How trustees should make decisions
Trustees are required by law to make decisions solely with the interests of the beneficiaries in mind. They must exercise any powers and discretions under the trust deed in good faith, and for the purpose for which the powers were granted. Trustees must also give real and genuine consideration to the exercise of their discretion. They must not simply rely on the opinion of another person; for example, the opinion of the insurer or of the insurer’s medical practitioner.
Even where the trust deed gives the trustee the power to delegate the making of decisions, the decision has to be made within the delegation given. It may be possible to argue, depending on the terms of the trust deed, that a decision has been improperly delegated.
A trustee will also fail to give a matter real and genuine consideration if the trustee asks itself the wrong question. One example would be a trustee refusing to pay a total and permanent disability benefit on the ground that the member could be retrained for a different job, when the definition required the trustee to ask itself whether the member was capable of carrying on a suitable occupation without retraining. In some circumstances, there may be a duty to make further enquiries (see Finch v Telstra Super Pty Ltd  HCA 36; (2010) 242 CLR 254).
However, in many cases judges have stated that trustees’ decisions are not required to be correct, in accordance with the weight of the evidence, or even fair. Trustees are not required to give reasons for their decisions. However, if a trustee’s conduct is sufficiently unreasonable or unfair, it may suggest that they are not acting in good faith.
Although trustees cannot be required to give reasons for their decisions, if they do so voluntarily the reasons must be sound. If they are not, a court may set aside the decision.
Trustees and insurers ought to provide a claimant with information about material adverse to the claim and with an opportunity of addressing those matters before dismissing a claim. If this is not done, a court may set aside the decision (see Hannover Life Re of Australasia Ltd v Sayseng  NSWCA 214).
Numerous observers have noted that these principles are inappropriate for determining rights to benefits provided in a commercial context, often as part of a contract of employment. It is unacceptable for members to be refused a payment when they are objectively disabled within the definition in the trust deed, because they are unable to show that the trustee’s decision was made in bad faith (even though it is shown to be wrong, careless, or based on inadequate evidence).
Although no English or Australian court has yet held that the traditional principles do not apply to superannuation trusts, in practice, Australian courts appear to interpret them in a way favourable to beneficiaries where it is clear that the trustee’s decision was not justified by the facts.
The first step in challenging a trustee’s decision about a benefit is to request reconsideration of the decision. Section 101 of the Superannuation Industry (Supervision) Act 1993 (Cth) requires regulated funds to ensure that enquiries or complaints made by beneficiaries are properly dealt with within 90 days.
Before requesting reconsideration, ask the trustee to provide a copy of the trust deed, a copy of any relevant insurance policy, an up-to-date statement of benefits, reasons for its decision, and copies of any documents it used in making its decision.
A member or other beneficiary is entitled to copies of the first three documents, according to both the law of trusts and the Superannuation Industry (Supervision) Regulations 1994 (Cth), but cannot force the trustee to provide the last two.
The next step is to write to the trustee requesting reconsideration, setting out the reasons why you believe the original decision is wrong. In the case of a total and permanent disability benefit, you should mention any factors that limit your employment prospects, including your age, extent of educational and vocational qualifications, and your experience and ability to speak and write English. You should include copies of any supportive medical reports. It would be prudent to obtain legal advice at this stage.
If internal review is unsuccessful, the next step to consider is legal action. It is essential to obtain advice from a solicitor experienced in acting for members of superannuation funds before undertaking this step. Some firms of solicitors will act in these matters without payment until the matter is resolved. Nevertheless, substantial costs may be incurred and, if unsuccessful, a member may have to pay the legal costs of both parties to the dispute.
A court will only review a decision of a trustee on the basis of the principles set out in the section “How trustees should make decisions”. This means that if the trustee has not voluntarily given reasons for its decision, you will have to show that the trustee failed to give the matter real and genuine consideration, acted in bad faith or acted for an improper purpose. If the trustee gave reasons for its decision, it will be set aside if the court accepts that the reasons were not sound.
Statements by trustees that “the medical evidence does not establish that you are disabled within the meaning of the trust deed”, or that “in our opinion you are not disabled within the meaning of the trust deed” have been held to be reasons by the courts. However, a court will not set aside a trustee’s decision simply because the judge would have made a different decision. Even if the court does set aside the decision, it may not always substitute its own decision for that of the trustee. It may instead allow the trustee to make the decision again.
In practice, very few of these cases go as far as a court hearing. Almost all are settled by agreement before trial. An experienced solicitor can advise you on the likelihood of your case being settled.
Complaints about superannuation and insurance can be made to the Australian Financial Complaints Authority (AFCA). There are some exclusions. AFCA can only deal with complaints about certain types of general insurance policies.
AFCA cannot deal with complaints about:
• workers’ compensation insurance;
• the level of an insurance fee, premium, charge, rebate or interest rate – unless the complaint concerns the non-disclosure, misrepresentation or incorrect application of a fee, or a breach of any legal obligation or duty by the insurance firm;
• decisions to refuse to provide insurance cover; except where:
– the complaint is that a decision was made indiscriminately, maliciously or on the basis of incorrect information,
– the complaint is that the complainant was misinformed about the insurance cover, or
– the complaint relates to a medical indemnity insurance product;
• underwriting or actuarial factors leading to an offer of a life insurance policy on non-standard terms;
• rating factors and weightings an insurer applies to a general insurance policy to determine the insured person’s (or proposed insured person’s) base premium that is commercially sensitive information.
AFCA can deal with claims up to $1 million.
For claims relating to an income stream (e.g. income protection insurance), AFCA can deal with claims relating to policies paying up to $13 400 per month.
AFCA has a compensation limit of $50 000 per claim (except for superannuation).
For a complaint relating to superannuation, AFCA must affirm a decision, if it is satisfied that the decision is fair and reasonable in all the circumstances.
Other AFCA decisions are based on what is fair in all the circumstances, considering:
• legal principles;
• applicable industry codes or guidelines;
• good industry practice; and
• previous relevant decisions made by AFCA or its predecessors (e.g. the Superannuation Complaints Tribunal).
This is different to the approach applied in a court.
Note that from 1 July 2019 to 30 June 2020, Australian consumers and small businesses can lodge complaints that would normally fall outside of AFCA’s time limits.
Also, for a 12-month period, AFCA will accept complaints about conduct of financial firms dating back to 1 January 2008. There are some exceptions (e.g. complaints about superannuation death benefits). This means that AFCA can deal with some complaints that are time-barred from being heard in court.
If AFCA decides in favour of the financial firm, the complainant is not bound by the decision. The complainant retains the right to take the complaint to court.
For information about how to prepare to submit a complaint, see AFCA’s website at www.afca.org.au/make-a-complaint/complain.