed his will post our mothers death to exclude my sister and I from receiving any of our mother’s property, does that act and omission render the word “wishes” null and void, and upon which AFCA and Hostplus have placed a great deal of emphasis and weight to form their final determination? 

AFCA considered that legal proceedings involving Michael’s and Amie’s biological father, due to events that occurred after Jennifer’s death as the main cause of their financial hardship (referring to legal fees of Jennifer’s former spouse), which was included by the applicant in arguing that important factors were not considered by AFCA in its decision. 

The applicant’s notice of appeal referred to AFCA’s superannuation death benefits approach document here, which appears to place emphasis in section 2.3 on the provisions of the current trust deed, the member’s wishes and dependants’ expectations of financial support rather than financial hardship itself. No trust deed clauses were replicated in the Judgment.    

AFCA found that neither Michael or Amie were financially dependent on Jennifer on the date of her death.  

AFCA considered that even if these events could have been foreseen by Jennifer, there was no evidence to indicate that Jennifer would have contributed to the legal fees of her former spouse.

AFCA was also satisfied that the HostPlus trustee decision was consistent with the wishes of Jennifer due to her phone call to HostPlus in 2005 and that Steve was the sole beneficiary of her will. 

The Court had to be satisfied that the applicant had raised a question of law on appeal, for example use of an incorrect legal test by AFCA or an unreasonable decision that failed to take into account a relevant matter or had regard to an irrelevant matter.

The Court found that Michael’s notice of appeal was directed at challenging factual findings that were made or are alleged should have been made by AFCA and did not raise any seriously arguable question of law. The Court noted:

It may even be appropriate in some cases for the Court to formulate the question in appropriate terms when it is apparent from either the notice of appeal or the applicant’s submissions that a question of law does arise: Onassys at [21] citing Secretary, Department f Education, Employment and Workplace Relations v Ergin (2010) 119 ALD 155; [2010] FCA 1438 at [11] (Tracey J) and Rana v Repatriation Commission (2011) 126 ALD 1; [2011] FCAFC 124 at [14] (Kenny, Stone and Logan JJ).

The Court proceeded to consider two broad potential grounds for Michael’s reframed appeal claim to succeed in hypothetically re-applying to the Court, being bias and failure to consider relevant matters.

The potential ground of bias was considered by the Court to likely fail. The Court could not express how AFCA having board members from the banking industry or with shares in the banking industry could provide any basis for a concern that AFCA’s determination in this case (to be made by an allocated AFCA adjudicator or panel) was affected by apprehended or actual bias. 

The potential ground of not considering financial hardship was noted by the Court as having already been considered by AFCA, which concluded that AFCA acknowledged that Michael and Amie appeared to be facing financial hardships but AFCA was not persuaded that this meant that the decision of HostPlus as superannuation trustee was unfair or unreasonable.

It appears Jennifer and Steve may have entered into reciprocal wills naming each other as their primary beneficiaries, which is also seen often in BDBNs, and which leaves open the invalidity of one BDBN of the last surviving spouse (as the spouse recipient has passed away prior). The Court noted part of Michael’s submissions:

Did the solicitor who legally bound our mothers and the spouses will identically on the same day, in the same office value add to his product and set himself up for future work knowing through experience that the way both wills were written, was guaranteed to cause trouble further down the track with 3 children each involved.

The next step of beneficiaries of the last surviving spouse is often not considered in these simple arrangements, which in the absence of any BDBN leaves the default beneficiaries clause in the trust deed and any trustee discretion mechanism within that clause to determine the death benefits distribution. 

And noting it is not clear from the Judgment how many years after 2005 that Jennifer passed away, any period of estrangement from her children Michael and Amie (if any), or any age differential between Jennifer and Steve. 

If Steve passed away first, then Jennifer could have had an opportunity to reconsider naming him as primary beneficiary of her will and as her primary superannuation beneficiary. If she had made a BDBN it would have to be revoked and remade separately. 

AFCA’s decision factors under section 1055 of the Corporations Act 2001 were also considered in more depth in the Federal Court and Full Federal Court Judgments in the case of Tratter v Aware Super (Tratter), where leave to appeal to the High Court was refused for having no prospects of success. Of particular interest at paragraph 17 of the Federal Court Judgment in Tratter (bold emphasis added):

A discretionary decision of a trustee of a superannuation fund in relation to the payment of a death benefit would not ordinarily be open to challenge in a court of equity by the application of the criteria of fairness or reasonableness of the decision in its operation: see Attorney-General (Cth) v Breckler [1999] HCA 28; 197 CLR 83 at [24] and [39] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ). The AFCA scheme establishes a statutory right of review with statutory remedies. If AFCA determines that a trustee’s decision is unfair or unreasonable in its operation and then varies or substitutes the trustee’s decision, then new legal rights are created, noting however that while determinations made by AFCA are binding on members of the scheme they are not binding on complainants under the scheme: QSuper at [155]; Corporations Act s 1051A(4)(e).