ACN 074 971 109 (as trustee for the Argot Unit Trust) & Anor v The National Mutual Life Association of Australasia Limited [2008] VSCA 247

Eakin McCaffery Cox (Victorian Agents Oakley Thompson & Co Solicitors)

1 Between early 1998 and September 2000 the respondent issued policies of life insurance called 'prosperity bonds'. Premiums and earnings were invested in portfolios of assets. The portfolios were divided into parts with equal value, called units, which represented the value of each policyholder's entitlement. Changes in the market value of the investments in each portfolio were reflected in the prices of the units. Policyholders could switch units from one portfolio to another. Adjustments to the number of units held were made using unit prices as at the date on which the requested transfer was made. The portfolios included one called a 'Cash' portfolio, the value of which moved only incrementally, and one called a 'Secure' portfolio containing shares and fixed interest securities. The unit price of the Secure portfolio was affected by daily movements in share indices.

2 In mid-1998 a New South Wales dentist, Keller, entered into negotiations with the respondent to make available to persons introduced by Keller ('the Coneview investors') prosperity bonds on special terms. According to an internal memorandum of the respondent dated 12 June 1998, it was anticipated that the persons introduced by Keller would invest between $15 million and $20 million in the first year and like sums each year after that. The special terms included terms which entitled the appellants to switch between the Cash and Secure portfolios on three days' notice of intending to switch, and at the price applicable on the date of giving notice, and to revoke the notice of intention without penalty at any time before completion of the switch.

3 The Coneview investors exploited the special terms by switching or declining to switch between the Cash and Secure portfolios with the benefit of hindsight and thus achieved risk-free arbitrage profits. Their modus operandi was described in the evidence of the respondent's chief actuary. He said that the prices published by the respondent on one day reflected movements in asset values that had occurred on the previous day and that the price of the units in the Secure portfolio almost always reflected movements in the All Ordinaries Index. He continued:

Dr Keller had generally given his instructions to switch late in the day, when it had become apparent whether the All Ordinaries Index was going to finish higher or lower than the day before, and he therefore knew whether the price of units in the Secure portfolio would be higher or lower the following day. Dr Keller had therefore been able to time his instructions to switch from the Cash to the Secure portfolio and back again so that he moved into the Secure portfolio when its unit price was steady or rising and into the Cash portfolio (in which the unit price falls only in very exceptional circumstances) when the price of Secure units was falling.

4 In mid-2000 the respondent discovered the arbitraging conducted by the Coneview investors and took steps to prevent it, principally by changing from historic to forward pricing of units. Instructions given on a particular day to withdraw or switch funds were effected at prices which reflected the movement and value of the assets underlying the relevant portfolios that had taken place during that day. Once the respondent received a notice to withdraw or switch, it put the notice into effect as soon as practical after the close of business on the day on which the notice was given, and refused to accept any instruction to cancel the switch or withdrawal unless the instruction to cancel was received before the switch or withdrawal was actually processed. This action triggered the proceedings.

5 The appellants' principal claim below was that the effect of the special terms negotiated by Keller was to confer on them an option of three days' duration in which to switch or to decline to switch at prices ruling at the first day of the option period; and so to confer on them the ability to switch or decline to switch with the benefit of hindsight. Alternatively, the appellants contended, the respondent was estopped for the duration of the prosperity bonds from denying that that was the effect of the special terms, and further or alternatively, the respondent had engaged in misleading and deceptive conduct which induced the appellants to invest in the prosperity bonds in the belief that the effect of the special terms was as they alleged.

6 The judge held that the special terms did not have the effect for which the appellants contended. His Honour ruled that, once a notice of intention to switch was given, it was open to the respondent to complete the switch at any time within the next three days and that, once a switch was so completed, an appellant was not entitled to revoke its notice of intention. The judge accepted that the respondent was estopped in part from departing from assumptions as to the prices at which units could be switched, on the basis of which he found that the appellants had entered into the prosperity bonds. But his Honour limited the relief to be accorded to the minimum equity, which his Honour determined to be the appellants' costs of borrowing and maintaining their investments in the prosperity bonds, plus management fees incurred and loss of investment opportunities forgone until the effluxion of such time as represented reasonable notice by the respondent. His Honour also found that the respondent had engaged in misleading and deceptive conduct but held that the relief to be allowed was no more than was necessary to make good the minimum equity to which the estoppel gave rise.

7 In this appeal, the appellants contested the judge's construction of the special terms and argued that in one way or another they were entitled to be fully compensated for their expectation losses based upon the continuation of their ability to engage in arbitraging. For its part the respondent sought to uphold the judge's construction but contended that his Honour erred in holding that the respondent was estopped from denying that the special terms had the effect for which the appellants contended and in finding that the respondent engaged in misleading and deceptive conduct.

8 Clause 1.1 of the prosperity bonds provided that policyholders could pay an additional premium, obtain investment protection in respect of certain portfolios, switch investment portfolios and withdraw cash by means of a full or partial surrender.

