Superannuation Update October 2008 – General update

General update

The business of being a trustee: Update on waiver of legal professional privilege

Freehills update

General update

Parliamentary update

The Spring sittings of Federal Parliament commenced on 26 August 2008. We note the progress of the following Bills:

• The Family Law Amendment (De Facto Financial Matters and Other Measures) Bill 2008¹ (Bill) passed the House of Representatives on 28 August 2008 and was introduced into the Senate on 1 September 2008. The Bill proposes to amend the Family Law Act 1975 (Cth) so as to extend the financial settlement regime under the Act to parties to a de facto relationship, specifically providing for both opposite-sex and same-sex de facto couples to access the federal family law courts on property and maintenance matters.

  The Senate Committee Report² on the Bill was released on 28 August 2008 and recommended that the Bill should be passed subject to the following recommendations for amendment:

  • the definition of ‘child of a de facto relationship’ and the parenting presumptions should be expanded to include children of same-sex relationships for all sections of the Family Law Act 1975 (Cth), and
  • an ability for de facto couples to opt in to the new regime, ‘subject to appropriate safeguards’, should be included for a de facto couple whose relationship has broken down before the proposed amendments become effective and who have not finalised their property or maintenance matters.
• The Same-Sex Relationships (Equal Treatment in Commonwealth Laws – General Law Reform) Bill 2008³ (SR Bill) passed the House of Representatives on 24 September 2008 and was introduced into the Senate on the same day. The SR Bill proposes to amend 68 Commonwealth laws, including tax laws, to include a ‘model definition of ‘de facto partner’ which will apply equally to both same-sex and opposite-sex de facto couples. The definitions of ‘child’ and ‘parent’ will be expanded where appropriate to include the children of same-sex couples. The SR Bill had already been referred to the Senate Legal and Constitutional Committee and the committee’s report is due by 14 October 2008.
• The Same-Sex Relationships (Equal Treatment in Commonwealth Laws – Superannuation) Bill 2008⁴ (SR Superannuation Bill) was referred to the Senate Legal and Constitutional Committee on 18 June 2008 and the committee’s report is due by 14 October 2008. The SR Superannuation Bill aims to ‘eliminate discrimination against same-sex couples and the children of same-sex relationships in [a range of Commonwealth Acts] that provide for reversionary superannuation benefits upon the death of a scheme member, and in related taxation treatment of superannuation benefits’.
• The First Home Saver Accounts (Further Provisions) Amendment Bill 2008⁵ has passed without amendment and received Royal Assent on 30 September 2008. This Act deals with further aspects of the Federal Government’s FHSA policy, including amendment of the secrecy provisions to clarify their application to the Commissioner of Taxation, ASIC and APRA, introduction of a framework for a levy on FHSA providers and establishment of a ‘scheme for dealing with unclaimed money in FHSAs’. The First Home Saver Account Providers Supervisory Levy Imposition Bill 2008⁶ also passed all stages without amendment and received Royal Assent on 30 September 2008. This Act ‘introduces a framework for imposing a levy on FHSA providers to provide funding for APRA to carry out its supervision of financial institutions which offer FHSAs. This is consistent with the existing financial sector levy framework that funds APRA’s supervisory activities on a user-pays basis.’

Temporary residents’ superannuation

On 8 August 2008, the Minister for Superannuation and Corporate Law, the Hon Nick Sherry, announced significant changes to the proposal⁷ to require temporary residents’ superannuation to be paid to the Commonwealth Government.

The Federal Government had initially proposed that the superannuation of temporary residents should be paid to the government on an annual basis, that those transferred funds would not receive interest and that a five-year limitation period would be placed on temporary residents claiming their superannuation after they left Australia.

Following an outcry from the industry, the Federal Government has drastically modified its proposal and will now rely on existing unclaimed money arrangements to collect unpaid superannuation benefits of temporary residents who leave Australia without claiming their superannuation on departure.

This new approach means that the superannuation entitlements of temporary residents will remain in a superannuation fund while they are in Australia. Further, the proposed five-year limitation for temporary residents to claim their superannuation entitlements has been dropped.

These changes aim to:

• simplify the new measures and reduce compliance costs
• allow temporary residents to continue to accrue and consolidate their superannuation while in Australia in the same manner as other employees, and
• allow temporary residents to obtain insurance cover under their superannuation fund while they are in Australia.

To give effect to the announcement, the Temporary Residents' Superannuation Legislation Amendment Bill 2008 and the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2008 were introduced into the House of Representatives on 25 September 2008. These Bills seek to ‘implement the Government’s proposed temporary residents’ superannuation measure … and amend legislation in respect of superannuation for temporary visa holders’. The minister’s media release notes that the ‘legislation provides that the superannuation of a temporary resident will become unclaimed and payable to the Commonwealth after the individual ceases to hold a temporary visa, has departed Australia and at least six months have passed and they have not claimed their superannuation’. Temporary residents whose superannuation has become unclaimed and payable to the Commonwealth can, however, ‘later claim back their money at any time’.

The minister has expressed the view that ‘[t]his outcome provides a consistent or better treatment to temporary residents compared to that in many other countries where temporary residents may be unable or limited in accessing their compulsory social security contributions’. Both Bills have been referred to the Senate Economics Committee, with the Committee’s report due on 20 November 2008.

