C2005/1581, Transcript of Proceedings [2005] AIRCTrans 1154 (17 May 2005)

TRANSCRIPT OF PROCEEDINGS

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Workplace Relations Act 1996 11479-1

SENIOR DEPUTY PRESIDENT O'CALLAGHAN

C2005/1581

ARROWCREST GROUP PTY LTD
AND
AUTOMOTIVE, FOOD, METALS, ENGINEERING, PRINTING AND KINDRED INDUSTRIES UNION THE AUSTRALIAN WORKERS' UNION
s.113(1) - Application to set aside award
(C2005/1581)

ADELAIDE

10.11AM, FRIDAY, 06 MAY 2005

Hearing continuing

PN1

MR R MANUEL: I seek leave to appear as counsel for Arrowcrest.

PN2

MR J BRAITHWAITE: I appear on behalf of the Australian Workers' Union and appearing with me is MR A POLANCO. I also appear for the Australian Manufacturers Workers Union.

PN3

THE SENIOR DEPUTY PRESIDENT: Thank you. Mr Braithwaite, what is your position relative to the application for leave by Mr Manuel?

PN4

MR BRAITHWAITE: To be consistent, sir, we would oppose intervention by Mr Manuel. I am only a lay advocate and our legal people were not available for this hearing this morning.

PN5

THE SENIOR DEPUTY PRESIDENT: I see. Mr Manuel?

PN6

MR MANUEL: Your Honour, although this might be a reasonably narrow point, it actually involved issues of trustee law corporate regulation, the Superannuation Guarantee Administration Act as well as issues of jurisdiction of the Commission. My client is not in the position to put these matters itself. Obviously, Mr Morelli who is in the court, can give you all of the factual information that you require but we say it will be the nature of the subject matter would lead to a need for Arrowcrest to be represented.

PN7

THE SENIOR DEPUTY PRESIDENT: I see. Mr Manuel, I am going to grant you leave pursuant to section 42(3)(c) but I do so with a significant caveat in that should Mr Braithwaite at any point in any of these proceedings indicate a desire to let the matter be adjourned so as to allow him to either obtain legal advice or obtain representation by an appropriately qualified person, I would be inclined toward granting his application.

PN8

MR MANUEL: Yes, we understand the Commission's position. Thank you, your Honour.

PN9

THE SENIOR DEPUTY PRESIDENT: Mr Manuel, can I just deal with a couple of other issues.

PN10

MR MANUEL: Yes, sir.

PN11

THE SENIOR DEPUTY PRESIDENT: I have before me a copy of the Arrowcrest Group Pty Ltd Superannuation Award of 1987.

PN12

MR MANUEL: 1987, yes.

PN13

THE SENIOR DEPUTY PRESIDENT: I have also now been provided now with an affidavit signed by Mr Braithwaite together with various attachments. I very briefly read that material.

PN14

MR MANUEL: I hope you will also have a statement of Mr Mark Morelli sent to you yesterday?

PN15

THE SENIOR DEPUTY PRESIDENT: Yes, I do. I received that yesterday I think and I have read that too.

PN16

MR MANUEL: Yes. I don't think that the factual issues, and I will stand to be corrected, but I don't believe the factual issues will be in dispute here. We certainly don't object to the tender of Mr Braithwaite's affidavit and we don't seek to cross-examine him. We would also tender Mr Morelli's statement as his evidence in this matter and obviously he is here as required for cross-examination.

PN17

THE SENIOR DEPUTY PRESIDENT: Yes. Is that going to be required, Mr Braithwaite?

PN18

MR BRAITHWAITE: On the basis that Mr Manuel has indicated that there is SG law, trust law et cetera, sir, I reserve our position until I have had an opportunity to speak to our counsel.

PN19

THE SENIOR DEPUTY PRESIDENT: All right. Thank you.

PN20

MR MANUEL: That seems a reasonable position. Could I tender the statement of Mr Morelli. I will take that opportunity.