1.8 Large Withdrawals

We reserve the right to delay for up to thirty days any cash withdrawal or any transfer between the investment portfolios which would otherwise require the cashing within any thirty day period of Units valued at more than $100,000. We will use the Unit Price(s) applicable at the end of the period of delay.

AXA Australia will waive its right to delay withdrawals and switches for thirty days providing the investor gives three working days' notice of its intention to switch or withdraw. The Unit Price will be the price on the day when the notice is given in writing. AXA Australia also agrees that should the investor change their mind prior to the completion of the portfolio switch or withdrawal transaction and not proceed with the switch or withdrawal, no penalty will be involved.

The second paragraph of the clause was a special term negotiated by Keller.

10 Clause 2.2 of the policy dealt with the operation of the investment accounts. Accounts in one or more of the various investment portfolios were maintained for policyholders. Each account was maintained in units. Whenever an amount was put into an account, the number of units, determined by dividing that amount by the unit price, was added to the number of units in the account. Similarly, whenever an amount was taken from an account, the number of units, determined in the same manner, was subtracted from the number of units in the account.

11 Clause 2.4 provided that policyholders could withdraw cash by surrendering units in investment portfolios.

12 The investment portfolios were described as 'market-linked portfolios'. The assets of the portfolios were held in one of the statutory funds conducted by the respondent (cl 3.1).

(a) Prosperity Bond Market-Linked Portfolios are divided into parts of equal value called Units which are used to keep track of your entitlements under this policy. Changes in market values the investments in each portfolio are reflected in the Unit Prices which rise and fall as a result.

(b) All investment income (including realised capital gains and losses) earn on the assets of a particular Prosperity Bond Market-Linked Portfolio, less any tax payable is credited to that portfolio.

...

(e) Unit Prices of Units in Prosperity Bond Market-Linked Portfolios are calculated as described in section 4 below. They are usually declared on a daily basis, but may be declared more or less frequently.

1. You may switch investment portfolios by transferring amounts between the Prosperity Bond Investment Portfolios at any time. Minimum transfer amounts apply.
2. Corresponding adjustments to the number of Units will be made using Unit Prices as at the date to which your request for transfer applies.

The respondent could not charge for switching between the Cash and Secure Portfolios (cl 3.3d).

15 Clause 4.20 dealt with the calculation of unit prices. The clause provided:

4.20 'Unit Prices' are the dollar value of each Unit. The Unit Price in a particular Prosperity Bond Market-Linked Portfolio is calculated as follows:

(i) As soon as practical after a day as at which the Portfolio Net Value is determined, we determine a Benchmark Unit Price as at that date, by dividing the Portfolio Net Value by the total number of Units then held in that portfolio;

(ii) The Unit Price is then calculated by adjusting as we deem appropriate the Benchmark Unit Price most recently determined to take account of any fluctuations in the market value of the investments of the Portfolio since the date on which the Portfolio Net Value is determined.

16 The principal question for the purposes of this appeal concerns the proper construction of the second paragraph of cl 1.8 of the policy. The appellants contended that its effect was that the respondent would waive its right to delay or withdraw or switch for 30 days, provided the relevant investor gave three days' notice of intention to make the switch or withdrawal. So, according to the appellants, the investor would be entitled to revoke the notice before it expired and, correspondingly, the respondent was not permitted to act on a notice until it had expired. If, however, a notice were given and not revoked before it expired, the respondent would be bound upon expiration of the notice to complete the transfer at the price applicable on the day when the notice was given. Hence, in the appellants' submission, the clause enabled the appellants to make profits by deciding whether to switch between portfolios or withdraw units with the benefit of hindsight.

17 The judge rejected the appellants' construction. His Honour said that the purpose of the first paragraph of cl 1.8 was to give the respondent sufficient time to prepare for the switch or withdrawal of units - it permitted the respondent to delay carrying out the transaction when it thought it necessary - while the second paragraph did no more than reduce the period for which the respondent could delay to three days. It followed, his Honour held, that notice given by the investor was not a notice that the switch or withdrawal should occur at the end of the period but rather a notice of intention that the switch or withdrawal was to be effective from the date of the notice. As his Honour put it, the words 'prior to completion' meant that the respondent might 'complete' within the three day period.

[The respondent] is given the right to delay for up to three working days, with [the appellants] having the right to cancel their notice of intention at any time within those three working days provided [the respondent] has not in the meantime completed the withdrawal or switch.

