The Victorian County Court (Judge O'Neill) has once again confirmed the proactive nature of the duty of superannuation trustees to investigate total and permanent disablement (TPD) claims, by setting aside a trustee's decision to refuse to pay a TPD benefit, as the decision was based on insufficient medical and other information. The case is Frost v Alcoa of Australia Retirement Plan Pty Ltd.1
This decision follows on from the decision of the Victorian County Court in Clayton v Alcoa of Australia Retirement Plan Pty Ltd2 and provides a further example of circumstances where, in the aftermath of the decision of the High Court in Finch v Telstra Super Pty Ltd3, a trustee's duty to engage in genuine consideration of a TPD claim required it to take further action before making a decision in relation to the claim.
A member of a superannuation fund worked at the Alcoa smelter plant at Portland (Alcoa) from 1988 until 2006. He injured his back in incidents in 2001, 2004 and 2005. He was put off work in March 2006 and his employment was terminated in December 2006.
In 2009 the member lodged an application for a TPD benefit, with reports from his general practitioner, Dr Das, and an orthopaedic surgeon, Dr O'Brien. The employer subsequently provided an employer's report form which said (among other things) that information about the member's "Education/Qualification" and "Work Experience" was "not available".4
The member's claim was considered at meetings of the directors of the trustee in August and November 2009. At the first meeting, the directors decided to ask for medical evidence at the time when the member's employment was terminated. The member subsequently provided a report from a second orthopaedic surgeon, Dr Kierce. From the judgment, it appears that the directors did not obtain any medical reports of their own. At the second director's meeting in November 2009, the member's claim for a TPD benefit was declined. However, the directors decided to pay an "Ill Health Benefit". In the judgment, it was noted that:5
"There was no detail in the agenda, nor the minutes, for either the August or November meetings as to what was discussed and considered by the directors in respect of the [member's] application."
The court's decision
The court noted that the following legal principles were not in contention:6
- the time at which an assessment was to be made by the directors as to whether the member was rendered TPD was at the date of his termination, although retrospective opinions as to the effect of his injuries could be made at a later time;
- the occupation or work to which the member of the fund may be reasonably suited by education, training or experience includes part-time employment and employment upon modified or restricted duties;
- the decision of the directors could not be impugned on the ground that a court would have come to a different decision;
- there was no obligation on the directors to give reasons for the exercise of their discretion; and
- given that the directors had granted the "Ill Health Benefit", they had therefore determined that the member had become "medically unfit to continue in the employment of the employer" as at the termination date.
The court referred to the decision of the High Court in Finch v Telstra Super Pty Ltd and stated the trustee's duty in the following terms:7
"... in a case such as the present where the trustee of a superannuation fund is making a determination as to whether a member achieves the relevant level of incapacity to enable a benefit to be paid, the obligation is upon the trustee, where the material under consideration is deficient such as to prevent proper and informed consideration of the issues and make a determination of the question before it, to make appropriate further inquiries."
Here, in order to be properly informed, the directors ought to have had before them for consideration material which addressed the various criteria for TPD benefit as defined in the trust deed. Those criteria included:8
- As at the date of the termination of the member's employment, what was the nature and the extent of his medical condition?
- Was it such as to render him unlikely to engage in work until retirement age?
- Was it likely to render him unable to engage even in work of a part-time nature or on modified or restricted duties?
- Was that situation likely to remain permanent notwithstanding retraining, rehabilitation or appropriate treatment?
- What precisely was the member's experience, skills and capacities obtained in the Alcoa workplace or otherwise?
- What precisely was the member's level of education both as a result of secondary and tertiary schooling, and other educational achievements while at Alcoa or elsewhere?
- Having considered the member's education, training and experience, what, if any, occupation would he be suited for given his injury?
These criteria could not be satisfied by "cursory or imprecise medical opinions or material which did not specifically address the criteria in detail".9
The information before the directors at the time of the meeting of November 2009 was deficient in a number of areas:10
- Firstly, the material as to the member's education,
training and experience was deficient. In particular, there was
nothing to suggest any information was provided as to:
- the specific work duties the member had undertaken throughout his employment;
- any tickets or certificates obtained in any particular areas;
- whether he had any particular licences, such as forklift driving and the like;
- whether he had achieved any level of seniority in his 18 years at Alcoa, such as to the position of a supervisor, or overseer;
- whether he had undertaken any in-house or outside training in any
- whether he had any particular skills or experience in any area; and
- whether he had been regarded as a competent and capable employee.
