NAB units and superannuation trustees MLC Nominees and NULIS Nominees argued on Monday that the group member claims involved trust property and thus could not be commenced as a class action because of a carve out in section 33B(2)(b)(ii) of the Supreme Court Act.

During a hearing in front of Justice John Dixon on Monday, MLC and NULIS barrister Matthew Darke SC said that the case should have been launched under order 16.01 of the Supreme Court (General Civil Procedure) Rules through which the court can appoint a representative party in proceedings relating to trust property.

“These are in our respectful submissions in the heartland of the kinds of representative proceedings with which rule 16.01 is concerned — that is proceedings brought by a beneficiary for breach of duties by a trust in relation to trust property — and as a consequence these proceedings are in the very heartland of the exclusion in 33B(2)(b) in so far as it relates to proceedings concerning property held on trust,” Darke said.

While the lead applicant, Victorian retiree David Shimshon, told Justice Dixon earlier this month that he was seeking a summons to transfer the matter to the Federal Court where the 33B(2)(b)(ii) carve out did not apply, an amended summons was later filed asking the judge to determine the construction of this section and whether the class action had been validly commenced.

An exclusion for cases ‘concerning’ trust property

The class action, filed in January on behalf of 330,000 MasterKey Business Super and Personal Super account holders, claims more than $6.3 billion in “accrued default amounts” was left in MasterKey Business Super and Personal Super accounts and not transferred to the low-cost MySuper product, a no-frills fund created as part of the Labor government’s Stronger Super reforms that came into effect in January 2014.

The class action claims that in doing so, MLC Trustees and NULIS Nominees breached their trustee duties and causing customers “substantial losses”.

Darke told the court that order 18 and the former version of order 18A of the Supreme Court Rules described how a class action was to be commenced, with both containing an exclusion against proceedings “concerning” property subject to a trust.

Order 18A was subsequently updated in November 2000 to bring it in line with the class action regime of Part IVA of the Federal Court of Australia Act. The carve out against proceedings relating to trust property found in order 18A then became section 33B(2)(b)(ii), Darke told the court.

The precise claims the group members were bringing, that the fees and commissions they were charged were too high and that their returns were subsequently lower, all concerned trust property and therefore were captured under order 16.01, Darke said.

A ‘bright line’ distinction between cases

Shimshon’s barrister Nicholas Owens SC rejected any claims that the class action had been improperly launched, saying carve out in section 33B(2)(b)(ii) was narrower than MLC and NULIS’ interpretation.

There was a “fundamental distinction” between a case brought by a trustee while implicitly representing beneficiaries of the trust and a case brought individually on behalf of beneficiaries themselves, the court heard.

In other words, the 33B(2)(b)(ii) exclusion only related to proceedings brought specifically by a trustee, Owens said.

Justice Dixon reserved his decision.

‘Another regrettable case of mismanagement’

The class action claims the products the MLC and NULIS customers’ funds were left in had commissions for financial advisers, which were banned in the MySuper product.

“The contraventions at the heart of this case resulted in NAB’s default MasterKey Super members paying higher fees and commissions and receiving lower investment returns for periods of time, when they could have been in a cheaper, better overall MySuper product,” said Andrew Watson, Maurice Blackburn’s national head of class actions, in January.

The class action alleges MLC and NULIS failed to exercise the care, skill and diligence required, failed to perform their duties in the best interests of members, and gave priority to the interest of beneficiaries when a conflict of interest arose.

“This is another regrettable case of mismanagement in the superannuation sector. The whole point of the MySuper reforms was to make sure that millions of everyday Australians who hadn’t made an active decision about their super were not losing money on higher fees and unnecessary or unused services,” Watson said.

“MySuper was introduced to protect the retirement outcomes of Australians. MLC Nominees and NULIS’s job was to move default member balances into MySuper at the time that best met their members’ needs, not the needs of NAB or financial advisers.”

Maurice Blackburn is bankrolling the case on its own, without support from a litigation funder.

MLC and NULIS are also facing a $100 million fees-for-no-service case brought by the Australian Securities and Investments Commission. This matter went to a penalty hearing before Federal Court Justice David Yates in March and June with judgment reserved.

Moving with less than deliberate speed

The allegations in the class action stem from criticisms leveled at NAB during the banking royal commission. Although the final deadline for the transfer of ADAs to MySuper was 1 July 2017, Commissioner Hayne noted that NULIS and MLC “did not move with all deliberate speed … for fear of how advisers would react to the loss of commissions”.

The Commissioner ultimately referred NAB to the Australian Prudential Regulation Authority for its conduct.

“[NAB] acknowledged that one of the consequences of the delay was that members paid higher fees for longer than they would have had their ADAs been transferred earlier. For some members, this was not merely a risk, but a certainty. Advisers, including advisers within the NAB Group, stood to benefit from this to the financial detriment of those members,” Commissioner Hayne said.

“Taken as a whole, the evidence shows that NAB and NULIS (and before NULIS, MLC Nominees) did not move with all deliberate speed to effect the transfers. I consider that they did not do that for fear of how advisers would react to the loss of commissions that would follow from the transfer.”

ASIC’s action alleges MLC and NULIS deducted around $100 million in fees from superannuation clients’ accounts for services they never received.

Between September 8, 2012 and June 30, 2016, the units made monthly deductions totaling more than $33 million from the accounts of 220,000 members of the MasterKey Super that had no linked financial adviser and around $67 million in fees from 300,000 members of the fund that had linked advisers but where members did not received no services, the lawsuit claims.

In its defence, MLC admitted to engaging in misleading and deceptive conduct by deducting $34.4 million in fees for services which were never provided. However, it denied a breach of trust and that the false and misleading representations fell within section 12DB of the ASIC Act.

Shimshon is represented by Nicholas Owens SC, Melanie Szydzik and Dr Shipra Chordia, instructed by Maurice Blackburn. The NAB parties are represented by Matthew Darke SC and Kathleen Foley, instructed by Allens.

The case is David Shimshon v MLC Nominees Pty Limited & Ors.