Superannuation Trustees’ Duty to Make Money for their Beneficiaries
Law Council of Australia Superannuation Lawyers’ Conference
Canberra, 28 March 2025

	The months of March and April 1984 were a busy time for Mr Arthur Scargill. The Communist President of the National Union of Mineworkers was engaged in the early weeks of the year-long miners’ strike, which began with the announcement by the Thatcher government of its intention to close 20 coal mines. In those days, the Marxists wanted to keep the pits open and the Conservatives wanted to close them. And over 9 days in late March and early April, Mr Scargill appeared in person to argue the celebrated case of Cowan v Scargill [1985] Ch 270 concerning the exercise of powers and duties of investment by the trustees of the Mineworkers’ Pension Scheme. He lost the case, but he went down in style. At one point in the judgment of Sir Robert Megarry V-C, his Lordship remarked that honesty and sincerity are not the same as prudence and reasonableness, saying (at 289C):

Some of the most sincere people are the most unreasonable; and Mr Scargill told me that he had met quite a few of them.

I will return to consider aspects of the judgment in detail, but at the outset it should be noted that the case provides what is generally regarded as the first clear statement of what has come to be embodied in ss 52(2)(c) and 52(12) of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act) in the following two passages. First, his Lordship stated (at 286–7):

The starting point is the duty of trustees to exercise their powers in the best interests of the present and future beneficiaries of the trust, holding the scales impartially between different classes of beneficiaries. The duty of the trustees towards their beneficiaries is paramount. They must, of course, obey the law; but subject to that, they must put the interests of their beneficiaries first. When the purpose of the trust is to provide financial benefits for the beneficiaries, as is usually the case, the best interests of the beneficiaries are normally their best financial interests.

In a later passage, his Lordship stated (at 295A): 

Trustees must do the best they can for the benefit of their beneficiaries, and not merely avoid harming them.

	The enactment of that principle in the SIS Act took a twisted path. The original s 52(2)(c) in 1993 imposed on the governing rules of a registrable superannuation entity a covenant to ensure that the trustee’s duties and powers were performed and exercised in the best interests of the beneficiaries. Then with the introduction of MySuper in 2012 came a new s 29VN which provided relevantly in paragraph (a) that each trustee of a regulated superannuation fund that includes a MySuper product must promote the financial interests of the beneficiaries of the fund who hold the MySuper product, in particular returns to those beneficiaries (after the deduction of fees, costs and taxes). At the same time, the opening words of s 52(2)(c) “to ensure that” were dropped, but it has been held that this involved no change in meaning (Manglicmot v Commonwealth Bank Officers Superannuation Corporation Pty Ltd (2011) 282 ALR 167 at [121] per Giles JA, with whom Young and Whealy JJA agreed). Next, in 2019 s 29VN was repealed, and new covenants were added to s 52(2) corresponding to the elements of s 29VN but now applicable not only to MySuper products. One of those was s 52(12), providing that: 

If the entity is a regulated superannuation fund (other than a regulated superannuation fund with less than 5 members), the covenants in subsection (1) include a covenant by each trustee of the entity to promote the financial interests of the beneficiaries of the entity who hold a MySuper product or a choice product, in particular returns to those beneficiaries (after the deduction of fees, costs and taxes).

Finally, in 2021, the word “financial” was inserted in s 52(2)(c) so that it refers to trustees acting “in the best financial interests of the beneficiaries”. Thus, by 2021 Parliament had reached the same point as Sir Robert Megarry had 37 years earlier, namely superannuation trustees owe duties to act in the best financial interests of the beneficiaries, and to promote the financial interests of the beneficiaries.
	But what do those duties mean, both in principle and in practice? Let me start with the implied covenant in s 52(2)(c), which now obliges superannuation trustees to perform their duties and exercise their powers in the best financial interests of the beneficiaries. In the first place, the New South Wales Court of Appeal has said on two occasions that s 52(2)(c) (at least as it stood before the insertion of the word “financial” in 2021) does not materially add to breach by the trustee of its general law duty to act in the best interests of beneficiaries: Manglicmot v Commonwealth Bank Officers Superannuation Corporation Pty Ltd (2011) 282 ALR 167 at [121] (Giles JA, with whom Young and Whealy JJA agreed); Commonwealth Bank Officers Superannuation Corporation Pty Ltd v Beck (2016) 334 ALR 692 at [136] (Bathurst CJ, with whom Macfarlan and Gleeson JJA agreed). Some emphasis must, however, be placed on the word “materially”. There is now a firmly entrenched (albeit controversial) body of High Court authority, stemming from Breen v Williams (1996) 186 CLR 71 at 113 (Gaudron and McHugh JJ) and 137–8 (Gummow J), to the effect that fiduciary duties are proscriptive, namely not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict, and that the law does not otherwise impose a positive duty on the fiduciary to act in the interests of another: see Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at [74] (McHugh, Gummow, Hayne and Callinan JJ); Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at [41] (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ); Friend v Booker (2009) 239 CLR 129 at [84] (French CJ, Gummow, Hayne and Bell JJ); Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1 at [67]–[68] (Gageler J). This is not the place to debate whether that is a correct statement of general law principle. However, it could hardly be disputed that, as a matter of statutory construction, ss 52(2)(c) and 52(12) are both expressed as positive, rather than proscriptive, duties. That said, it may not make a material difference to the question of breach whether the duties are expressed in a positive or negative form.