18 With respect, we disagree. In our opinion, the judge's construction of cl 1.8 distorts the plain meaning of the words 'three working days' notice of ... intention to switch or withdraw.' The natural and ordinary meaning[1] of three days' notice of intention to switch or withdraw is that it is forward notice of an event to take place in three days' time. If the switch or withdrawal were to take place on the day on which notice is given, the investor would have failed to give three days' notice. To treat the second paragraph of cl 1.8 as entitling the recipient of the notice to perform the switch or withdrawal at any time within the three days would require a drastic recasting of the words in the paragraph. It would also make no sense in the context of the whole of the clause. If an investor gives notice requesting a transfer or withdrawal on the day of the notice, the respondent is entitled under the first paragraph of cl 1.8 to delay the transfer or withdrawal for up to 30 days. The second paragraph of cl 1.8 provides that the respondent is only bound to waive that right to delay for up to 30 days if the investor gives three business days' notice of intention to transfer or withdraw.

19 The judge placed some emphasis on the words 'the unit price will be the price on the day when the notice is given in writing.' His Honour reasoned that, if the price at which the transfer or withdrawal were to be effected was the price on the day that notice was given, the day of transfer or withdrawal should be that day. But in our view the purpose of the second paragraph of cl 1.8 was to accommodate an investor who wished to effect a transfer or withdrawal at the price applicable at the date of giving notice and wished also to avoid the possibility of a delay of 30 days. Its effect was that, in consideration of the investor giving the respondent three business days' notice of intention to transfer or withdraw, and therefore the opportunity for the respondent to do what it thought necessary or desirable to accommodate the transfer or withdrawal, the investor was to be permitted to revoke the notice if, during the period of notice, the price so moved as to make transfer or withdrawal undesirable from the point of view of the investor.

20 The judge read the words 'prior to the completion of the portfolio switch or withdrawal transaction' as intended to convey something other than the expiration of the three business days' notice and thus as implying that completion could take place before the expiration of the notice. His Honour said:

I reject the contention that the words 'prior to the completion' can be disregarded as a matter of construction. They are not in conflict with any other words. The words mean that [the respondent] may 'complete' within the three day period.[2]

With respect, we disagree. In our view, if an investor gives notice of an intention to make a transfer or withdrawal in three business days' time, there is nothing in the policy apart from cl 1.8 which authorises the respondent to complete the transfer or withdrawal before the expiration of three business days.

21 The respondent advanced a number of arguments in support of the judge's construction. One was based on the form of cl 1.8 - in particular, that the first paragraph of the clause was in form solely for the benefit of the respondent - in that it conferred on the respondent the right to delay for 30 days what otherwise it would be bound to do by the end of the first day. Counsel for the respondent argued that, if the second paragraph had the effect for which the appellants contended, it would have turned a clause which was in form solely for the benefit of the respondent into one which in operation was solely for the benefit of investors. He submitted that, if the parties had intended to confer such an extraordinarily valuable right upon holders of policies,[3] they would surely not have gone about it by the partial relaxation of the power of delay conferred by the first paragraph of the clause.

22 That argument is not persuasive. In our view it is not surprising that a provision in favour of the appellants should have been drafted in the form of a partial relaxation of the first paragraph of cl 1.8. Even a slight relaxation of the respondent's ability to delay completion for up to 30 days would be for the sole benefit of the appellants. It would not be inappropriate, however, to place it next to the provision which it was intended to relax. And the fact that the relaxation provided for in the second paragraph of cl 1.8 may have been particularly beneficial to the holders of policies with special terms does not alter the logic of placing it next to the provision it was intended to relax.

23 It was further submitted for the respondent that, if the second paragraph of cl 1.8 bore the interpretation for which the appellants contended, it would confer on the appellants a right to make gains from the policies which were of a fundamentally different nature to the gains for which the policy as a whole provides. More particularly, it was said that whereas the policy provides generally for investors to make long-term gains from increases in the value of the assets in their portfolios, the construction of cl 1.8 for which the appellants contended would allow the appellants to make short term gains at the expense of other policyholders.

24 In our view that submission is not persuasive either. The respondent may well not have agreed to the second paragraph of cl 1.8 if it had sufficiently thought through the possibilities for exploitation of the clause. Non constat that the clause is to be given a meaning for which it does not provide.[4]

25 Counsel for the respondent argued next that, if policyholders giving notice of an intention to switch had three days within which to determine whether to proceed, their intention to switch would be conditional upon movements in asset values and thus unit prices making the switch desirable, and because it was conditional would not be an informed intention of which notice could properly be given.

26 In our view that argument should be rejected. As counsel for the respondent conceded, even on his construction the clause would be capable of operating where an investor had every intention of completing a transfer or withdrawal but then revoked the notice of intention because prices moved so adversely against transfer or withdrawal as to make it ill advised. In point of principle that is no different from an intention to proceed unless circumstances change. In any event, we do not consider that the possible mental processes of those using the clause should determine its construction.

27 Finally, on this aspect of the matter, counsel for the respondent invoked an analogy with a landlord's notice to quit. In his submission, a policyholder giving notice under cl 1.8 was in a similar position to the landlord and the respondent was in a similar position to the tenant who was required to act on the notice and so give effect to the transfer or withdrawal before the notice expired. That was further support, it was said, for the view that 'three business days' in cl 1.8 meant a request to transfer or withdraw on the date on which notice was given coupled with permission to delay completion for up to three days.