EXHIBIT #A1 STATEMENT OF MR MORELLI

PN21

THE SENIOR DEPUTY PRESIDENT: I note that the statement also contains a number of attachments.

PN22

MR MANUEL: Thank you, sir.

EXHIBIT #AWU1 STATEMENT OF MR BRAITHWAITE

PN23

MR MANUEL: Likewise, sir, that has a number of attachments and correspondence and the like.

PN24

THE SENIOR DEPUTY PRESIDENT: Yes.

PN25

MR MANUEL: We can state our position fairly briefly, your Honour, but perhaps if I could just give you a very brief overview of the history of this matter. The award that was created in 1987 is now something of an anachronism. The award was created some five years before super guarantee legislation came into force, and now is finding itself in a situation where with the choice of funds legislation coming into effect as of 1 July 2005, it is something of a dinosaur within the industry. The position of APRA, the - - -

PN26

THE SENIOR DEPUTY PRESIDENT: It is or it will be?

PN27

MR MANUEL: Is, even at this stage. APRAs position as stated to Mr Morelli is that they are pursuing people to wind up their company funds and to move them into industry funds, that they have reduced the number of industry funds by a number of hundred down to the two digit figures. So Mr Morelli has already been told a couple of years ago that Arrowcrest fund had to go. Now, the reasons for that appear to be fundamentally regulatory. The regulation of superannuation has become more and more onerous as time has passed and what this has meant is that the regulation, the cost of regulation and, of course, that cost is borne by the members, the cost of regulation has increased and if you like has increased more for smaller funds whether they be persons who are self superannuated or business funds than they have for industry funds.

PN28

That is a matter of economies of scale. As a consequence the trustees of the Arrowcrest Superannuation Fund have made the decision to wind the Arrowcrest Superannuation Fund up and they are doing that for that reason, that it's basically too small in the current regulatory environment to be efficient. What they have proposed to do was to do it by the successive fund provisions of the superannuation guarantee legislation. The important thing to note about successor funds is that they must not result in any disadvantage to the members. That is actually a legislative, an enforceable legislative requirement. So what Arrowcrest have determined was to make enquiries of a company called Russell.

PN29

Now, Russell is well known as I understand for the superannuation industry, perhaps not so well known on the wider stage, but Russell in fact has and is the administrator of the Arrowcrest fund at the present time and has been for about three years. The trustees at the Arrowcrest fund determine that their performance was particularly good, they have a master trust where all of the members' funds will be moved into the master trust with the date of effect of 1 July. Now, the reason why it has to happen, the machinery has to happen a bit early, is administrative. If they don't make the transfer of funds on exactly 1 July, in other words close off the books of the Arrowcrest fund as of 30 June and make the transfer 1 July, then they have an exponential increase in their compliance cost.

PN30

Because what happens is, even if it goes one day over, the Arrowcrest fund then has to file another set of regulatory returns for the 2005 - 2006 financial year as well as tax returns and meet all the other requirements. Whereas if they finish at this financial year those costs are obviated. So that is the basis of the timing and the background. I understand from Mr Braithwaite's affidavit and also, I might add, from the helpful correspondence we have had from the AWU which posed a number of questions which we have tried to answer perhaps not as successfully as would have been liked by the AWU but nevertheless we have tried to deal with, the fundamental concern seems to be the issue of consultation. In a general industrial sense we would accept that consultation is something of a feature of most matters but this is a bit different.

PN31

You might recall, your Honour, in fact I am sure you do, the Shell case in 1992 before the High Court. Basically, the situation was this, Shell Australia had a defined benefits scheme, I can't remember exactly how many millions they had in surplus but it was many, many millions of dollars of surplus. They decided to scoop off the surplus. In other words, leave the amount in there to meet the members' defined benefit entitlements but take the 80 or 90 million dollars and basically put it on their bottom line. The matter proceeded to the High Court because the union argued, well, this is still part of an industrial dispute the Commission can deal with at least at some level and the employer said, well, no, it's to do with superannuation law or at least the trustee law being the common law on trusts.