	More importantly, what are the elements which constitute the duty to act in the best interests of beneficiaries? The late Paul Finn, in his outstanding seminal work on Fiduciary Obligations (The Law Book Company, 1977), conceptualised the duty of a fiduciary to serve the interests of the beneficiaries as a general over-arching duty which informs the more specific actionable duties, the latter being the yardsticks against which the propriety of a fiduciary’s actions are to be measured (see [27]–[30]). That approach must be qualified in the context of the SIS Act, because the general duties imposed by ss 52(2)(c) and 52(12) are as actionable as any of the more specific duties set out in s 52. But before dealing in detail with the more specific duties, Paul Finn referred to judicial review of a fiduciary’s exercise of power as ultimately raising the question whether the fiduciary has failed in some way to act in the beneficiaries’ interests, and said that that is based on two inquiries (at [86]). The first inquiry is whether the fiduciary intended to act in the beneficiaries’ interests or for some other reason, which cases stemming from Viscount Finlay’s reasons in Hindle v John Cotton Ltd (1919) 56 Sc. LR 625 at 630–1 indicate depends on the subjective state of mind of the fiduciary. Pausing there, that line of inquiry is most often deployed in cases involving the tactics used by company directors in resisting hostile takeovers, as cases such as the Privy Council’s decision in Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68 at 77 illustrate. The second inquiry is whether the fiduciary has in fact acted otherwise than in the beneficiaries’ interests, by gauging the objective consequences which the decision occasions to the beneficiaries, as reflected in Lindley LJ’s decision in Hampden v Earl of Buckinghamshire [1893] 2 Ch 531 at 544. The point was made colourfully by Bowen LJ in Hutton v West Cork Railway Company (1883) 23 Ch D 654 at 671 that bona fides “cannot be the sole test, otherwise you might have a lunatic conducting the affairs of the company, and paying away its money with both hands in a manner perfectly bona fide yet perfectly irrational”. That passage was approved by the unanimous High Court in ASIC v Lewski (2018) 266 CLR 173 at [71] in considering the statutory duty of the responsible entity (and its directors) of a managed investment scheme to act in the best interests of members. And as I have already indicated, Mr Scargill himself said that he was no stranger to the kind of person who combines simultaneously a high degree of both sincerity and unreasonableness.

	Turning then to the best interests duty under s 52(2)(c), those who are familiar with Jagot J’s reasoning in APRA v Kelaher (2019) 138 ACSR 459 at [54]–[65] will recognise the similarity, arrived at independently of Paul Finn’s reasoning, with those two inquiries: (1) has the fiduciary subjectively intended to act in the beneficiaries’ interests; and (2) has the fiduciary acted otherwise than in their interests viewing the consequences of the relevant decision objectively? Jagot J said that a trustee will breach the best interests duty if the trustee’s subjective purpose or object is contrary to the best interests of the beneficiaries: at [63]. Further, Jagot J said that a decision which is “not reasonably justifiable” as in the best interests of beneficiaries, assessed objectively by reference to the circumstances as they in fact existed at the time, will be in breach of the duty: at [64]. In that regard, Jagot J emphasised that the best interests duty did not impose a standard of perfection on trustees: at [65(1)]. The decision is to be assessed prospectively, that is, from the position of the trustee at the time of the decision, without impermissible hindsight (at [55]), and the relevant question is whether the course of action taken was one of the courses of action that may be described as being in the best interests of the beneficiaries (at [65(7)]). I do not regard the duty under s 52(12) to promote the financial interests of the beneficiaries as being any more onerous.

