Superannuation law wears the robes of equity and trusts but is a child of the age of statutes. The ever-growing body of law which relates to superannuation funds is mostly found in legislation… not in case law. Making good sense of the regulatory obligations on superannuation funds is primarily a matter of understanding how to interpret legislation.
The relative importance of the superannuation system to the Australian economy and society mean that the industry is faced with a torrent of regulatory consultations, exposure drafts, legislation, regulations, legislative instruments, class orders, prudential standards, tax rulings, regulatory guides and so on.
It is no longer solely the domain of lawyers and judges to interpret the regulatory obligations placed on superannuation funds. It is an increasingly important skill for senior executives, risk, compliance, and even project and IT professionals.
The task of interpreting superannuation legislation is often plain and straight forward, but often enough it is unclear or ambiguous. Interpretation is often expected to provide clarity or certainty to the business about the legality of a proposed course of action. While this is not always possible, this makes understanding the approach to statutory interpretation important for those beyond lawyers and judges.
Approaches to interpreting legislation
There have been various approaches to interpreting legislation in common law which have contributed to the current legislated approach. It is illuminating to briefly touching on these approaches, which range from narrow textualism to broad contextualism.
1. The literal approach
Relied solely on the examination of the text and language used in the statute of legislation. This quasi-scientific approach has an appeal in that it appears to provide certainty and clarity. It has however fallen out of favour, particularly in light of the acknowledgement that words and language don’t have fixed and absolute meaning, as context always dictates the meaning of language.
2. The golden rule
A slight extension to the literal approach whereby the grammatical and ordinary sense of the words is adhered to unless it would lead to some absurdity, repugnance, or inconsistency.
3. The purposive approach
Relied on for identifying the mischief that the legislation sought to remedy as the purpose through with the words of legislation must be given meaning.
4. Interpretation in context
Best described as the modern common law approach is an approach whereby context is considered in the first instance alongside the text (not only reflectively where the meaning is unclear), and applies widely to include and materials which provide reliable insight as to the legislative intent such as the matrix of facts, or circumstances in which the legislation was enacted.
It is this approach of interpretation in context which has prevailed, and it is most prominent now. The primary approach to interpreting Commonwealth legislation is found in legislation itself, under section 15AA of the regulatory obligations, which provides:
In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation.
The purpose or object can therefore best be described as the legislative intent or Parliament or its delegate. It can help to simply ask “what law was intended to be made by the body making the law.” The drafting of legislation has become quite detailed and specific, and the ordinary meaning of the text is usually quite clear.
However, there are inevitably aspects of superannuation legislation which are unclear or ambiguous. When this is the case, it is necessary to rely on the context found in materials other than the text of the statute itself.
The Acts Interpretation Act provides that:
Extrinsic materials can be used to determine the meaning of a provision where it is ambiguous or obscure or the ordinary meaning of the text leads to a result that is manifestly absurd or is unreasonable.
There is no limitation of what extrinsic materials may be relied on in determining the meaning of a provision, however there are certain things which are expressly permitted, these include royal commission reports, Law Reform Commission reports, Parliamentary Committee reports and material, explanatory memorandums, treaties and second reading speeches by the minister.
Importantly all of these materials are produced for the law making body, and the materials are produced before or at the time of the laws being made. It is problematic to attempt to rely on extrinsic materials which are produced after the laws are made, even if these are produced by or for the same law making body.
It is a principle of the rule of law that retrospective application should be avoided, and that if a law making body intends to change the law after it is made it should do so by way of the accepted legislative process.
Delegated to the regulator
A great deal of the law making in relation to superannuation and financial services does not occur via Parliament but is rather delegated to the regulators to legislate in the form of determinations, standards, legislation, and instruments.
The Legislation Act 2003 provides that the same rules generally apply to the interpretation of legislative instruments and notifiable instruments as apply to the interpretation of Acts. So, the approach to interpreting laws made by regulators (such as prudential standards or legislative instruments) is more or less the same at the for Acts of Parliament.
The use of extrinsic material in interpretation is particularly important in relation to delegated legislation (such as regulations, prudential standards, or legislative instruments) as delegated legislation is often supplemented with Prudential Practice Guides from APRA and Regulatory Guides from ASIC, and frequently asked questions (FAQ) pages on regulator’s websites. It is common for these regulatory guides to be relied on by the superannuation trustees as a means of interpreting the law.
While these regulatory guides are usually an accessible and easily understood reference to the relevant legislative requirements, doing so is not without its risks.
Regulators including APRA and ASIC are interesting as they wear multiple hats. Not only do these regulators often make the law, they also issue guidance on how they interpret the law, and have enforcement powers to prosecute breaches of the law.
It is ASIC or APRA which often apply penalties or litigate against superannuation funds for breaches of the laws which they have created. This makes it still important that the regulator’s own interpretation to be understood for the purposes of understanding the risks of enforcement activity. This is not to say however, that their interpretation of the law is upheld by a Court.
This concentration of legislative and enforcement powers can result in regulatory guidance playing an oversized role in influencing the way that superannuation trustees interpret the law.
As extrinsic material such as regulatory guidance is often prepared and revised after the laws have been made. There is a risk that reliance on regulatory guidance sees interpretation depart from the legislative intent over time.
While relevant, placing too heavy a reliance on regulatory guidance as a means of interpreting legislation may result in superannuation funds misplacing regulatory and compliance risks. Similarly, demands for ever increasing certainty in regulatory guidance increase the risks that this guidance clouds the interpretation of legislation.
This can either inhibit a superannuation fund’s ability to find commercially pragmatic and efficient outcomes or provide a false sense of assurance when legal risks may lurk behind frequently updated regulatory guidance or website FAQs.
Making sense of superannuation legislation and regulation is no longer just the domain of lawyers. As trustee directors, executives, managers, and even IT and project teams are required to make sense of complex and sometimes unclear legislation.