CASE Z27

Members:
BJ McMahon DP
GD Stanford M
LS Katz M

Tribunal:
Administrative Appeals Tribunal

Decision date: 22 June 1992

---

BJ McMahon (Deputy President), GD Stanford (Member) and LS Katz (Member)

This is an application to review decisions of the Insurance and Superannuation Commissioner made by a delegate, pursuant to the terms of the Occupational Superannuation Standards Act 1987 (``the Act''). Jurisdiction is conferred upon this Tribunal by sub-section 16(6) to review a decision of the Commissioner that has been confirmed or varied pursuant to sub- section 16(3). Sub-section 16(9) provides that the hearing of a proceeding relating to a reviewable decision ``shall take place in private''. The Tribunal is empowered by the sub-section to give directions as to the persons who may be present and to give directions of a kind referred to in paragraph 35(2)(b) or (c) of the Administrative Appeals Tribunal Act 1975 (``the AAT Act''). The hearing of this proceeding took place in the presence only of the parties and their advisers. No provision seems to have been made in the Act for observance of privacy in the publication of the result of any such proceeding.

2. Section 14ZF of the Taxation Administration Act 1953 provides-

``14ZF Notwithstanding section 35 of the Administrative Appeals Tribunal Act 1975, the hearing of a proceeding before the Tribunal for the review of an objection decision or an extension of time decision or on an extension of time application shall not be in public unless the party who requested the review or made the application requests that the proceeding be heard in public.''

3. This section specifically modifies the terms of s 35 of the AAT Act. Sub-section 16(9) of the Act appears to be inconsistent with the requirement of s 35 of the AAT Act that the hearing of a proceeding before the Tribunal shall be in public. We have taken the Act, as later legislation, to have impliedly repealed sub- section 35(1) of the AAT Act in so far as it applies to any proceedings arising under the Act (cf s 25(6)(b) of the AAT Act). It would frustrate the privacy of a hearing if the result were to be published so as to disclose the identity of the applicant. We see no distinction between the phrase ``shall take place in private'' used in the Act and the phrase ``shall not be in public'' used in the Taxation Administration Act. We therefore propose to follow the procedure of casting the terms of our decision in such a way that the identity of the parties will not be revealed, in the same manner that the results of applications made under the Income Tax Assessment Act are reported.

4. Section 7 of the Act authorises the making of regulations to prescribe standards applicable to the operation of superannuation funds. Pursuant to that section, regulation 16 was promulgated. In its present form it reads-

``16(1) For the purposes of subsection 7(1) of the Act, the following standards are

---

ATC 257

prescribed in relation to the investment of assets of superannuation funds and borrowing by trustees:

• (a) subject to subregulation (2), money of a superannuation fund shall not be lent to any of the fund's members, either directly or by means of arrangements being entered into for lending money to the members in the exercise of a general power of investment of assets of the fund;
• (b) subject to subregulation (3), the trustees of a superannuation fund shall not borrow, or maintain an existing borrowing of, money, whether by way of a secured or unsecured loan, otherwise than to secure temporary finance;
• (c) all investments of any of the assets of a superannuation fund, other than an investment in an in-house asset within the meaning of regulation 16A, shall be made on an arms length basis.

16(2) If under the governing rules of a superannuation fund:

• (a) in the case of a private sector fund - established before 16 December 1985; and
• (b) in the case of a public sector fund - established before 25 May 1988;

the trustees of the fund, on or before 16 December 1985 in the case of a private sector fund or 25 May 1988 in the case of a public sector fund:

• (c) had express power to lend money to members; or
• (d) lent money to members and that lending was not expressly prohibited;

then:

• (e) paragraph (1)(a) does not apply to the fund; and
• (f) the power of the trustees to lend money to members must not be varied except to limit that power or to remove it.

16(3) If:

• (a) the trustees of a private sector fund had, on or before 11 June 1986; or
• (b) the trustees of a public sector fund had, on or before 1 July 1990;

borrowed money in a manner that does not comply with the standard set out in paragraph (1)(b), the trustees must, as soon as practicable but in any event not later than the end of the applicable day, make such arrangements as are necessary to comply with that standard and, until such arrangements are made or the end of the applicable day, whichever happens first, that standard does not apply to the fund in respect of the money borrowed by the trustees on or before the day specified in paragraph (a) or (b), as the case requires.