	Let me take that analysis a step further and explore the concept of a decision being “reasonably justifiable”. The standard of reasonableness in the context of trustees’ decision-making has been developed more extensively in the United States than in Australia or the U.K. In Scott and Ascher on Trusts (5th ed, 2007) at §18.2.6, reasonableness is analysed as a ground of judicial review of a trustee’s exercise of power in terms which indicate that the relevant question is whether a reasonable person in the position of the trustee could possibly have made the decision in question. That bears a striking resemblance to the standard of rationality referred to as “Wednesbury unreasonableness” in the context of judicial review of administrative decisions. And as Paul Finn remarked in introducing his analysis of the fiduciary office (Fiduciary Obligations at [26]), there is a close resemblance between the fiduciary who holds a position for the benefit of others, and the public ministerial officer who, while entrusted with duties and discretions by statute or statutory instrument, discharges those duties and exercises those powers in the interests of the public. Hence, the obligations imposed on a fiduciary in the exercise of his discretions mirror to a large degree the obligations imposed on the public officer in exercising his or hers.

	The same point has been made in the United Kingdom in a number of appellate decisions. The following statement of principle as to the proper bounds of decision-making by trustees of a pension fund, and the concomitant limits of judicial review of that decision-making, was made by Glidewell LJ (with the agreement of the other two judges) in Harris v Lord Shuttleworth [1994] ICR 991 at 999:

(a) the trustees must ask themselves the correct questions; (b) they must direct themselves correctly in law, in particular they must adopt a correct construction of the pension fund rules; and (c) they must not arrive at a perverse decision, i.e., a decision at which no reasonable body of trustees could arrive, and they must take into account all relevant but no irrelevant factors.

The Court of Appeal in Edge v Pension Ombudsman [2000] Ch 602 at 627–8 quoted that passage with approval, commenting that the language was almost identical to the grounds of judicial review in public law, and said that it is no coincidence that courts considering the exercise of discretionary powers by those to whom such powers have been entrusted (albeit in different contexts) should reach similar and consistent conclusions, and should express those conclusions in much the same language. In Equitable Life Assurance Society v Hyman [2002] 1 AC 408 at [17], Lord Woolf MR drew attention to the marked similarities between the two discretionary situations and added (at [20]) that this should cause no surprise when it is remembered that Lord Greene MR, who encapsulated the essence of the court’s role in judicial review in the Wednesbury case [1948] 1 KB 223, was a distinguished Chancery lawyer, as was Lord Wilberforce, who was described as “one of the patriarchs of English administrative law”. Implicit in that observation is the intriguing suggestion that the principles concerning judicial review of administrative action have been built on an analogy with the principles concerning judicial review of trustees’ decision-making. That said, we are talking only of analogy and not identity in all respects. That corrective was made by Lord Walker in Pitt v Holt [2013] 2 AC 108 at [11] in saying that the analogy cannot be pressed too far, and pointing out important differences as to the discretionary nature of relief in judicial review in public law, a different approach to nullity, and strict time limits (drawn from Lightman J’s judgment in Abacus Trust Co (Isle of Man) v Barr [2003] Ch 409 at [29]).

	In the New Zealand case of Craddock v Crowhen (1995) 1 NZSC 40,331, Tipping J said that a discretionary exercise of power by trustees is subject to judicial review if it is made unreasonably in the Wednesbury sense; that is, such that no reasonable trustee could rationally have made it in all the circumstances, relying on the analogy with judicial review of the exercise of public powers. His Honour added that “It is … time for private law to catch up with public law in this respect”. There is, of course, an inter-generational irony in that observation. If, as Lord Woolf MR appeared to suggest, the grounds of judicial review in public law owe their birth and upbringing to the law of trusts, it is curious that the principles have now become more fully developed (and certainly better known) in the child rather than in the parent. That is not quite what Wordsworth had in mind when he wrote “The Child is Father of the Man” (“My Heart Leaps Up”, 1802).

