Unscrambling the Oomidoodle’s egg

In Donovan v Donovan [2009] QSC 26, the Court observed that ‘the legislation governing superannuation in Australia is notoriously convoluted and is reminiscent of the legendary oomidoodle bird’. The relevant part of the legislation at play in Donovan was s 59 of the Superannuation Industry (Supervision) Act 1993 (‘SIS Act’) and reg 6.17A Superannuation Industry (Supervision) Regulation 1994 (‘the Regulations’). The application of this legislation was recently clarified by the High Court of Australia in Hill v Zuda Pty Ltd [2022] HCA 21.

Background

The background facts are broadly similar to many of the decisions arising from self managed superannuation funds (‘SMSF’): it involves a family fight following the demise of a fund member. Other examples include Ioppolo v Conti [2015] WASCA 45; Munro v Munro [2015] QSC 61 (‘Munro’); Re Narumon Pty Ltd [2018] QSC 185 (‘Narumon’) and Wareham v Marsella [2020] VSCA 92.

The family fight in Hill v Zuda Pty Ltd was between Claire Hill, the only child of Alec Sodhy, and Jennifer Murray, Mr Sodhy’s de facto partner at the time of his death in 2016. Ms Murray is the executor and beneficiary of Mr Sodhy’s estate. Ms Hill made a claim for family provision from her father’s estate.

Mr Sodhy and Ms Murray were the only members of the Holly Superannuation Fund, a SMSF, and Zuda Pty Ltd is the trustee. The deed creating the fund was amended in 2011 to provide that upon the death of either Mr Sodhy or Ms Murray, the trustee must distribute the balance of the deceased member’s account (‘death benefit’) to the other member (‘the amendment’). The deed stated that the amendment was a binding death benefit nomination for the purpose of the fund’s rules.

Procedural background

In the family provision proceedings, Ms Hill contended that the amendment did not constitute a valid binding death benefit nomination as it was not made in accordance with regulation 6.17A. Namely, the amendment was not witnessed by two witnesses (i.e. there was formal invalidity pursuant to reg 6.17A(6)(b) or (c)) and it was made more than three years before Mr Sodhi’s death (i.e. there was temporal invalidity pursuant to reg 6.17A(7)(a)).

Ms Hill argued that the standard set out in reg 6.17A was prescribed for the purposes of section 31(1) of the SIS Act and the trustee was prohibited by s 55A(1) of the SIS Act from permitting a fund member’s benefits to be cashed after the member’s death otherwise than in accordance with standards prescribed for the purposes of s 31 of the SIS Act.

Ms Hill asserted that, if there was no valid nomination, the trustee must pay the member’s death benefit to either a dependent (being herself, as the child of the deceased, or Ms Murray as a spouse) or the executor of the deceased’s estate. Ms Hill said that Ms Murray, as executor, should have sought payment to the deceased’s estate. She alleged that Ms Murray had breached her duty by failing to do so. This issue was not explored in the various court decisions, but the argument is based on a line of authority which includes McIntosh v McIntosh [2014] QSC 99, Brine v Carter [2015] SASC 205, Burgess v Burgess [2018] WASC 279 and Gonciarz v Bienias [2019] WASC 104. Ms Hill sought orders directing the trustee to pay the balance of the deceased’s member account to the executor of the deceased’s estate.

This order was resisted by the trustee on the basis that reg 6.17A did not apply to a SMSF and it does not restrict how a member of a SMSF could make a nomination. Therefore, there was no impediment to the amendment creating a valid nomination that was binding on the trustee. This argument was accepted at first instance and by the Western Australia Court of Appeal (‘WASCA’).