16(3A) In subregulation (3), `the applicable day' means:

• (a) in relation to a private sector fund - 30 June 1995; or
• (b) in relation to a public sector fund - 30 June 2000.

...

16(5) In subregulation (1), `temporary finance' means finance arranged by borrowing in order to overcome cash flow problems in the payment of superannuation benefits.''

5. It is alleged that the fund to which reference will later be made, was in breach of paragraph 16(1)(b) in that its trustees borrowed and maintained a borrowing of money otherwise than to secure temporary finance in relation to the 1987-88 and the 1988-89 years of income. These breaches were noted in returns to the Commissioner, furnished pursuant to s 12 of the Act. In consequence, the Commissioner gave notice that he was not satisfied that the fund satisfied the superannuation fund conditions in relation to the years of income.

6. Sub-section 13(1) imposes a duty on the Commissioner to give a notice if he is satisfied that certain conditions existed. In its present form, the sub-section reads-

``13(1) Where, in relation to a fund in relation to a year of income of the fund:

• (a) the trustees of the fund have not given the Commissioner the return and certificates referred to in subsection 12(1), or the trustees of the fund have given the Commissioner the return and certificates referred to in that subsection but the Commissioner is not satisfied that the fund satisfied the superannuation fund conditions; and

• ---

  ATC 258

  (b) the trustees of the fund satisfy the Commissioner that, because of special circumstances that existed in relation to the fund during the year of income, it would be reasonable for the fund to be treated as if it had satisfied the superannuation fund conditions; and
• (c) if the trustees have not lodged a return for the year of income under subsection 12(1) - the trustees satisfy the Commissioner that the failure of the trustees to lodge the return, and any failure of the fund to satisfy the superannuation fund conditions, were not part of a levy avoidance scheme;

the Commissioner shall give notice in writing to the trustees of the fund stating that the Commissioner is satisfied that the fund should be treated as if it had satisfied the superannuation fund conditions in relation to the year of income.''

7. Representations were made to the Commissioner that the occasion for the performance of that duty had arisen. Decisions to the contrary in respect of each year were given by a delegate of the Commissioner, Mr Lewis. Those decisions were not confirmed, revoked or varied within 21 days from the date on which the Commissioner received a request to reconsider them. Consequently they were deemed to have been affirmed, pursuant to sub- section 16(4) of the Act. Application is now made to this Tribunal to review those deemed confirmations.

8. The language of sub-section 13(1) points to a number of factors that must be taken into account by this Tribunal. Firstly, paragraph (b) expressly imposes on the trustees of the fund an obligation to satisfy the Commissioner of certain matters. Section 43 of the AAT Act requires this Tribunal to place itself in the position of the administrator and to make its own decision. Therefore, on this application the trustees of the fund have an obligation to satisfy this Tribunal of the matters referred to in paragraph (b): compare
McDonald v Director- General of Social Security (1984) 1 FCR 354 at 357.

9. The second consideration arising from an examination of the language of s 13 is the requirement to show that the special circumstances existed ``in relation to the fund during the year of income''. Thus, in the present circumstances, the fact that the trustee of the fund at the time when the alleged breaches occurred has since gone into provisional liquidation, the fact that since the relevant years the group to which the fund was affiliated, has now become insolvent and the fact that some special circumstances were alleged to have occurred before the relevant years, are all ineligible to be taken into account.

10. The third consideration arising from an examination of this section, is that the trustees must not only show special circumstances to the satisfaction of the Commissioner, they must go on to show that as a result of the existence of those special circumstances during the relevant years, it would be reasonable for the fund to be treated as if it had satisfied the relevant conditions. It is necessary therefore to show both special circumstances and reasonableness.

11. The fourth legal consideration to be taken into account is, of course, the meaning of special circumstances in the context of s 13.