28 We think that the analogy is inapposite. A notice to quit must stipulate a date certain in order to bring a periodic tenancy to an end.[5] The only event of which notice is given is the end of the tenant's right to occupy the premises. It is not notice of the event constituted by the tenant leaving the premises. A landlord may well be delighted if his or her tenant vacates the demised premises before a notice to quit expires. It does not follow that an investor who gives notice requesting a transfer or withdrawal to be made on a specified date will be delighted if the transfer or withdrawal is made before that date.

29 The appellants argued that the judge was wrong in holding that the policy did not permit an appellant to give notice to switch an investment from one Account to another unless the investment were in hand at the time of giving notice. Counsel for the appellants submitted that there was nothing in the terms of the policy which precluded an appellant from engaging in what he termed 'short selling', which is to say giving notice of intention to switch an investment before acquiring the investment, provided that the investment were acquired on or before the expiration of the notice.

30 We disagree. Although for different reasons, we are of the same view as his Honour as to the impermissibility of short selling. We consider that, upon its proper construction, the policy does not contemplate or tolerate switches of an investment from one Account to another unless, at the time of giving notice to switch, the investment is in hand in the Account from which it is to be switched.

31 The starting point is cl 2.2(a) which provides that the investor has a choice as to the portfolios into which his or her investment is to be placed, and cll 2.2(c) and (d), which provide that, when an amount is put into or taken out of an Account (scil. portfolio), the number of Units to be added or subtracted from the Account is to be determined by dividing the amount by the Unit Price at the time of transfer.

32 One goes then to cl 2.2(e), which provides for the respondent to delay 'the application of money to or from an Account' until midnight on the transfer date and then to use the Unit Price applicable at the end of the period of delay. The fact that the clause speaks in terms of delaying the application of money implies that the money is in place in the Account from which it is to be switched before the period of delay.

33 Next, cl 3.3 of the policy refers to switching 'investment portfolios by transferring amounts between Prosperity Bond investment portfolios at any time'.[6] The natural and ordinary meaning of that clause is one of switching an amount which is an Account at the time of switching. But, as has been seen, cl 1.8 provides for the respondent to delay a switch (that is to delay switching an amount from one Account to another Account) for a period of 30 days, if such would require encashment within any 30 day period of Units valued at more than $100,000.

34 As it appears to us, therefore, the purpose of cl 1.8 was to afford the respondent time in which to liquidate an investment, and thereby obtain the cash with which to purchase Units in the Account into which the investment was to be switched. There would be no point in stipulating for a 30 day period in which to liquidate an investment if the investor could delay until the 30th day the acquisition of the investment which was to be liquidated. As the appellants' expert witness, Mr Lyon, said in evidence, the respondent would not be able to make preparations to liquidate an investment unless and until it existed.

35 Finally, there is the second paragraph of cl 1.8 which, in consideration of the respondent waiving its right to delay for a period of 30 days, provides for the appellants to give three days' notice of any switch and for the Unit price for the purposes of the switch to be the price as at the day of giving notice. It would make little sense for the Unit price to be fixed at the date of giving notice unless the investment existed at that date.

36 Approaching the matter in the context of those provisions, and applying the test of what honest and reasonable business persons would have supposed cl 1.8 to mean,[7] we construe it as requiring that an investment exist before it may be made the subject of a notice to switch, and thus as implicitly prohibiting the practice of short selling.

37 The appellants further contended that the judge erred in holding that the 'unit price' mentioned in the second paragraph of cl 1.8 referred only to the selling price, and thus in concluding that the buying price would be the price at the time of the switch.

38 We agree that the judge erred in that fashion. His Honour reasoned that cl 1.8 was concerned with the conversion of units into cash and not the conversion of cash into units. In our view that is not so. The first paragraph expressly refers to 'any transfer between the investment portfolios' as denoting one of the transactions with which the provision is directly concerned. We see no reason to doubt that the second paragraph of the clause was intended to be co-extensive. That implies that the expression 'unit price' in the second paragraph is commensurate with the expression 'Unit Price(s)' in the first.

39 The respondent argued that it was significant that the second paragraph of the clause applied to both withdrawals and switches and that, in the case of a withdrawal, there is only ever a selling price. Counsel for the respondent submitted that the logical implication was that 'unit price' referred only to the selling price. He also emphasised that the clause is headed 'Large Withdrawals' and submitted that there was no support for the idea that the clause was directed primarily to switches. He referred too to the difference between the expression 'Unit Price(s)' in the first paragraph of the clause and 'unit price' in the second paragraph and submitted that it bespoke the meaning for which he contended.