	In Australia, the position is not so clear. A statement was made by Gummow J as a judge of the Federal Court in Fares Rural Meat and Livestock Co Pty Ltd v Australian Meat and Live-Stock Corporation (1990) 96 ALR 153 at 167 that Lord Greene’s concept of Wednesbury unreasonableness was rooted in the law as to misuse of fiduciary powers, which seems to align with Lord Woolf’s similar suggestion a decade later. Chief Justice Robert French has said extra-judicially that, whether or not the term fiduciary is properly applied to the relationship between the repositories of public power and those affected by its exercise, the classical fiduciary relationship between trustee and beneficiary is particularly apt to illuminate the relationship between the government and the people: “The Interface between Equitable Principles and Public Law” (Society of Trust and Estate Practitioners, 29 October 2010, Sydney), p. 25; drawing on G.E. Dal Pont and D.R.C. Chambers, Equity and Trusts in Australia and Zealand (LBC Information Services, 1996) at p 115. And my colleague, Markovic J recently cited with apparent approval the passage from the English Court of Appeal’s decision in Edge v Pensions Ombudsman to which I have already referred: Brady v NULIS Nominees (Australia) Ltd in its capacity as trustee of the MLC Super Fund (No 4) [2024] FCA 1374 at [717]. On the other hand, the Victorian Court of Appeal in Owies v JJE Nominees Pty Ltd [2022] VSCA 142 at [84] said that the similarities between the authorities in the two areas are superficial and there is no ready analogy between public law decisions and the exercise of trustees’ powers.

	It will be apparent by now that I regard that last decision as a missed opportunity. As a matter of principle, the analogy is illuminating. For present purposes, the point of this analysis is to explain why an objective standard of reasonableness applicable to whether superannuation trustees have discharged their duty to act in and promote the best financial interests of the beneficiaries corresponds to the standard of Wednesbury reasonableness which is applicable in administrative law. Put another way, Jagot J’s test of whether a decision is “reasonably justifiable” should be treated as permitting a wide range of decision-making bounded by the principle that the decision must be one which a reasonable trustee could have made. I regard that as consistent with (although admittedly not expressed in precisely the same way as) the distinction drawn by the High Court in Attorney-General for the Commonwealth v Breckler (1999) 197 CLR 83 at [7] between an exercise of discretion by a trustee which is arbitrary, capricious and irresponsible and therefore liable to be impugned, and a decision which is merely “unfair or unreasonable or unwise” and cannot be impugned.

	With that groundwork laid, let me now approach the question of how the emphasis on financial interests in ss 52(2)(c) and 52(12) may apply in various kinds of decision-making. The most important of these is investment decisions, together with the associated topic of trustees engaging in social and political concerns, but I will also consider the topics of trustee expenses, merger proposals and voting as a shareholder.

In terms of investment decisions, two fundamental questions arise: first, must trustees generally prefer financial gain to social and political concerns; and second, must trustees always ignore social and political concerns? The answer to the first question is an emphatic “yes”. The answer to the second question is a qualified “no”. 
The issues take us back to Cowan v Scargill, in which the coal miners’ union failed in having the pension fund disinvest from oil and gas, being in competition with coal, and from all overseas investments. While broad economic arguments were deployed by Mr Scargill, Sir Robert Megarry regarded the possible benefits to beneficiaries as far too speculative and remote (at 296B). Three further UK cases are also pertinent, although they did not involve superannuation (or pension) trusts. In Harries v Church Commissioners [1992] 1 WLR 1241, Sir Donald Nicholls V-C rejected a challenge by the Bishop of Oxford to the effect that the investment decisions by a charitable trust for the benefit of Anglican clergy attached undue importance to financial rather than ethical considerations. In fact, the commissioners operated a policy of excluding around 13% (by value) of listed UK companies, including alcohol, tobacco and armaments companies, but the claimants’ proposed plan would have excluded about 37% of listed UK companies. Some aspects of the Vice-Chancellor’s reasons have recently been clarified by Michael Green J in Butler-Sloss v Charity Commission for England and Wales [2022] Ch 371, in the specific context of charitable trusts. In Martin v City of Edinburgh District Council [1988] SLT 329, Lord Murray in the Scottish Court of Session upheld a challenge by a group of councillors against a decision by Edinburgh District Council to disinvest its trust funds from South Africa during the apartheid era, but the decision was based on the failure to consider whether the divestment was in the best interests of the beneficiaries or to seek professional advice on the issue, not because the disinvestment was necessarily wrong.

	As to the question whether trustees must prefer financial gain to social and political concerns, Sir Robert Megarry in Cowan v Scargill (at 287G) rejected the broad assertion that trustees could not be criticised for failing to make a particular investment for social or political reasons. His Lordship said that if the investment which in fact was made was equally beneficial to the beneficiaries, their criticism would be difficult to sustain in practice. However, if the investment in fact made is less beneficial, then the trustees would normally be open to criticism. His Lordship said (at 287H–288A) that if certain investments are more beneficial to the beneficiaries than other investments, the trustees must not refrain from making them by reason of the social or political views they hold. Similarly, in Harries v Church Commissioners, Sir Donald Nicholls said (at 1246) that as a matter of logic, trustees should choose investments on the basis of well-established investment criteria and not exclude certain investments (such as in tobacco, alcohol or armaments companies) if that would result in significant financial detriment to the trust. That has now been clarified in Butler-Sloss v Charity Commission at [78(6)] in relation to charitable trusts to the effect that, where trustees are of the reasonable view that particular investments or classes of investments potentially conflict with the charitable purposes, the trustees have a discretion as to whether to exclude such investments, and they should exercise that discretion by reasonably balancing all relevant factors including in particular, the likelihood and seriousness of the potential financial effect from the exclusion of such investments.