12. In
Re Beadle and Director-General of Social Security at first instance, (1984) 6 ALD 1, a Tribunal presided over by Toohey J (then a Presidential Member of this Tribunal) observed at page 3-

``An expression such as `special circumstances' is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.''

13. On appeal, a Full Court might be said to have adopted these words by implication. At
Beadle & Ors v Director-General of Social Security (1985) 60 ALR 225 at 228 their Honours said-

``It would depend upon the circumstances of the particular case whether these constituted special circumstances. We do not think it is possible to lay down precise limits or precise rules. The matter is one for the Director-General bearing in mind the

---

ATC 259

purpose for which the power is given. The phrase `special circumstances', although lacking precision, is sufficiently understood in our view not to require judicial gloss.''

To the trio of explanatory adjectives, the House of Lords added a fourth - ``abnormal'' - in
Crabtree v Hinchcliffe [1972] AC 707 at 731.

14. It is certainly true that the phrase ``special circumstances'' lacks precision and takes on its meaning from the context in which it is found. The flexibility of approach was emphasised by Burchett J in
Minister for Community Services and Health & Anor v Chee Keong Thoo (1988) 78 ALR 307 at 324-

``Bearing in mind the care shown by the draftsman of cl 8 to avoid laying down any binding rules, it is particularly important that the broad discretions, created to give a lively flexibility to the administration of the scheme, should not by the gradual deposition of judicial decisions become fossilised into rigidity. Those discretions are intended to be applied to a great variety of situations. In such a context, the core of the idea of `special circumstances' is that there is something unusual or different to take the matter out of the ordinary course, according to which the presumptions set out in the clause would be expected to apply. As a result, the ordinary course appears less appropriate or fair: cf Crabtree v Hinchcliffe (Inspector of Taxes) [1972] AC 707 at 731 per Lord Reid;
Jess v Scott (1986) 12 FCR 187 at 195; 70 ALR 185;
R v Secretary of State for Home Departments; Ex parte Mehta [1975] 1 WLR 1087;
Re X and Adoption of Children Ordinance 1965 (1984) 2 FCR 533;
Cortez Investments Ltd v Olphert & Collins [1984] 2 NZLR 434 at 437, 439, 441...''

15. The Commissioner has sought to give ``a lively flexibility to the administration of the scheme'' by compiling departmental guidelines which his delegates are obliged to consider before coming to a decision. Such guidelines, of course, are not binding upon this Tribunal, nor can resort to such guidelines by this Tribunal or by the decision maker, fetter the judgment which must be exercised in every case, by having regard to all relevant circumstances. Nevertheless it has often been emphasised that the Tribunal should pay regard to such guidelines in coming to its conclusions. Whilst we do not endorse the guidelines as a precise summary of the law, or even of the experience in decided cases (particularly the opening words of paragraph 7) they serve as a useful aide memoire in considering matters that are relevant in deciding whether the circumstances are ``markedly different from the usual run of cases''. The guidelines merge considerations of special circumstances with those of reasonableness. For present purposes, their usefulness is not diminished by this approach.

16. Relevant extracts are as follows-

``5 The following are some factors (implied from the subject matter, scope and purpose of the OSS Act and Regulations) which an examiner is bound to take into account in arriving at a decision-

• (i) the particular standard;
• (ii) the degree of breach of the standards;
• (iii) the effects of the breach on the long- term retirement interests of the members;
• (iv) whether the trustee knew of the breach and took steps to rectify the breach;
• (v) claims made that the breach will be rectified;
• (vi) claims made that incorrect Departmental or professional advice was given;
• (vii) whether the trustees took any action to remedy breaches after they became aware of incorrect advice being provided;
• (viii) practical difficulties faced by trustees in seeking to comply;
• (ix) impossibility of complying with standards;
• (x) ignorance or misunderstanding of the nature of the standards.

This list is not a closed list of factors. The trustees may raise other factors which may or must be taken into account, depending on the particular factor.