40 Those submissions are not persuasive. The first paragraph of cl 1.8, refers to 'Unit Price(s)' in a fashion which is directed to both selling price and buying price. The sentence in which the expression 'unit price' appears in the second paragraph of the clause is in the form of a qualification to the penultimate sentence of the first paragraph. Logically, the qualification presents as the quid pro quo for the investor's acceptance of the three day notice requirement. As such, its apparent purpose is to enable the investor to lock in the transfer or switch price as at the date of giving notice, despite the three day delay. If, however, the 'unit price' referred only to the buying price or only to the selling price it would leave the investor at risk of movements in prices either way. That seems unlikely.

41 Admittedly, in some other contexts, the difference between the expressions 'Units Price(s)' and 'unit price' might be taken as an indication that they are intended to have different meanings.[8] But the drafting of this policy is not sufficiently fine or precise to permit that sort of analysis. Other examples of its imprecision include that the expression 'Unit Price' in cl 2.2(e) stands in contradistinction to the expression 'Unit Price(s)' in the first paragraph of cl 1.8, but in context both expressions appear to mean the same thing. Equally, in the definition provision in cl 4.20 of the policy, the expression 'Unit Prices' is the appellation ascribed to the defined term, when logically it should be 'Unit Price'. In these and other respects, the instrument has the appearance of a collection of provisions drafted by different people at different times without a great deal of thought for what had gone before.

42 In any event, upon the proper construction of cl 1.8, we consider that 'unit price' in the second paragraph of the clause refers distributively to both the buying price and the selling price and thus that, subject to cl 2.2(e), 3.2(e) and 4.20, as previously explained, in the case of a switch the buying price and the selling price are to be those which apply at the date of giving notice.

43 Historical pricing[9] affords the benefit of hindsight as to daily movements in market prices. Thus, any system which involves historical pricing will present the opportunity to arbitrage. It depends on the fact that an investor has the ability to decide to switch or not, by reference to the previous day's prices. The investor alert to the overnight international markets would ascertain market trends, yet, where historical pricing is used, the unit price on the day of giving notice would be that of the day before. It would not take into account the overnight activity or trends. The investor would thus gain the predictive benefit of factors which render a transaction 'locked in' on day one.

44 In this case historical pricing permitted arbitrage because the practice of setting the unit price one day in advance permitted an investor to move between the Cash and Secure portfolios, avoiding capital loss and achieving capital gains. As explained by Mr Tyne in his memorandum to Mr Hawkins dated 25 February 2000:

Switches take effect on the day of the notice at the 'current price'. However, the current price for Tuesday is in fact Monday's close price. In effect the switch is retroactive by 1 day. We can make unlimited switches and cancel a switch if we advise in writing not later than 3 days from the switch date. You will appreciate that those terms effectively allow one to arbitrage between the cash and equity markets with the benefit of hindsight.

45 The Coneview investors' arbitraging prior to October 2000 was based on the exploitation of historical pricing. From 16 October 2000, however, the respondent abandoned historical pricing. From that date, it completed switches between the Cash and Secure portfolios on the basis of the unit price published on the day after the date on which the notice of intention to switch had been given. Those prices were calculated at the end of the day on which the investor requested the switch. Whereas previously the price for day X was set on day X-1 (reflecting the state of the market at the close of day X-1), under the regime of forward pricing applicable since October 2000, the price for day X is that calculated at the end of day X and published on day X+1. That method of pricing may be described as 'forward pricing'.

46 Under forward pricing, the investor, at the time of requesting the switch, does not know the price which will apply to it. Generally speaking, it will reflect more up-to-date movements in the underlying asset value of the portfolio than under historical pricing. The move to forward pricing thus eliminates the investor's opportunity to exploit market movements on day X by acquiring or disposing of units at a price considerably higher or lower than one which reflects the market value of the underlying assets at that precise moment.

47 The appellants contended below that there were express or alternatively implied terms of the policy that the respondent:

would on a daily basis calculate and publish unit prices for the cash and secure portfolios in sufficient time to make an informed decision whether to enable each plaintiff investor to give three days' notice of his or its intention to switch or withdraw,[10]

unit prices would be calculated on an historical basis, meaning that the price published for units in the cash and secure portfolios on any given day reflected the previous day's movements in the market values of the investments in those portfolios.[11]

48 The judge rejected those contentions. Based upon an exhaustive analysis of the evidence, his Honour concluded that:

1. The contractual documents upon which the appellants relied and the customer information memorandum were silent as to historic pricing.

2. He was not satisfied of the truth of allegations that Keller or Taylor had represented that the respondent agreed to calculate unit prices on a historical basis. He found to be unconvincing testimony which suggested that Keller or Taylor made a promissory representation as to historical pricing to Tyne, Hawkins and Tom Oates. As the judge put it, whatever was said by Keller or Taylor as to historical pricing or the respondent's understanding of Keller's need for a unit price at the time of switching, it was not promissory and had no contractual force.