PN32

The High Court eventually took basically, I think I can fairly say, an each way bet. What it said was, well, no, the Commission can't make decisions as to the behaviour or conduct of a trust. It can't, for instance, tell it that it has to keep operating or tell it that it has to wind up but what it can do is it can impose an obligation on the employer to exert some influence if you like on the trustee to try and affect their decision in a particular way. So on that basis it found the Commission had very narrow jurisdiction but nevertheless had some jurisdiction. That is not however, to say that that brings the issue of consultation forward.

PN33

The decision by the trustees of the Arrowcrest Superannuation Fund is governed by their obligations under the various APRA legislation, their obligations under the superannuation guarantee and of course their common law duties and in particular their equitable duties as trustees to act in the best interests of all of their members. So the decision has been made by the trustees that it was in the best interest of the members that they be moved to a - well, firstly that the Arrowcrest fund be closed but secondly, that the membership then be moved to this new successive fund run by Russell which is the industry fund, on the basis that firstly the employees cannot suffer a disadvantage, or more to the point the members who are employees cannot suffer a disadvantage and the trust has satisfied themselves of that.

PN34

But secondly, that by doing so they may in fact generate benefit to the members because of the reduction in costs. If you look at the performance of the fund, of course, well, they are being managed by the same people which gives some confidence that there will at least be some consistency. However, more importantly they have a greater financial clout when they are an industry fund than when they are trying to invest and meet the administrative costs out of a company fund. So that is the basis of the decision. So what we say is there is no basis for consultation with the trustees, that is not an industrial issue, that is a matter for the trustees. Once the trustees have made their decision, then it is a question, well, what does Arrowcrest do with that information.

PN35

Now, what it has done is it has communicated to the members or to the employees of the Arrowcrest plant, and I should say as an aside, Mr Braithwaite's comment that people don't have English necessarily as a first language is probably a valid one. But the information has been communicated through the standard structure of the consultative committee process at Arrowcrest, and so that has obviously been the structure which has worked for all of these people for some time in their negotiations and consultations. So if there are any of those difficulties, one would expect them to be dealt with at the consultative process from the consultative committee process. So what we say is that Arrowcrest is in a position where it doesn't have the right to tell the trustees what they should or shouldn't do.

PN36

That having been said there is no doubt that Arrowcrest agrees with the approach to be taken and with the appointment of Russell as the manager or administrator of this new fund. What they have been very careful about and what they have assured the members of is that they cannot and will not suffer any disadvantage as a result of this transfer. Now, come 1 July they will be in a position if they wish, to nominate in accordance with the choice of funds legislation, whatever fund they wish to go to. They won't be stuck to Russell, they won't have exit fees, transfer fees, they won't lose percentages or any of those little sneaky things that have been in the superannuation industry for some years. They will just be able to make an election come 1 July to go somewhere else if they wish to.

PN37

The reason why we wish to tidy this up effectively is because the Arrowcrest Superannuation Award really no longer has any practical work to do and we are concerned that if it is not terminated or rescinded now, then it may complicate the fundamental changes and the administrative processes in moving from the current situation to the new Russell fund as of 1 July. If we have those complications, then there is a risk that extra fees will incurred which will be a cost to the member and there are also benefits which are provided really at the largesse of Arrowcrest in terms of cost et cetera, which may not necessarily be flowed on.

PN38

THE SENIOR DEPUTY PRESIDENT: Mr Manuel, I have been with you until the last minute or so and then I got a little lost. The issue that I am particularly lost on is the timing of the application. I understand that there might be a financial and administrative benefit associated with effecting, from Arrowcrest's point of view, and possibly even the fund members, in effecting the change to the successor superannuation scheme prior to July this year. But I must say I am struggling with why that then means that the award, this particular award, needs to be wound up now as distinct from July or late June this year.