6 Weighing Up Competing Interests

The exercise of the discretion involves a consideration of competing interests viz. the interests of the Government in ensuring that tax concessions are granted to funds to achieve only the Government's intended purposes against the interests of the fund in obtaining a notice of compliance and, therefore, tax concessions in spite of a

---

ATC 260

breach or breaches being committed. Officers must weigh up the extent to which the breach would adversely affect the Government's interests and whether circumstances surrounding the breach or surrounding breaches are so `special' that those adverse effects should not preclude a non-complying fund being deemed as a complying fund which will become eligible for tax concessions.

The decision-maker must decide, if a factor favouring the exercise of the discretion outweighs other factors to such an extent that it would be reasonable to treat the fund as complying. What is reasonable will depend on the facts of each case.

7 The courts and the Administrative Appeals Tribunal have been rather strict in their interpretation of the phrase `special circumstances' wherever it has occurred in other legislation.

The following strict tests should therefore be applied by a decision-maker in assessing whether the circumstances claimed by trustees in a particular case are `special circumstances'. In other words, most of the following questions should be answered in the affirmative if the discretion is to be exercised favourably-

• (a) are there factors existing which would justify the making of an exception to the general rule that if there is a breach of standards, a notice of non-compliance is to issue;
• (b) are the circumstances advanced unusual, uncommon, exceptional, abnormal in character, quality or degree?
• (c) do the circumstances relating to the breach make it unjust, unreasonable or inappropriate to issue a Notice of Non- Compliance;
• (d) if there has been a gross departure from a standard or standards, are there very weighty special (unusual, uncommon, exceptional, abnormal) circumstances advanced;
• (e) have all the facts and circumstances been examined together and not in isolation. (This is important because what could constitute special circumstances in relation to one fund, may not constitute special circumstances regarding another fund, when taking into account all the circumstances of that other fund. It is important to keep an overview of all the facts of a matter);
• (f) is there an element of involuntariness in the breach or were external forces beyond the control of the fund present to cause the breach;
• (g) do the circumstances advanced as `special' amount to much more than mere bad luck;
• (h) has the trustee evinced an intention to rectify the breach within a reasonably short period;''

17. A fund, to which we will refer as Building Company Staff Fund, was established on 2 May 1977. The Deed establishing the Fund was not tendered in evidence before us, but it was generally agreed that it was one subject to regulation under the terms of the Act. The original trustee was the employing company, which we will call Building Company Proprietary Limited. By the time the application came on for hearing before us, that company had been placed in provisional liquidation and a new trustee had been appointed in substitution for it. As all the events to be reviewed happened during the original trusteeship, we will continue to refer to the trustee as Building Company Proprietary Limited. That company was not only the trustee of the fund, it also traded as trustee of a trading trust.

18. The fund was sponsored by Building Company Proprietary Limited, the principal activities of which were the construction, development and sale of homes and commercial properties. The beneficiaries of the trading trust were members of the family of the principal proprietor of the company. The members of the fund were employees of the company, some of whom were family members.

19. In the annual returns lodged with the respondent for the years ended 30 June 1988 and 30 June 1989, qualifications of the auditors appeared. In the former, the auditors noted that the ``trustees have entered into a mortgage after 1 July 1986, amounting to $1,341,600 at 30 June 1988''. In the second return, the auditors noted that the ``trustees entered into a mortgage after 1 July 1986, the balance on which was $770,000 at 30 June 1989''. Both of these qualifications pointed to apparent breaches of the investment standards referred to in

---

ATC 261

regulation 16, particularly the standard prohibiting borrowing otherwise than to secure temporary finance. These qualifications gave rise to the s 12 refusals which ultimately led to these proceedings.

20. On 11 October 1985, a company substantially owned by a real estate agent, who sometimes brought propositions to Building Company Proprietary Limited, entered into an option to purchase a potential development site from a non-related vendor. The option agreement provided that it was to be exercised prior to 31 May 1986 or, if extended by the vendor on certain conditions, then prior to 30 August 1986. The option agreement provided for payment of an option fee of $8,000, credit for which was to be given if the option was subsequently exercised.