	As to the question whether trustees must ignore social and political concerns, Sir Robert Megarry said (at 287H) that in deciding what investments to make, trustees must put to one side their own personal interests and views, no matter how strongly held they may be. However, his Lordship allowed an exception where the only actual or potential beneficiaries of a trust are all adults with very strict views on moral and social matters, such as condemning all forms of alcohol, tobacco and armaments (at 288E–G). In those circumstances, which Sir Robert Megarry regarded as “very rare”, the beneficiaries might well consider that it was far better to receive less than to receive more money from what they consider to be evil and tainted sources, and some arrangements which work to the financial disadvantage of a beneficiary may yet be for his or her benefit (at 288G). To similar effect, Sir Donald Nicholls allowed for the “comparatively rare” case where the objects of a charitable trust are such that investments of a particular type would conflict with the aims of the charity, for example a cancer research fund and tobacco shares (at 1246). Further, Sir Donald Nicholls gave the example where the trustees’ holdings of particular investments might hamper a charity’s work either by making potential recipients of aid unwilling to be helped because of the source of the charity’s money, or by alienating some of those who support the charity financially (at 1247).

	Putting those exceptions aside, Sir Donald Nicholls (at 1247) pointed to the problem that many questions raising moral issues do not yield certain answers, and widely differing views are held by well-meaning, responsible people. That comment was made in the context of a case concerning a charitable trust, but his Lordship took up the point in an address given three years later under the auspices of the Leo Cussen Institute at the Superannuation 1995 Conference of the Australian Law Society, entitled “Trustees and their Broader Community: Where Duty, Morality and Ethics Converge” (published in (1996) 70 ALJ 205). Lord Nicholls observed that the ordinary prudent person is not to be regarded as wholly lacking in moral sensitivity, but that this laudable characteristic is not easily translated into practice in the field of deciding on investments for the benefit of others (at 210). In the absence of a generally accepted attitude to the morality of investing in this or that investment, Lord Nicholls said that it cannot be right for moral considerations to displace beneficiaries’ financial interests. Lord Nicholls took the view that equity’s creature, the ordinary prudent person looking after another’s financial affairs, would surely take the view that it is not for him to foist on to his beneficiaries his own particular views about ethical or green investments, and should not let his views, or the views of some of the fund members, despite being held very deeply, affect his investment decisions to the financial detriment of all the fund members. If the trust was created to confer financial benefits on individuals, a decision not to maximise those financial benefits but to promote moral objectives on which widely differing views are held is, by definition, not to advance the purposes of the trust, and hence is not in the best interests of the beneficiaries under that trust (at 211). However, in referring back to Harries v Church Commissioners, Lord Nicholls reiterated that trustees may accommodate views on moral objectives, provided that this does not involve a risk of significant financial detriment.

	More recently, the UK Law Commission has done some important work in this field. In its 2014 report entitled “Fiduciary Duties of Investment Intermediaries” (Law Com No. 350), the Law Commission advanced the view that trustees should take into account financially relevant factors, and in general, non-financial factors may only be taken into account if two tests are met: first, trustees should have good reason to think that scheme members would share the concern; and second, the decision should not involve a risk of significant financial detriment to the fund (see paras 6.34, 6.57–6.94). The Law Commission adhered to that view in its 2017 report entitled “Pension Funds and Social Investment” (Law Com No 374, at paras 5.15 and 5.34–5.46). The Law Commission’s view has now been expressly approved by three members of the UK Supreme Court: R (Palestine Solidarity Campaign Ltd) v Secretary of State for Housing, Communities and Local Government [2020] 1 WLR 1774 at [12] (Lord Wilson JSC with whom Baroness Hale agreed); [43] (Lord Carnwath).

	That appears to me to represent a sound view as to the general judge-made law relating to superannuation trustees. In Australia, the matter is governed by the statutory language adopted in ss 52(2)(c) and 52(12), which does not spell out those qualifications, and simply requires trustees to act in and promote the financial interests of the beneficiaries. Despite that difference, Australian law may well accommodate a similar approach.