3. He was not satisfied by the evidence called on the appellants' behalf that the any of the appellants viewed Keller or Taylor as the respondent's representatives, or as authorised to make any representation on its behalf, or as making a promise as to historical pricing which would bind the respondent.

4. He was not satisfied that the appellants had relied upon Keller or Taylor as acting as the respondent's agents and the respondent could not be imputed with the knowledge of Keller and Taylor, even if they were acting as the respondent's agents, because they were consciously acting against the interests of the respondent. In any event, the appellants had not established that they relied upon any oral representation made by Keller or Taylor as to historic pricing or that any such reliance was reasonable.

5. There was no conduct of the respondent which established that the respondent admitted that historical pricing was a special term or that it impliedly promised that it was so and, assuming that any of its subsequent conduct could be examined to assist in the determination or interpretation of the alleged oral term, such conduct was not unequivocally consistent with the alleged oral term.

6. The alleged terms could not be implied because, in the case of the alleged implied term as to daily publication of prices, it was inconsistent with express terms of the policy; and, in the case of both the alleged implied term as to daily publication of prices and the alleged term as to historic pricing, they were not necessary to give business efficacy to the policy.

49 In this appeal, the appellants contended that the judge erred in reaching those conclusions. Counsel for the appellants argued that, although the policy document did not expressly refer to either an historical cost pricing term or a daily publication of prices term, the judge should have deduced[12] the existence of the historical pricing term from cl 2.2(e).[13] In counsel's submission, that clause had work to do in an historic pricing regime (namely, to guard against sudden large falls in market and thus unit prices) but would be otiose and unnecessary in a forward pricing system (because in such a system the price may be set for a given day at the end of that day).

50 By and large, we agree with the judge. Clause 2.2(e) permits the respondent, after receiving funds from an investor, or after an investor requests a monetary withdrawal or a portfolio switch, to delay the application of the relevant sum until the end of the relevant day (that is, until after close of business on that day). It also expressly provides that the respondent will use the unit price then applicable. The unambiguous statement of the respondent's entitlement to use that practice is inconsistent with a contractual obligation to adhere to historical pricing.

51 So far from operating as an assurance that the practice would always be continued, the clause was evidently calculated to enable the respondent to move to an alternative form of pricing, and thereby prevent historic pricing arbitrage. As the appellants' expert witness, Lyon, said, the primary purpose of such a clause is to protect a life company and other policy holders against arbitrage by some policy holders based on the life company's use of historic pricing.

52 Counsel for the appellant argued in the alternative that cl 2.2(e) (as a sub-clause of 2.2 (headed 'operation of accounts')) was properly limited to the deposit and withdrawal of cash. In his submission, it did not apply to switching, which was effected by book entries.

53 We reject that submission. There is no indication that the subject-matter of cl 2.2 is limited to fresh inflows and outflows of cash, thus excluding book entries. Clause 2.2(a), for example, specifically refers to making a choice between portfolios. Its confinement to inflows and outflows of cash depends on an unduly narrow construction of the concept of the application of moneys to or from an account, which is unwarranted in the context of a commercial document like the policy.

54 In the further alternative, counsel for the appellants contended that cl 3.2(a) effectively embedded historical pricing in the policy. Clause 3.2(a) relevantly provides that:

Prosperity Bond Market - Linked Portfolios are divided into ... units ... changes in market value of the investments in each portfolio are reflected in the Unit Prices which rise and fall as a result ...

55 We reject that contention too. While cl 3.2(a) indicates that unit prices will be determined on the basis of market changes which have already occurred, that basis is common to both historical pricing in the sense asserted by the appellants and the system of forward pricing (which may more accurately be described as 'deferred historical pricing') applied by the respondent since October 2000.

56 Clause 3.2(a) does not expressly or impliedly require the unit price thus calculated to apply to a switching transaction on the following day, or at any particular date or time after the calculation. It is equally consistent with historical pricing and forward (or deferred historical) pricing.

57 Furthermore, cl 3.2(e) expressly provides for more than one unit price within the same day. Consequently, even if the respondent declared a unit price at the commencement of the day of a switch (based on the previous day's asset values), cl 3.2(e) would allow a new unit price to be set, after close of business on the day of the switch, based on that day's asset values; and cl 2.2(e) would permit the respondent to delay the application of funds until after that new unit price has been set and to apply that price to the switch. In so providing, the policy in effect contemplates the very possibility that a policyholder who requests a switch may not know the unit price(s) until after the switch is effected, and thereby contemplates the very possibility of action by the respondent calculated to defeat the ability of the policy holder to exploit historic pricing. The historic pricing term for which the appellants contended would fly in the face of those arrangements.