ASIC update

On 22 August 2008, ASIC announced a new ‘financial economy structure’⁸ which combines Executive Directors and Directors into one level commencing from 1 September 2008. The following key appointments have been made with regard to the following stakeholder teams:

• Superannuation: Louise du Pre-Alba
• Corporations: John Price
• Financial Advisers: Deborah Koromilas
• Investment Managers: Pamela Hanrahan

Unit pricing

On 28 August 2008, APRA and ASIC released an updated guide on unit pricing ‘Unit pricing: Guide to good practice’⁹ which has been amended to allow trustees to elect not to compensate exited members for unit pricing errors for amounts less than $20.

Compensation of current members of a superannuation fund for unit pricing errors remains unchanged. There is some discretion given to trustees as to whether compensation should be paid where the error results in a difference of less than 30 basis points of the value which would have accumulated but for the error. There is no discretion where the error arises as a result of miscalculation of fees.

The ASIC and APRA 28 August 2008 media releases remind trustees to remain ‘vigilant in applying robust risk management practices’ and state:

The amendment does not affect the legal rights of members—this remains a matter for scheme operators to assess. However, the regulators will be satisfied if scheme operators adopt this amendment when determining compensation to individual members.

Financial Services Working Group

On 19 August 2008, the Hon Nick Sherry, Minister for Superannuation and Corporate Law, reiterated his commitment to improving the length and readability of product disclosure statements for financial services products. He quoted the ‘refreshingly short, clear and to the point’ product disclosure statement documents which were designed by the Financial Services Working Group Advisory Panel for First Home Saver Accounts as ‘clear proof that product disclosure documents need not be long, complex or unreadable'.

The business of being a trustee: Update on waiver of legal professional privilege

On Thursday 7 August 2008, the High Court handed down a judgment on when legal professional privilege may be lost. Given the potentially harmful consequences of a loss of privilege, we thought it useful to provide you with a summary of the decision.

In Osland v Secretary to the Department of Justice [2008] HCA 37¹⁰ the High Court has:

• rejected the notion that in all cases a reference to the substance of legal advice will lead to a loss of privilege, and
• highlighted the importance of assessing the facts and circumstances of each case to determine whether the disclosure of the existence and effect of legal advice is inconsistent with maintaining confidentiality in that advice (which is the accepted common law test for determining whether there has been a waiver of privilege).

The case involved a petition for mercy to the Attorney-General of Victoria. The Attorney-General refused the petition and said in a press release that:

I appointed a panel of three senior counsel ... to consider Mrs Osland's petition. This week I received a memorandum of joint advice from the panel [which] recommends on every ground that the petition should be denied.

The question was whether, in making this public statement, the Attorney-General had waived privilege.

The High Court held that privilege had not been waived, and that:

The evident purpose of what was said in the press release was to satisfy the public that due process had been followed in the consideration of the petition, and that the decision was not based on political considerations. The three eminent lawyers who gave the advice were appointed following consultation with the State Opposition. They were external to the Department. Their advice covered all the grounds upon which the petition was based. They recommended denial of the petition. Their advice was carefully considered, and the petition was denied. The Attorney-General was seeking to give the fullest information as to the process that had been followed, no doubt in order to deflect any criticism, while at the same time following the long-standing practice of not giving the reasons for the decision. This did not involve inconsistency; and it involved no unfairness to the appellant.

It was important that there was a proper purpose for the disclosure of the legal advice, unrelated to any attempt to secure a tactical advantage in litigation:

This was not a case of a party to litigation 'deploying' a partial disclosure for forensic advantage, while seeking unfairly to deny the other party an opportunity to see the full text of the privileged communication.

It may be that similar reasoning can permit some disclosure of the conclusions but not the reasoning of legal advice without loss of privilege in other contexts, for example, where the disclosure is essential in discharging statutory obligations.

The key point to note from the Osland decision is that it cannot be assumed that disclosure of the existence, effect or conclusion of legal advice to someone outside the corporate entity does not risk the waiver of privilege. Each case will depend on its own facts (including how and why the existence, effect or conclusion of legal advice is used, and the exact nature of the relevant comment). For example, the court made it clear that the partial disclosure of legal advice ‘for a forensic advantage’ would be more likely to result in a waiver of privilege.

In the circumstances, extreme care should be taken before disclosing even the conclusion or gist of legal advice to outsiders given the possibility of an unintended waiver of privilege.

Freehills update

Peggy Haines will present on 'Future directions for superannuation boards' at the ASFA conference in New Zealand in November.

Endnotes

1. Family Law Amendment (De Facto Financial Matters and Other Measures) Bill 2008
2. Senate Committee Report
3. Same-Sex Relationships (Equal Treatment in Commonwealth Laws – General Law Reform) Bill 2008 
4. Same-Sex Relationships (Equal Treatment in Commonwealth Laws – Superannuation) Bill 2008 
5. First Home Saver Accounts (Further Provisions) Amendment Bill 2008 
6. First Home Saver Account Providers Supervisory Levy Imposition Bill 2008 
7. Press release: 'Government Announces New Approach for Temporary Residents' Superannuation' 
8. ASIC announces a new ‘financial economy structure’ 
9. ‘Unit pricing: Guide to good practice’ 
10. Osland v Secretary to the Department of Justice [2008] HCA 37

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