	Much more recently, early this year, Judge Reed O’Connor of the United States District Court for the Northern District of Texas gave judgment in Spence v American Airlines Inc, (ND Tex, No 4: 23–CV–00552–0, 10 January 2025), finding that American Airlines and its Employee Benefits Committee breached their fiduciary duty to loyally act solely in the best financial interests of beneficiaries in its retirement plan when investing (or relying on the investment manager, BlackRock, to invest) their employees’ retirement assets towards environmental, social and governance (ESG) objectives. The expert evidence in that case led to a finding that, by aiming to bring about certain types of societal change and focusing on non-pecuniary interests, ESG investments often underperform traditional investments by approximately 10% (pp 24–25). Judge O’Connor characterised ESG investing as a strategy that considers or pursues a non-pecuniary interest as an end in itself rather than a means to some financial end, and warned that simply describing an ESG consideration as a material financial consideration is not enough as there must be a sound basis for characterising something as a financial benefit (pp 27, 65). In this regard, Judge O’Connor referred to BlackRock couching its ESG investing in language that superficially pledged allegiance to an economic interest, but found that BlackRock never gave more than lip service to show how its actions were actually economically advantageous to its clients. For example, Judge O’Connor described references to the “long-term” as rhetorical devices to suggest some amorphous and unsupported financial benefit of an ESG factor in order to shift attention away from non-pecuniary goals (pp 36–37). It should be noted that the language of the relevant US legislation, namely the Employee Retirement Income Security Act 1974, 29 USC § 1104(a), is stronger than our ss 52(2)(c) and 52(12), in that the duty of loyalty in the US legislation requires the fiduciary to act “solely in the interest of participants and … for the exclusive purpose of … providing benefits to participants and their beneficiaries” (emphasis added). However, as with our legislation, the benefits in question are financial benefits and the term does not cover non-pecuniary benefits: Fifth Third Bancorp v Dudenhoeffer 573 US 409 at 421 (2014) (cited by Judge O’Connor at p 55).

	There are some large public offer superannuation funds in Australia which impose exclusions on investing in certain industry sectors across all of their funds and investment options, such as manufacturers of tobacco products and producers of thermal coal. Perhaps an argument could be constructed that those industries are suffering a long-term decline in demand, but the websites which publicise those exclusions do not appear to offer that as the justification. If as a matter of fact (as to which I am not expressing any conclusion) the reason for those exclusions is based on the social or political views of the trustees irrespective of the financial interests of the beneficiaries, then the exclusions would be open to challenge. As I have sought to explain, the appropriate approach to ss 52(2)(c) and 52(12) is an analogy with principles applicable to the exercise of discretion by the executive government. That is also the most favourable approach from the point of view of trustees. But a trustee which rules out potentially profitable investments because of adherence to non-financial criteria may not be exercising that discretion within the available legal limits.

	Two further points should also be noted. First, any difficulties in establishing that such investment exclusions do not make investors worse off do not necessarily mean that the provisions have not been contravened. A breach of the covenants imposed by ss 52(2)(c) and 52(12) exposes the contravener to civil penalties (see s 54B(3) of the SIS Act), in relation to which the extent of any loss or damage to the beneficiaries is no more than a factor (albeit an important one) in assessing the amount of the penalty. Second, ss 52(2)(c) and 52(12) are not subject to a materiality threshold, at least in terms of their express language. However, monetary penalties under s 193(3) may be made only if the court is satisfied that the contravention is a serious one (s 193(4)).

	This is not the same problem as arises with the kind of fund referred to already whose beneficiaries all share the same deeply held antipathy to certain business sectors, which Sir Robert Megarry and Sir Donald Nicholls regarded as a rarity. The latter commented, for example and I think accurately, that not all Anglican clergyman are opposed to alcohol or tobacco (at 1250). Nor is it a matter to be determined simply by ascertaining by way of a survey or poll of members where the majority lies, both because trustees must act in and promote the financial interests of beneficiaries generally, and because the matter depends also on the perceived level of conviction of members, irrespective of whether they comprise a majority or minority. Many members may not particularly like tobacco or thermal coal, but would not change their decision to join or remain in a public offer fund on that ground. However, one way of grappling with the issue which is commonly adopted by large public offer superannuation funds is to offer a particular investment option branded, say, “socially aware” or “socially responsible”, with a range of exclusions in its investment mandate, which may well fall within the rare category of case where the beneficiaries all share an antipathy towards the excluded sectors. Sections 52(2)(c) and 52(12) still require that strategy to be consistent with the beneficiaries’ financial interests, but that may be satisfied by the notion that the trustee is providing a financially viable and competitive investment option for people with certain social and political convictions. My purpose is not to give a conclusive answer, which would depend on the facts of the particular case, but merely to outline a framework of analysis which may be available in limited circumstances to accommodate the social and political concerns held by the beneficiaries themselves within the duty to act in and promote the financial interests of beneficiaries. Importantly, the focus must be on satisfying the social and political concerns of the beneficiaries themselves, not those of the trustees.