58 Counsel for the appellants argued that, despite the express terms of cl 3.2(e), the publication of a price on a daily basis was mandatory. He submitted that some clauses of the policy, such as cl 3.4(b) and cl 1.8 (in stating that 'the unit price will be the price on the day when the notice is given in writing') implicitly contemplated a single daily price. Alternatively, he contended, publication of multiple prices was not permitted because, by the combined effect of cl 3.3(a) (which provides 'you may switch investment portfolios by transferring amounts between the Prosperity Bond to investment portfolios at any time') and cl 3.3(b) (which provides 'corresponding adjustments to the number of units will be made using unit prices as at the date to which your request for transfer applies'), it was necessary that the unit price be known at the time of the switch and that requirement, given the failure expressly to reserve a right to move to forward pricing, fortified the conclusion that historical pricing applied.

59 We reject those submissions too. The clear terms of cl 3(2)(e) prevail over any inconsistent, indirect indications in other clauses that a daily price is either requisite or restricted to a single price. Similarly, sub-cl 3.3(a) and (b), which are cast in general terms, neither expressly nor impliedly require the unit price to be known at the time of the request to switch. Adjustments can be made using the price as at the date to which the request for transfer applies, consistently with the use of forward pricing.

60 Counsel for the appellants argued that the evidence conclusively confirmed that the parties' agreement entailed the incorporation of an historical pricing term. In his submission the fact that the special terms were negotiated at a time when the respondent employed an historical pricing system, and knew that it enabled investors to arbitrage by switching between portfolios with virtual certainty as to whether the switch would be in their interests or not, put the matter beyond doubt.

61 In our view that takes the matter no further. For the reasons already expressed, it is apparent that the incorporation of cl 2.2(e) is to be seen against the background of the respondent's use of an historical pricing system and as calculated to empower the respondent to adopt some other sort of pricing system when and if it chose. Questions of estoppel aside, the fact that the Coneview investors did not anticipate that the respondent might invoke that power is neither here nor there.

62 Counsel for the appellant argued that the judge's finding as to there being no express oral term to maintain historic pricing was contrary to evidence that Keller and Taylor, in their capacity as agents for the respondent, orally promised the appellants that historical unit pricing was a term of their contracts. Counsel relied in particular on evidence of the following four conversations in order to establish the alleged oral term:

(a) a conversation in mid-1999 between Taylor, Tyne and Hawkins;

(b) a further conversation a couple of weeks later between Keller, Taylor, Tyne and Hawkins;

(c) a conversation between Tyne and Taylor in January 2000; and

(d) a conversation between Oates and Taylor in about March 2000.

63 In counsel's submission the judge had erred in rejecting that evidence of Hawkins and Tyne as lacking in independence.[14] According to counsel, there were no relevant similarities in their accounts and further or alternatively any similarities were adequately explained.[15] Counsel argued that the judge had also erred in attributing weight to such similarities as there may have been, because, in counsel's submission, they related solely to extraneous matters. There was further error, it was said, in the failure of the judge to refer to the evidence of Mr Mandalidis and Mr Beazley of the respondent which, it was suggested, corroborated the appellants' evidence.

64 In our view those criticisms are unfounded. Taylor and Keller did not give evidence. Tyne, Hawkins and Oates prepared witness statements, some paragraphs of which were admitted into evidence. They also gave viva voce evidence of the conversations.

65 There were inconsistencies in the evidence of the appellants' witnesses on what was said about historical pricing at the meetings. Tyne and Hawkins gave oral testimony to the effect that Keller and Taylor told them that the respondent was obliged to use historical pricing under the policies, but their witness statements did not include that assertion. Their evidence in chief differed in relation to what Taylor said at the first meeting.

66 Tyne's examination-in-chief also differed from that given in his witness statement in relation to the second meeting. In his oral evidence in chief, Tyne testified that Keller said that, by an arrangement with the respondent, he would know the price at which a switch would be effected, because the respondent published the price on a daily basis by reference to the market movements the previous day.[16] Contrastingly, Tyne's witness statement did not say that Keller had asserted that he had any arrangement with the respondent, but simply that Keller stated that the respondent published each day's unit price in the morning and that he had informed the respondent of his need to know the unit price before switching.

67 Tyne's witness statement stated that, in a subsequent conversation, Taylor told him that Keller could generally access the unit price by 10 am and that the price was, in effect, yesterday's calculation. According to the witness statement, Tyne asked Taylor if the respondent were committed to that pricing system (although his evidence in chief was that he had already been told that there was an arrangement to that effect) and was informed that the respondent did it as a matter of practice. According to the witness statement, Taylor also told him that Keller had made clear that the investors needed to know the price, so it seemed to Taylor that the respondent was obliged to maintain the historical pricing system. Tyne then enquired whether the policy mentioned historical pricing and Taylor replied that it did not do so in exact words, but that prices were declared daily in the usual course of things and Keller had told the respondent that he needed to know the prices prior to switching, so Taylor thought that the respondent was committed to historical pricing and, from a practical point of view, that was how the arrangements were being conducted.

