The Supreme Court of Victoria has upheld the validity of a superannuation binding death benefit nomination (BDBN) and ruled that the surviving trustee of the self-managed superannuation fund (SMSF) was personally liable to pay the death benefit (and the plaintiffs’ costs of the proceedings).

  • Mr and Mrs Morris established an SMSF in August 2005.
  • Mr Morris died on 27 February 2010 and probate of his will was granted to his 2 adult daughters from a previous marriage (the plaintiffs).
  • Mr Morris had executed a BDBN on 18 March 2008 in favour of the plaintiffs in respect of all his interests in the SMSF (which totalled $924,509 as of 30 June 2010).
  • In October 2010, Mrs Morris (the defendant) appointed her son from her first marriage as a co-trustee of the SMSF.
  • In May 2011, a law firm provided advice to the trustees that the BDBN was ineffective as it did not meet all the requirements of the SMSF’s trust deed. This legal advice was based on instructions that the BDBN was prepared by the deceased but he had never delivered it to Mrs Morris (the co-trustee).
  • In August 2011, the individual trustees resigned and Upper Swan Nominees Pty Ltd was appointed as a corporate trustee of the SMSF.
  • Upper Swan accepted the legal advice that the BDBN was not binding and resolved that the deceased’s interests in the SMSF be paid to her accounts [Mrs Morris’ accounts] in the SMSF.

The plaintiffs commenced legal proceedings seeking declarations that the BDBN was valid and binding. By consent of the parties, the matter was referred to a Special Referee who found that the BDBN was valid. The Special Referee determined that the plaintiffs were entitled to be paid the value of the deceased’s interest in the SMSF, namely $924,509, together with statutory interest. By consent orders on 10 April 2013, the Court adopted the Special Referee’s report and entered interim judgment for the plaintiffs in the sum of $600,664.87 (to be paid from the deceased’s account in the SMSF). The Court adjourned the proceedings in relation to the remaining issues in dispute.

The Court held that the BDBN was valid and binding on the respective trustees of the SMSF, being Mrs Morris (and her son as co-trustee) until 18 August 2011, and thereafter Upper Swan Pty Ltd as the existing corporate trustee of the SMSF. As such, the Court held that Upper Swan (in its capacity as trustee of the SMSF) and Mrs Morris personally, were jointly and severally liable to pay the plaintiffs $323,844.50 (being the deceased’s interests in the SMSF of $924,509.37 less the $600,664.87 already paid), together with statutory interest. The Court also ruled that all moneys held by the SMSF (including money in Mrs Morris’ account) were available to meet the payments ordered by the Court. Furthermore, the Court ordered Upper Swan and Mrs Morris to pay the plaintiffs’ costs of (and incidental to) the proceedings.

In making a cost order against Mrs Morris personally, the Court said this was a situation where the separate corporate identity of Upper Swan should not protect Mrs Morris. The Court considered that Mrs Morris had controlled her position as the director of the corporate trustee in favour of her own personal stake. In doing so, the Court found that she had failed to take proper account of the interests of the other beneficiaries in the SMSF.

The Court acknowledged that the trustees generally had a right of indemnity out of the SMSF under the terms of the trust deed and the general law. However, the Court ruled the defendants had lost their right for indemnity by acting in a manner designed to benefit Mrs Morris as trustee, co-trustee and sole director and shareholder of Upper Swan. To this end, the Court noted that the duty of impartiality prohibits a trustee acting to favour one class of beneficiaries at the expense of another.

Given that Mrs Morris did not seek the advice of the Court, her decision [to accept the advice] that the BDBN was not binding on the SMSF amounted to a breach of her obligations to the trust, the Court said.

Likewise, the Court considered there was a second breach of trust when Mrs Morris (through her control of Upper Swan) made the decision to defend the proceedings in circumstances where she had a substantial conflict of interest. In making both decisions, the Court found that she failed to act impartially, putting her interests ahead of the other beneficiaries in the SMSF.

(Wooster v Morris [2013] VSC 594, Supreme Court of Victoria, McMillan J, 1 November 2013).

[LTN 6, 10/1/14]