Section 249E strikes again raising questions as to successor fund transfers in NSW

On 10 November 2022, the NSW Supreme Court handed down its second decision on section 249E of the Crimes Act 1900 (NSW) (NSW Crimes Act), in Application of MLC Investments Limited [2022] NSWSC 1541 (MLC Case).¹

Likely a concern to all trustees, but in particular to superannuation trustees, the MLC Case confirmed that under the NSW Crimes Act, it is a crime for any person to solicit or offer indemnities as an inducement or reward when appointing another person to be entrusted with trust property.² The Court in the MLC Case also determined that when proving the threshold requirement of ‘intent’, for section 249E, the scope does not involve the element of ‘dishonesty’.³ Rather, the assessment for intent will be the intent to use the benefit as an inducement or reward for the appointment of the entrusted property.⁴

The MLC Case involved an application by MLC Investments Limited (MLC), which sought the Court’s consent that it could solicit and receive a number of benefits from Channel Investment Management Limited (CIML) when appointing it to several registered and unregistered managed investment schemes.

Under section 249E, and recently confirmed in BT Funds Management Limited (ACN 002 916 458) as trustee for the Retirement Wrap Superannuation Fund [2022] NSWSC 401 (BT Case), it is a criminal offence in NSW for any person ‘…to receive or to solicit a benefit from a person as an inducement or reward for the appointment of any other person to be a person entrusted with the property without the consent of either each person beneficially entitled to the property or of the Supreme Court.’

In making the application, MLC was concerned that the following Proposed Terms by CIML, relating to its appointment to act as trustee of the managed investment schemes, would be caught under section 249E:  

• receiving the benefit of implementation expenses, likely to be in the vicinity of between $560,000 and $600,000 (Implementation Expenses); and
• indemnification provisions that were to indemnify MLC for certain liabilities post-transfer (Indemnification Provisions),

         collectively, the Proposed Terms.

MLC requested the Court provide consent to the Proposed Terms, or, in the alternative, and only in relation to the indemnified provisions, a declaration that such benefits were not considered a ‘reward’ under section 249E.⁵

The Court found that both the Implementation Expenses and Indemnifications Provisions were both caught under the definition of 'reward' and could be considered an inducement for the appointment of property under section 249E.⁶ In deciding the indemnification provisions were considered a reward under section 249E, the Court denied MLC’s alternative application, seeking a declaration that the indemnification provisions could not be caught by section 249E.⁷

After determining whether the Proposed Terms were caught under section 249E as a reward or benefit, the Court determined whether it should provide consent for the Proposed Terms. Granting consent, the Court stated that MLC provided sufficient evidence that the Proposed Terms were in the best interest of members.⁸

Our Advice

Relevant to superannuation trustees, the Court declined to clarify whether successor fund transfers (SFTs) were caught under section 249E’s definition of ‘appointment’. In handing down its decision, the Court did not need to consider or clarify the status of SFTs, as the MLC application only related to managed investment schemes. Therefore the opportunity for superannuation fund trustees and their lawyers to (optimistically) receive further clarification in respect of how the NSW Crimes Act applies to successor fund transfers remains unfulfilled. However, if anything, the MLC Case further reinforces a view, which may be difficult to digest, that trustees undertaking a SFT involving a NSW-based trustee or fund will need to carefully consider the application of section 249E of the NSW Crimes Act. This is because, as the HESTA Case⁹ distinguished, the NSW Crimes Act provision is broader than the Victorian and Queensland Crimes Act provisions which appear to start and stop at Substituted Appointments of trustees; under NSW Law it appears clear that section 249E of the NSW Crimes Act applies to not only a substituted appointment, but to any arrangement in which one person entrusts another person with property (which is very similar to what happens during a SFT).

In light of these developments, superannuation trustees should take away the following key points from the MLC case:

• the question as what “intent” appears, at least for the moment, resolved on the basis that there is no requirement for dishonest conduct to have occurred – the assessment for “intent” will be whether there was an intent to use the benefit as an inducement or reward for the appointment of the entrusted property;
• it supports the BT decision that indemnities are considered a “reward” that can be caught as inducing a person for the appointment of entrusted property; and
• it did not resolve whether SFTs can be caught by section 249E, meaning that superannuation trustees need to consider whether the BT Case creates a red flag when considering an SFT, involving a NSW-based trustee or fund. 

Authors: Luke Hooper & Michael O'Connor

^[1] First decision, BT Funds Management Limited (ACN 002 916 458) as trustee for the Retirement Wrap Superannuation Fund [2022] NSWSC 401 (BT Case)
^[2] Application of MLC Investments Limited [2022] NSWSC 1541 (MLC Case) at [46]
^[3] MLC Case at [34]
^[4] MLC Case at [35]
^[5] MLC Case at [15]
^[6] MLC Case at [14], [15] &[46]
^[7] MLC Case at [46]
^[8] MLC Case at [44] – [47]
^[9] HESTA Superannuation Fund) v Attorney-General (Qld); Mercy Super Pty Ltd v Attorney-General (Qld) [2022] QSC 221

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The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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