- Secondly, the medical information before the directors was
- The report from the member's general practitioner, Dr Das, was cursory and simply adopted the views of Dr O'Brien. There was no detail as to Dr Das's treatment, particularly over the period from March 2006 to December 2006 when the member was off work because of his injury. The directors ought to have had a more detailed report setting out the nature and extent of treatment and Dr Das's view as to the member's capacity for employment, even part-time and restricted.
- The opinion of Dr O'Brien, orthopaedic surgeon, while supportive of the member's application, was given as of December 2007. Specifically, Dr O'Brien ought to have been asked whether the opinion he provided in the report applied as at December 2006. He further ought to have been asked whether his opinion as to the member's disablement included part-time and modified work duties.
- The opinion of Dr Kierce, orthopaedic surgeon, did not address whether the member was TPD at all. While it would appear his view was that the member did have the capacity to return to some form of employment, providing his fitness improved, and that employment was restricted to lighter duties, there was nothing in his report to suggest he had any knowledge of the member's education, training and experience and whether he would be thus suited to modified duties. Further, he ought to have been requested to provide an opinion of the member's condition (if he was able to do so) as at the termination date.
The court held that the decision by the directors was not based upon a properly informed consideration given the deficiency in the materials before them, and should therefore be set aside.11
The court rejected a submission by the directors that the onus lay with the member to provide such further materials as was necessary, and that it was not a matter for the directors to "seek out evidence or strain to obtain evidence relevant to the formation of the necessary opinion and attempt to bring within the definition a member not otherwise within its terms".12 The court said:13
"... the duty upon the directors extended to seeking relevant information to resolve conflicting bodies of material. While the duty of the directors undoubtedly does not extend to seeking more and more information, both medical and otherwise, so that the [member] eventually achieved the level necessary to attain a TPD benefit, it [is] necessary in my view they have sufficient information to make a properly informed decision, taking into account the criteria the definition required."
In the result, the court set aside the directors' decision and remitted the member's application for a TPD benefit for further consideration by the directors, upon appropriate material.
The growing body of case law in this area has clearly established that in circumstances where the documents and information provided by a member in support of their TPD claim is insufficient for the trustee to make a properly informed decision, the trustee must conduct its own further inquiries. In other words, the trustee cannot simply expect the member to fully bear the onus of inquiry. For example, in the event that medical evidence, or information about the member's education, training and experience, is inconsistent or lacking, the trustee must conduct its own further inquiries in relation to those matters.
How far should the trustee go? In the event that the further inquiries fail to resolve the inconsistency or supply the omitted details, a declination may be warranted in the circumstances. The trustee is not required to prove the member's claim. There is no prescribed formula for how many hours the trustee must spend on each application for a TPD benefit, or precisely what steps the trustee should take. Ultimately, the extent of any further inquiries is ultimately a matter for the trustee's judgment. What is clear is that failure to make any further inquiry, in circumstances where further inquiry is warranted, is a breach of the trustee's duty to the member.
In Frost, the court noted the absence of detail in the minutes of the directors' meetings as to what was discussed and considered by the directors in respect of the member's application. This approach of the directors may have been consistent with what was said in Karger v Paul14 about there being limited grounds for judicial review of discretionary decisions of trustees. However, in the modern context – and especially in the wake of Finch – from the member's perspective it would seem reasonable to expect the minutes to record, as a minimum, whether the trustee was satisfied that sufficient materials were before it to make a properly informed decision, and for those materials to be identified (or that reasonable further inquiries had been made). In other words, it would seem reasonable to expect the minutes to record details of due process in decision-making.
In the modern context, it would seem that trustees who do not record details of due process in decision-making are unlikely to be sympathetically regarded by the courts – even if criticism on this point by the courts is muted rather than overt.
Take away points
In determining TPD claims, superannuation trustees have a duty to properly inform themselves.15 In situations where the material before the trustee is deficient so as to prevent proper and informed consideration of the issues, the trustee must make appropriate further inquiries.16
Frost confirms that these principles apply not only to medical information about the member, but also to information about the member's education, training and experience. Trustees will want to urgently review their employer report forms and pro forma letters to doctors.
Frost also confirms that the member does not bear an onus of providing such further materials as is necessary to establish their entitlement to a TPD benefit.
11 VCC 1229.
2 VCC 673.
3 HCA 36; (2010) 242 CLR 254.
7At , emphasis added.
11At  and .
13, emphasis added.
14 VR 161.
15Finch at .
16Frost at .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.