PN39

MR MANUEL: A couple of observations. Firstly, if it is accepted that it should be wound up then we would say we need as much time as we can to ensure that any mishaps that might occur in the administration of the transfer can be caught before 1 July because that is an absolute date. Secondly, insofar as the award no longer serves the purpose then it is obsolete and it would be typically the position of the Commission if I may say so, with respect, that there is no value with having obsolete awards which may create confusion as to what your rights are. So for instance in using this particular award, if the Arrowcrest fund ceases to operate but the award says, you shall pay, and I can't remember the rate right at the moment, but you shall pay an amount of superannuation to this fund.

PN40

Now, that will be a legal impossibility because the fund does not exist which creates a problem as well. Where else do you pay it if you can't pay it in accordance with the award, where else does it go?

PN41

THE SENIOR DEPUTY PRESIDENT: The award actually gives three options in terms of superannuation. It certainly specifies the Arrowcrest Award Superannuation Fund. It then says that a fund would mean any fund the employer was contributing to as at 1 December 1991 or at the date of becoming bound by this award provided that the level of contribution satisfied the award requirements. I am not sure that means anything because - - -

PN42

MR MANUEL: Well, I don't think that actually exists in practicality.

PN43

THE SENIOR DEPUTY PRESIDENT: Yes.

PN44

MR MANUEL: It has been the Arrowcrest fund as far as I understand ever since 1987.

PN45

THE SENIOR DEPUTY PRESIDENT: But the third one is that it specifies any fund agreed between the employer and an employee. The employee may be assisted by an employee representative when consulting the employer. Now, forgive me if I misconstrued that but if the employer has sat down with employees, said this is the change that we are proposing to make and these are the reasons for that change, then it seems to me that in the period between now and 1 July when the choice of funds legislation kicks in the award is not, in that regard, obsolescent. It might well be obsolete come 1 July but I am struggling with how in that instance it is necessarily redundant until that time.

PN46

MR MANUEL: Well, again, there are probably a couple of observations to be made about that. Firstly, effectively what would be occurring is a choice of funds on an individual basis with all of the seven or 800 employees which would have to occur between now and, well let's say mid-June. That would be the first thing, it is not a group decision as your Honour quite rightly read out. Secondly, even if that approach was taken, in effect what you are saying is - well, not what you are saying, what is being said is that the choice of funds will happen twice. In other words, you will push employees into that situation two times in a period of two months. Secondly, employees may not wish to elect or may not elect for some other reason and there could be a range of reasons why they don't elect as Mr Braithwaite quite rightly highlighter.

PN47

They may not have the necessary level of understanding to make an appropriate election and so there what you have is you will have some of the employees electing to go into whatever funds they are minded to go into and some of the employees making no election which leaves them stuck in the Arrowcrest fund which of course then ceases to exist. The third point I would make, with respect, is that it would also undermine the efficacy of the transfer process to this successive fund because in terms of the amount of work required and the benefits to be derived by the members, I am assuming that this is on a group deal, a group arrangement that Arrowcrest have gone to Russell and said, well, if we can do it with these people what benefits will we give them.

PN48

So that is the difficulty. We fully accept what your Honour is saying but we still say that whether it is - sorry, this is probably very much a mixed metaphor, whether it is completely obsolete or only well on its way to being obsolete, its continuing existence at the moment creates some complications that may or may not be realised but nevertheless they are there and of concern to Arrowcrest. As opposed to the fact that if the award is deleted, based upon the understanding that you have obtained from Mr Morelli's statement as to the benefits to be derived by the employees, then the worst that can be said of the change would be the employees will be no worse off. It may be they are better off but they will be at least no worse off.

PN49

THE SENIOR DEPUTY PRESIDENT: Except that if the award is terminated or set aside, should I understand then there would be no default fund?

PN50

MR MANUEL: I am not sure. I think I understand what your Honour has proceeded to.

PN51

THE SENIOR DEPUTY PRESIDENT: The federal choice of funds legislation provides for a differential treatment of superannuation so that if a superannuation fund is specified in a certified agreement then that fund or that agreement in effect is recognised by the choice of funds legislation. That legislation also puts the state agreements, and as I understand it the state awards in that same category, but it seems to treat federal awards in a different category so that the relevance of a reference to a nominated superannuation fund is simply that if an employee does not elect to exercise that right of choice then the fall back is to that default fund.