21. On 11 June 1986, the then Treasurer announced proposals for operating standards for superannuation funds which were set out in an attachment to his statement. The relevant proposed standards were as follows-

``15 These standards will apply to all eligible superannuation funds, whether existing or new, from 1 July 1986.

16 `In house' asset restrictions which are being phased in under existing provisions in the Income Tax Assessment Act will continue to apply.

17 Investments of superannuation funds are to be directed inwards achieving maximum returns to members consistent with the sound management of fund assets. To that end investments are to be at arm's length (subject to the `in house' investment requirements).

18 The placing of a general limit (say 5 per cent) on the assets of a fund which may be invested in any single company, asset or person will be given further consideration in consultation with relevant interest groups.

19 Loans to members will not be permitted except where funds had already established arrangements as at 16 December 1985 under which such loans could be provided. The assets of any fund will not be able to be charged except to obtain temporary finance such as overdraft or any other similar facility that might be prescribed. In the case of funds which have charged their assets beyond this limit as at the date of this announcement, such charging of assets will be phased down in accordance with the rules which apply to the phasing down of `in house' assets referred to in paragraph 16.''

22. Although the standards were said to apply from a date some 20 days after the date of the announcement, regulation 2 providing that regulation 16 was to be taken to have come into operation on 1 July 1986, it was not until some 18 months later, on 22 December 1987, that the regulations were gazetted. Section 4(3) of the Act provided that where any of the first regulations prescribing standards for superannuation funds specified a day (not being a day before 1 July 1986) before the date of the notification of the regulations in the Gazette as the day on which specified regulations were to be taken to have come into operation, those regulations should be taken to have come into operation on the day so specified. The trustee submitted before the Tribunal that regulation 2 had been insufficient to bring regulation 16 into operation on 1 July 1986. It argued that regulation 16 could not come into operation retrospectively unless it itself so provided. To quote from its written outline of submissions (page 4)-

``Regulation 16, the regulation made for the purposes of subsection 7(1), does not specify a date. (There is a specification of a date in regulation 2, but that is not what subsection 4(3) needs for retrospective operation.[)]''

We reject this construction of s 4(3). It ignores the use in that provision of the word ``any'' and the word ``specified'' (where first appearing).

23. When the regulations were gazetted, 2 important new elements were introduced. Firstly, it was provided that any temporary finance referred to in paragraph 19 above was to be restricted to finance by way of overdraft with an eligible bank as defined. This provision was subsequently deleted. Secondly, whereas the Treasurer's statement referred to a proposed prohibition of charging a fund's assets, the regulation extended this to a prohibition of borrowing, whether secured or unsecured. As the breaches with which we are concerned consisted of secured borrowings, this departure from the announcement is not material.

24. So far as the fund was concerned, nothing was done about the exercise of the option until 27 August 1986. The period of the option had been extended in May 1986, but until certain

---

ATC 262

transactions were entered into in August the fund was in no way committed to the purchase. Even at that stage, the options were exercised by Building Company Proprietary Limited. The vendor was not advised that it was then acting in the capacity of trustee of its staff fund rather than in its own right. There was no overt act, in fact, to indicate that this was the case until some time later.

25. Long after the exchange of contracts on 29 August 1986, the trustee obtained approval on 21 September 1987 from a money lending company to a proposed loan of $990,000. The terms of the approval are set out in T17 in the s 37 documents. One of the terms was the payment of a loan establishment fee of $400 which was to be deducted from the loan proceeds. It does not appear from the balance of the conditions that any penalty would be suffered if the loan was not taken up. A condition provided that the lender could withdraw the loan offer if the loan was not settled within 45 days of acceptance, or in certain other circumstances. No monetary penalty however appears to have been reserved to the lender in that event.

26. The fund did incur some expenses after exchange of contracts, particularly in paying a 10 per cent deposit of $40,000 and in paying certain professional fees and stamp duty. There was a lengthy period from exchange until settlement on 18 January 1988. Although evidence was not put forward as to the negotiations with the lender, presumably satisfactory arrangements were made because the loan was not consummated until settlement on 18 January 1988.

