Date posted: 28/02/2018 5 min read

Three recent superannuation court cases

Documentation is king

In brief

  • Employers need good payroll data
  • Another dispute about a SMSF death benefit involving dodgy documentation
  • Statements about events not justified by documentation

The last week or so has seen at least three court cases involving superannuation.All three of these cases have occurred because one or more parties has had inadequate documentation to justify their case.

1. Australian Workers Union (AWU) v Bluescope Steel – Federal Court

This case involved what is or isn’t included in the definition of ordinary time earnings (OTE) as defined in the Super Guarantee provisions.

It involved workers in Port Kembla (near Wollongong south of Sydney) who regularly work overtime and public holidays and whether their wages for these periods of time formed part of their OTE.

If part of OTE then SG had to be paid on those earnings.

The employer argued that their wages for these additional hours weren’t part of OTE but the Court decided that the computer records maintained by Bluescope were “unreliable” and hence the employer had insufficient proof of its claims about the quantum of additional hours worked by particular employees and the variability.  As a result the Court accepted manual records kept by the employee.

In the end the Court said that these additional wages were part of Ordinary Time Earnings given their frequency and regularity.

The AWU argued that Bluescope should face penalties for its failure to pay the right amount of SG.  The Court declined to impose fines or penalties arguing that only the ATO could impose penalties for SG non-compliance and it wasn’t a party to the current action.  Further the Court said Bluescope will face penalties under the SG provisions when it reported its non-compliance to the ATO.  The Court declined to apply a penalty under the Fair Work Act

All employers who pay overtime or other penalty rates should ensure that they keep good records and seek advice about what salary, wages and other income is included or excluded in the definition of the SG’s OTE definition for their employees.

Federal Court judgment

Australian Workers Union (AWU) v Bluescope Steel

Read case

2. Ainsworth v Davern - Victorian Supreme Court

This case involves a Self Managed Super Fund which had one member – Kevin Davern – who died in April 2016.  His SMSF had two individual trustees – Davern and his daughter, Pamela – and had been created in 2003.

He was survived by his domestic partner, Elizabeth Ainsworth and three adult children from a prior relationship.

In December 2014 he signed a Binding Death Benefit Nomination giving all his super fund monies to Ms Ainsworth.

In addition, under his will that was executed in December 2007, he left half her half his estate.  The other half was left to his surviving children in equal shares.  He appointed an executor who was unrelated to either his spouse or children.

We are told his gross estate was $214,000 which presumably included his super monies. The SMSF commenced paying money – presumably as a pension – to Ainsworth for several months but then for unexplained reasons promptly stopped.

The fund’s trust deed had been replaced in June 2008.  His children notified Ainsworth that they would argue that this change was invalidly implemented and would therefore seek to strike it out which would mean that reliance would have to be made on the original deed which didn’t permit BDBNs.  (We are told that his children were not happy with their modest bequest.)

Under both the 2003 and 2008 deeds the deceased ceased being a member and also didn’t appoint his executor as replacement trustee as permitted in the SIS Act definition of SMSFs.

As a non-member fund with one individual trustee the fund no longer satisfied the SMSF definition and nothing had been done to rectify the situation in the 6 month allowable time limit.

The deceased’s spouse said she was of modest means and has a home mortgage.

The case involved obvious conflicts between surviving spouse and children.

The judge in this case solved this problem by replacing the daughter as trustee and appointing two independent directors (one was the deceased’s executor) who told the court they would perform their duties for no money.

Victorian Supreme Court judgment

Ainsworth v Davern

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3. Lockyer v Bermingham [No 3] - WA Supreme Court

This is a complex and lengthy case involving a client and his financial advice.

The investments included employee share options in a formerly ASX listed entity, a SMSF, agricultural scheme investments, protected equity loans, option collars and other investments.

The plaintiff – the client – was awarded $2.9 million in damages with the judge yet to hear arguments about interest and legal costs.

This case needs further explanation and I will do this after reading in full the 124 page judgement.

WA Supreme Court judgment

Lockyer v Bermingham [No 3]

Read case

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