PN52

MR MANUEL: Well, the default fund will be the Russell fund effectively.

PN53

THE SENIOR DEPUTY PRESIDENT: Yes. But if the award is set aside then should I understand that there will be no default fund?

PN54

MR MANUEL: Well, no, in this sense that the Russell fund will be the default fund and then there will be choices as of 1 July, there will be an open choice within the legislation. Again because, you will forgive my position on this, your Honour, I don't claim to be a superannuation expert but my understanding of the matter is that a successive fund is specifically currently provided for in the superannuation legislation so that the monies can be transferred over without superannuation trustees and the likes getting off exit fees and entry fees. So that is why it is going straight over to Russell. So the vision that Arrowcrest has is that Russell will hold the members funds from the point of time that the Arrowcrest fund closes until they make a choice, the employees make a choice. That might not be 1 July, that could be in a year's time or two year's time.

PN55

THE SENIOR DEPUTY PRESIDENT: But you would achieve the same result if the award was to be buried so as to change 7.1.1 such that the reference to the Arrowcrest Award Superannuation Fund was deleted and in lieu of that the words Arrowcrest Award Superannuation Fund or any successive fund.

PN56

MR MANUEL: I don't know. Would your Honour be prepared to give me a couple of moments to take instructions?

PN57

THE SENIOR DEPUTY PRESIDENT: Yes. I am happy to do that. You see, what, I guess, I am struggling with here and I will raise two or three questions so that you can deal with them in a collective batch. It seems to me that there are at least two discreet issues here. One is the question of what happens between now and 1 July this year when the superannuation choice of funds legislation takes effect, and if I am understanding the application correctly, it is to the effect that the Arrowcrest priority is to expedite the transfer from the Arrowcrest Award Superannuation Fund to the Russell fund. The second issue that I understand to be a relevant factor is that come 1 July 2005, the choice of funds legislation kicks in and the employer is raising a question as to what relevance or role the award has in that environment.

PN58

MR MANUEL: Could I amplify that, the fact is the Arrowcrest fund won't exist because the trustees have already made the decision to wind up so we will have no role in the environment.

PN59

THE SENIOR DEPUTY PRESIDENT: I understand that but were the award to be changed so as to recognise successive funds, then if my understanding of the choice of funds legislation is correct then that could have some relevance insofar as it then defines the default fund.

PN60

MR MANUEL: I see what you are saying, your Honour. Yes, I understand that.

PN61

THE SENIOR DEPUTY PRESIDENT: The third issue that you may be able to answer off the cuff but I will raise it with you now is that the award is binding on Arrowcrest, the Arrowcrest group but it makes particular reference to a number of possibly related companies. They may or may not be related. They include employees of the Arrowcrest Group Pty Ltd, Unicast Die Castings Pty Ltd, Cockums Industries Australia Pty Ltd in the states of South Australia, Victoria, Queensland and New South Wales.

PN62

MR MANUEL: Yes. Certainly my understanding is each of those companies is wholly a subsidiary of the Arrowcrest Group Pty Ltd but there might be some third party holdings within the companies themselves.

PN63

THE SENIOR DEPUTY PRESIDENT: Yes. What is - well, you need not answer the question now, I am happy to leave it in a batch of questions.

PN64

MR MANUEL: Yes.

PN65

THE SENIOR DEPUTY PRESIDENT: What is underpinning the question in that regard is a desire to first of all make sure that the consultation process and with it the possible representation process of those employees covers all of the persons involved or to the persons who are covered by that particular award at the present time. The fourth point that you may or may not be getting to in terms of your submissions and if you are I don't want to sort of side track you, is that if my understanding of Mr Braithwaite's affidavit and the accompanying material is correct, then it seems to me that the potential exists for the parties to have a debate over whether or not this application should be granted in its present form as distinct from the possibility of some further consultation occurring in a very short period of time, bringing with it at least the possibility of an agreed outcome. So I have raised a number of questions there.