	Another issue considered in the authorities raises a similar problem but in a more confined way, namely whether trustees have a duty to “gazump” when faced with a better offer after a bargain has been informally struck. Sir Robert Megarry in Cowan v Scargill (at 288A–E) said that trustees may have a duty to act dishonourably (though not illegally) if the interests of their beneficiaries require it, such as by obtaining the best price which they can even if that means reneging on a deal to which they feel in honour bound, following Buttle v Saunders [1950] 2 All ER 193. That reasoning clashes with the much-cited but overworked dictum by Cardozo J in Meinhard v Salmon 249 NY 458 (1928) at 464 that:

A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behaviour.

Who is right? Maybe both views, depending on the circumstances. A public offer fund which gains a reputation for morally calloused business conduct may well find that short-term gains have long-term detriments. An expensive marketing campaign may be necessary to revive the fund’s reputation, lest it risk a mass exodus of members. Public offer superannuation funds depend to a considerable extent on a large membership base and economies of scale for their financial competitiveness and viability. On the other hand, a relatively small fund faced with a very substantial gain to be made by gazumping may not face that dilemma. When a trustee is seeking to identify and implement what is in the best financial interests of the beneficiaries, the trustee is plainly exercising a discretionary commercial judgment in the particular circumstances confronting it. As Paul Finn conceptualised the matter, in a manner which I regard as consistent with Jagot J’s reasoning in APRA v Kelleher, there are two relevant inquiries: (1) has the trustee subjectively intended to act in the beneficiaries’ interests; and (2) has the trustee acted objectively in their interests in the sense that the decision is one which a reasonable trustee could make? That approach confers a wide latitude on trustees in discharging the duty to act in and promote the beneficiaries’ financial interests, but it is not limitless.

	The complex consequentialist issues which arise prompt a further question: What level of investigation must be undertaken by trustees before they make their decisions? The extremes are, of course, easy to deal with. In Martin v Edinburgh District Council, the council’s decision to disinvest its trust funds from South Africa was set aside for a failure to give any consideration to whether that was in the best interests of the beneficiaries or to seek any professional advice on the issue. At the other extreme, in APRA v Kelleher (at [51]–[52]), Jagot J rejected as “onerous in the extreme and highly impractical” APRA’s submission that the trustee’s best interests obligation required it to properly inform itself of all relevant information affecting the financial interests of members in the preservation and maximisation of the capital of the trust, and where it is not available, to seek it. That said, the High Court in Finch v Telstra Super Pty Ltd (2010) 242 CLR 254 at [33]–[34] reasoned that the particular circumstances of the superannuation system meant that the trustee of a superannuation fund owed a more intense duty to properly inform itself than is the case with other trusts, at least in the context of a decision concerning members’ entitlements. My own view is that if that “more intense duty” is to be applied to decisions as to the best financial interests of the beneficiaries, that is more appropriately done by way of the duty imposed by s 52(2)(b), namely to exercise the same degree of care, skill and diligence as a prudent superannuation trustee would exercise. That objective standard is applicable to the trustee’s discretionary commercial judgment, in a way which analogies with constraints on public law discretionary decision-making are not. In the realm of judicial review of administrative decisions, labels like “proper, genuine and realistic consideration” are treated with considerable caution, lest the analysis become a kind of illegitimate merits review, as the High Court reiterated in Plaintiff M1/2021 v Minister for Home Affairs (2022) 275 CLR 582 at [26] (Kiefel CJ, Keane, Gordon and Steward JJ).

	So far I have been dealing with investment decisions, but the duty to act in and promote the beneficiaries’ financial interests arises in other settings. The Explanatory Memorandum for the 2021 amendments, which inserted the adjective “financial” in the best interests duty in s 52(2)(c) paid particular attention to the topic of expenditure by trustees, expressed in very demanding language as to whether any expenditure is “essential” or “necessary” as well as whether it is on competitive terms (para 3.35). That may be thought to be unreasonably restrictive. Cutting costs to the bone may well lead to an administration which is low in morale and thus low in standards of service, with high employee turnover and consequently high training costs. The question calls for the exercise of discretionary judgment by the trustee, as to which the courts should extend a wide latitude, as I have indicated above in the discussion of rationality. 