27. On 6 November 1986, the trustee lodged a development application with the local council which refused its consent on 25 November 1986. A second development application was lodged on 27 February 1987 and consent to this was again refused on 1 May 1987. The trustee then appealed against the second decision to the Land and Environment Court of New South Wales. The hearing took place on 3 July 1987 and a favourable judgment was obtained in November 1987. This was followed by formal consent by the council on 23 November 1987.

28. It was shortly before this that approval for the loan was sought and obtained. The purpose of the loan was to assist the trustee to purchase the property and to construct retail shops, offices and under cover parking.

29. On 24 December 1987 the trustee proceeded with the mortgage. The loan was for a term of 24 months. Security was given by way of a first registered mortgage over the property to be purchased. Joint and several guarantees were also given by the principal proprietor of Building Company Proprietary Limited and by that company (presumably in its capacity as trustee of the trading trust). A charge was given over a security deposit of $131,600, the property of the fund, held by the proposed lender. Finally, a registered second mortgage by way of collateral security was given over another property owned by the trustee.

30. Settlement of the purchase occurred on 18 January 1988. The balance of the purchase price, being $360,000 plus incidentals, was paid. The lender made an initial advance of $451,600 to the trustee, $320,000 being towards the purchase price and $131,600 towards the interest facility. The remainder of the agreed advance was to be drawn down as building progressed.

31. The managing director and the finance director of Building Company Proprietary Limited said in evidence that they first became aware of the existence of the Occupational Superannuation Standards Regulations in May 1988. They said in evidence that, acting upon advice from the fund's actuary and its auditors, they then decided not to proceed with the development of the site, but to sell it. Their evidence was that the property market was such that they were unable to sell it until October 1988. It transpired in cross-examination, however, that the property was eventually disposed of, at a profit to the fund, to another company in the group and that the sale was financed by external borrowings. In hindsight, it was agreed, that this course of action could have been taken by the trustee at the outset, in January 1988.

32. It was submitted by counsel for the applicant that the borrowing could have been regarded as temporary because there was evidence which, if accepted, could have indicated that it was the intention of the fund to repay the loan from members' contributions and from rentals from the completed development. This submission ignores the statutory meaning given to ``temporary finance'' by regulation 16(5). In any event, the submission does not

---

ATC 263

bear examination if the phrase is given its ordinary commercial meaning. In our view, it is an unreal assessment of the nature of the investment. Members' contributions shown in the annual returns were $6045 in one year and $4960 in the other year. The company contribution was of the order of $4201. Even allowing for a maximum rental return on the investment, there is no way that the mortgage could have been repaid from these sources within the 24 months of its original term. The mortgage must be regarded as a fixed borrowing intended to support the construction and letting of a long-term investment.

33. The applicant must therefore satisfy this Tribunal that because of special circumstances that existed in relation to the fund during the 2 relevant years, it would have been reasonable for the fund to be treated as if it had satisfied the superannuation fund conditions as prescribed. Counsel for the applicant submitted that these special circumstances should be viewed as at the date of proclamation of the regulations. Because of the contemporaneous requirements of the section, we reject that submission. Special circumstances are to be looked at as they existed during the year of income.

34. The first special circumstance pointed to by the trustee, is the fact that it did not become aware of the regulations until some months after they had been gazetted and had not been aware, during the previous 18 months, of the proposals to be embodied in those regulations. There was tendered in evidence a newsletter from the actuary. In his evidence the actuary stated that a copy of the newsletter ``probably'' would have been sent to the trustee as one of its existing clients, although he was unable to be certain in the course of cross-examination. The finance director said he had not received a copy of the newsletter, although he remembered receiving copies of other newsletters from time to time from the same source. The managing director of the Building Company took no interest in the detailed regulation of superannuation funds.