PN66

MR MANUEL: Yes, thank you, sir.

PN67

THE SENIOR DEPUTY PRESIDENT: I would be very happy for you to take a few minutes to ponder upon those and if you need a few more minutes to even discuss them with Mr Braithwaite. I would have to say by and large in today's environment, the potential and the capacity for disputes over which superannuation fund appears to be looming as a thing of the past so that it would be a pity if, notwithstanding that it was one of the early superannuation awards, this is one of the last ones to have a debate over how it should operate.

PN68

MR MANUEL: Yes. Well, perhaps if I can have a brief adjournment to obtain some instructions.

PN69

THE SENIOR DEPUTY PRESIDENT: Would ten minutes be - - -

PN70

MR MANUEL: That would be ample, thank you, sir.

PN71

THE SENIOR DEPUTY PRESIDENT: All right. Now, Mr Braithwaite, are you happy on that basis?

PN72

MR BRAITHWAITE: I am happy.

PN73

THE SENIOR DEPUTY PRESIDENT: I will adjourn the matter on that basis.

<SHORT ADJOURNMENT [10.40AM]
<RESUMED [11.00AM]

PN74

THE SENIOR DEPUTY PRESIDENT: Mr Manuel?

PN75

MR MANUEL: Your Honour, thank you very much for that adjournment. I think we may have come to at least an in principle arrangement. The concern, as I understand it, the AWA and I assume also the AMWU is, as your Honour has rightly identified, their ability to have a discussion with their members and ensure that their members are properly informed and are able to make an informed decision. On the other hand, we at this stage are comfortable with what your Honour put forward about including what you might say successive fund variation within the award as opposed to actually deleting the award.

PN76

So what we are proposing is that the matter be adjourned for a short period to enable the AWU to consult with all of its members in those businesses that your Honour read out, and I assume the AMWU may or may not take that opportunity as well, with the view to coming back before the Commission to consent to a variation in the form that your Honour broadly set out, that is that it would be the Arrowcrest fund or any successive fund. So we would ask for this matter to be adjourned. I haven't actually worked out the exact period whether it should be one or two weeks.

PN77

MR POLANCO: I would say a couple of weeks, two.

PN78

MR MANUEL: For a couple of weeks if possible, your Honour, if that is acceptable to the Commission. Hopefully we would then be in a position to come back with a consent position from all the parties.

PN79

THE SENIOR DEPUTY PRESIDENT: I see. Thank you.

PN80

MR MANUEL: Thank you, your Honour.

PN81

THE SENIOR DEPUTY PRESIDENT: Mr Braithwaite?

PN82

MR BRAITHWAITE: Sir, I am happy with what Mr Manuel has indicated to the Commission and I don't need to say anything more on the matter.

PN83

THE SENIOR DEPUTY PRESIDENT: All right. Thank you. So if I adjourn the matter until say Friday 20 May, would that date suit the parties?

PN84

MR MANUEL: Thank you, your Honour.

PN85

THE SENIOR DEPUTY PRESIDENT: 9.30 on 20 May the matter will be listed. If the parties need a longer period of time and you advise my office before that date, I am happy to be flexible in that regard. The only other thought that I had during the break that I would simply throw into the melting pot is that it may be possible to achieve a variation to this award and then set some form of prospective date for the setting aside of the award.

PN86

MR MANUEL: The sunset clause is it?

PN87

THE SENIOR DEPUTY PRESIDENT: Yes. So that as of a certain date, be it August or September or whatever date, the award may be set aside on that basis, on the basis that it is not required but I will leave that with the parties to think about.

PN88

MR MANUEL: Thank you, your Honour.

PN89

THE SENIOR DEPUTY PRESIDENT: I will adjourn the matter on that basis.

<ADJOURNED UNTIL FRIDAY, 20 MAY 2005 [11.03AM]

LIST OF WITNESSES, EXHIBITS AND MFIs

EXHIBIT #A1 STATEMENT OF MR MORELLI PN20
EXHIBIT #AWU1 STATEMENT OF MR BRAITHWAITE PN22