Similarly, the question of fund mergers is also subject to the duties imposed by ss 52(2)(c) and 52(12). The financial interests of beneficiaries may well be enhanced by economies of scale, in spreading the fixed costs of the fund over a large body of members. But the considerations are not all one way. A large fund is likely to have a large percentage shareholding in the companies in which it invests, which may be difficult to divest without having to accept a significant discount on the sale price of the securities in question. Conversely, investing in a large proportion of a company’s shares will move the market price and increase the cost of the investment. There is also some evidence indicating that as funds have become larger, customer service failings have become more prevalent, such as long call wait times, delays in claims handling and errors in processing payments and fund transfers (“ASIC to scrutinise super mergers as problems emerge”, The Weekend Australian, 9.2.25, p 27). In addition, investigating potential fund mergers may well take up an inordinate amount of executive time and energy. It is worth noting that Prudential Standard SPS 515, which is picked up by s 52(11)(e), requires that RSE licensees must assess matters of operating costs and scale of business operations in determining whether the financial interests of beneficiaries are being promoted (see especially para 29), but it does not stipulate that larger is necessarily better.

	That leaves a further topic which Lord Nicholls addressed in the 1995 paper (at 214–6) to which I have already referred, namely the role of superannuation trustees in the corporate governance of companies in which they invest. Lord Nicholls insisted that the proper discharge by trustees of large funds of the duty to decide how to exercise the voting and other rights attached to trust fund securities must require more than deciding how to vote on routine resolutions at annual general meetings. In his Lordship’s pithy phrase: “Inertia is a comfortable pillow but it is not available to trustees.” Lord Nicholls dealt in particular with the role of large shareholders in keeping executive remuneration in check, noting that the fragmentation of shareholdings can lead to a power vacuum in which the mechanism of the general meeting does not operate as it should. Although that particular problem has since been remedied by legislative reform in Australia, the fundamental point remains, that promoting the financial interests of the beneficiaries requires positive consideration by trustees and implementation of the course which trustees in their commercial judgment regard as appropriate. However, shareholder activism by trustees which is directed to advancing the trustees’ social and political views, as opposed to promoting the financial interests of the beneficiaries, would be open to legal challenge.

	Judge O’Connor’s judgment in Spence v American Airlines Inc has much to say on this topic. BlackRock was found to have actively supported ESG proposals at major energy companies, with its CEO, Larry Fink, leading the activist charge (p 29). BlackRock opposed a number of management-recommended directors at energy companies on the ground that they failed to meet specified climate goals or secure adequately diverse boards (pp 32–33). For example, in May 2021, BlackRock’s proxy votes were determinative in electing three dissident-director nominees to the board of Exxon because Exxon failed to meet BlackRock’s climate demands, whereupon Exxon’s stock price fell, along with other energy stocks (pp 32–33). Judge O’Connor criticised American Airlines, which had appointed BlackRock as the investment manager of its retirement plans, for allowing BlackRock to continue managing billions of dollars of retirement plan assets in pursuit of non-economic ESG interests, and never asking BlackRock to provide any financial or empirical analysis justifying its ESG investing and ESG-driven proxy voting as being in the best financial interest of participants (p 33).

	There is a naive view in certain intellectual circles that the pursuit of financial interest is necessarily opposed to non-financial social and political concerns and a desire for social harmony, such that the greater the commitment to one, the less must be one’s commitment to the other. On the contrary, for hundreds of years, philosophers have argued that the pursuit of self-interest in a free economy under the rule of law leads towards an optimal use and allocation of resources and thereby fosters the common good. If you lack the time or inclination to read, say, Adam Smith’s The Wealth of Nations, just take 30 seconds to read Aesop’s fable “The Farmer and His Sons”. In fact, I will spare you the trouble. A dying landowner wishes to ensure from his sons the same attention to his farm as he has himself given it. He calls them to his bedside and says: “My sons, there is a great treasure hid in one of my vineyards”. After his death, they dig over every inch of the land in search of the promised riches, but come up empty-handed. Only when the vines grow abundantly do they realise that they have inadvertently ploughed all the land. Common good has resulted unintentionally from private motivation. In the case of the SIS Act, Parliament has taken the view, consistently with Aesop’s farmer, that it is best for superannuation trustees to suppress what they may perceive to be noble virtues until they have first exhausted the pursuit of their beneficiaries’ financial interests.