35. On balance, we think it more probable than not, that a copy of the newsletter was sent to the applicant company in June 1986, the date which it bears, but that it was filed away because it did not appear to have any immediate relevance to the affairs of the company. However, the newsletter does summarise the Treasurer's statement and the operational standards attached to his statement. The newsletter confirms that ``the assets of a fund may be charged only for the purpose of securing temporary finance (eg overdraft)''. If the directors of the trustee did not know of the proposal, then in our opinion, they should have known. They had ample sources of intelligence which were available to them. In fact the actuary made an actuarial valuation every 3 years and the auditors (one of the big 6 accounting firms) were in regular contact. The finance director was a qualified accountant, although he had never worked in private practice in that profession. Even if we assume that the applicant had no actual knowledge of the existence of the proposal or of the regulation until May 1988, we find that it had an obligation to inform itself which it failed to carry out.

36. The second special circumstance and heading of reasonableness put forward by the trustee is that it would have been prejudiced, and would have suffered losses, if it had not proceeded with the purchase and the borrowing. It seems to us that this is not a reasonable way of viewing the circumstances. There was no commitment on the part of the fund until, at the earliest, 29 August 1986 by which time the Treasurer's statement had been made. The final borrowing did not occur until 18 January 1988, by which time the regulations had been promulgated. Ultimately, the applicant did not suffer a loss as the property was sold to an associated company for a profit. If that exercise had been carried out in January 1988, then the fund would not have been in any way prejudiced by its failure to take up the investment opportunity.

37. The third special circumstance and heading of reasonableness put forward by the applicant is that the object of the legislation and the regulations should be taken into account namely, the protection of the financial interests of members. If no notice under s 13(1) in favour of the fund is given, then the members will be penalised by the requirement that additional taxation will be paid. There is no substance in this submission. Such a circumstance, firstly, cannot be regarded as special. It is not unusual, uncommon, exceptional or abnormal. It is a consideration that could be raised on every occasion when the Commissioner is asked to give a notice under s 13(1). Furthermore, it is

---

ATC 264

not a special circumstance that existed during the relevant years. If there are to be adverse consequences to members, then they will have application subsequent to the relevant years. One further matter calls for comment in relation to this submission. Although we did not see the trust deed, we were told that the fund provided for defined benefits for members. If that is so, and the fund is actuarially solvent, (as it was certified to be during the relevant years) then there can be no prejudice to members by a failure to obtain a notice under s 13(1).

38. The breach may also be regarded as unreasonable, because it was unnecessary. The fund's balance sheet shows that at balance date 1988, an amount of $780,000 was owing to it by the trading trust. In addition, the fund held cash deposits of $119,352 and equities of $27,592, all of which, it was agreed in evidence, could be realised had steps been taken for this purpose. The trustee, as trustee of the fund, chose not to call up a substantial loan account, which the same trustee, as trustee of the trading trust, had with the fund, preferring instead to borrow from external sources contrary to the regulations. It is hard to see how directors of the company could have met their fiduciary obligations in those circumstances. The fact that the trading trust may not have been liquid at the time need not have inhibited the calling up of the loan. As external borrowings were resorted to eventually to dispose of the property, so also the same borrowings would have been available to relieve the trading trust of its obligation to the fund. Failure to use alternative assets that were available to the fund, must militate against the giving of a notice under s 13(1) to the fund. There was not (to use the words of paragraph 7(f) of the guidelines) ``an element of involuntariness in the breach or... external forces beyond the control of the fund''. There was a voluntary choice to adopt a prohibited course rather than look to the fund's interests.

39. The time taken to rectify the breach must be taken into account. In the present case, it took from January until November 1988. There was no evidence before us that active steps were taken in the meantime to sell the property and consequently to repay the mortgage. There was no evidence of preparation for an auction or instructions to a real estate agent. The disposal of the property seems to have taken a leisurely course. In the end, it was disposed of (at a profit) in a manner that could have been adopted at the outset. There is also no evidence of any attempt to liquidate other assets during this period.

40. In our view, the trustee has not shown any relevant special circumstance, except possibly ignorance of the government's proposal. Taken in isolation, ignorance is difficult to regard as a special circumstance, particularly where the trustee has had ample opportunities to seek advice. Taken in conjunction with all the other factors to which we have made reference, it does not amount to such a special circumstance that it would be reasonable to require the respondent to give a notice under s 13(1).

41. The decisions under review are therefore affirmed.