68 The judge concluded that Tyne's account established that Taylor conveyed to him Keller's wishes as expressed to the respondent, rather than an agreement with the respondent, and that Taylor's statements to Tyne were not promises or representations. We see no error in that.

69 Hawkins, in his examination-in-chief, testified that Keller told the investors at the first meeting that, pursuant to a special term, the unit price was set in the morning and reflected the closing price of the market on the previous day. Contrastingly, Hawkins' witness statement did not mention that Keller made a representation as to historical pricing.

70 His Honour found Hawkins' explanation that he had overlooked Taylor's reference to historical pricing at the first meeting, and his witness statement, to be unconvincing, because the reference was also omitted from the further amended statement of claim. We take the same view.

71 In his witness statement, Oates stated that Taylor told him that Tyne had said that the respondent used historical pricing, which was a valuable and important procedure or practice which Keller had ensured was in place, but that it was not spelt out in the documentation because it was confidential. According to Oates' witness statement, Taylor also told him that it would take a considerable overhaul to move to 'real time' or current day pricing, which was not anticipated in the near future.

72 In his examination-in-chief, however, Oates stated that he raised with Taylor Tyne's assertion that the capacity to arbitrage on the basis of the respondent's historical pricing was not documented, which Taylor confirmed, saying that it was confidential. Taylor responded that historical pricing had been requested by Keller and was the respondent's practice, which it had confirmed on inquiry by Keller. Oates further asserted that he had told Tyne that the respondent used historical pricing and that Taylor had confirmed that it was an administrative matter which the respondent was unlikely to change. Tyne responded that he understood that the respondent had confirmed to Keller that it would administer the policies on an historical price basis and Tyne thought that the respondent was unlikely to change due to the difficulties involved, and that it had undertaken to keep administering the policies on that basis to satisfy Keller's requirements.

73 Contrastingly, in cross-examination, Oates stated that he thought that Taylor spoke in terms of confirmation, rather than a commitment by the respondent. He said that he called the respondent's service centre to check whether today's unit prices were available and were on an historical basis. He did not tell Tyne that he understood from Taylor that Keller had agreed to historical pricing with the respondent.

74 Oates also made a handwritten note of his conversation with Taylor. The note did not refer to the alleged representation. It recorded Taylor's view that the respondent was unlikely to change to forward pricing because of administrative difficulties.

75 After the respondent changed to forward pricing, Oates wrote a memorandum. It stated, inter alia, that the respondent could legitimately administer the bonds in that way.

76 The judge concluded that Oates' evidence was inconclusive and fell short of asserting the alleged representation or promise. His Honour considered that Oates' memorandum accurately reflected his view that historical pricing was not a contractual term. His Honour concluded that: 'The [appellants] have not established that Keller or Taylor represented that [the respondent] had agreed it would calculate unit prices on a historical basis' and that 'whatever was said in these conversations by Keller or Taylor as to historical pricing or [the respondent's] understanding of Keller's need for a unit price at the time of switching, it was not promissory and had no contractual force'. With respect, we agree.

77 It remains to deal with the appellants' allegations of specific error in the judge's analysis of the evidence. The first is the contention that the judge erred in rejecting the appellants' evidence as lacking in independence, and the submission that 'there were no relevant similarities in their accounts and any similarities were adequately explained.'

78 In our opinion, there is nothing in that point. The appellants' characterisation of the basis on which the judge rejected the testimony of Tyne and Hawkins does not accurately reflect his Honour's comprehensive reasoning on that question. His Honour found that elements of Oates' witness statement displayed 'the same features', which Oates conceded must have resulted from his having access to another party's account. In the relevant context, that implied that the accounts of Tyne and Hawkins were the result of 'common reconstruction arrived at with a view to advancing [the appellants'] case'.[17] In another context, his Honour found that although Tyne testified that Taylor told him in the first meeting that Keller and others had cancelled switches retrospectively and obtained 20 per cent yields in accordance with the special terms, it was plain that they could not have done so, because at the time of the first meeting in July 1999, there was only one policy (that of Keller), who had made only one switch. His Honour also found that Hawkins testified that Taylor confirmed to him at the first meeting that the investment had been working under the terms, but at the time, only a single switch had been made. His Honour found too that, in relation to the second meeting, which also occurred in July 1999, Hawkins testified that Keller told them that he had been cancelling switches on the basis of the terms, but at the time, no cancellations had occurred. The first cancellation did not occur until February 2000.

79 It followed, as the judge found, that the witness statements of Tyne and Hawkins contained accounts of the relevant conversations and related matters which revealed some common authorship and could not have come into existence independently. If one witness had used the other's witness statement as a basis for his own, it was not acknowledged, as neither conceded that his account was not independent.

I do not regard their evidence as deliberately false but it was the result of their obvious reconstruction of the events in the most favourable light. Their reconstruction of the conversations of the first and second meeting was for this and other reasons unconvincing and in part, unreliable.

81 The appellants submitted that the common content of the accounts of the relevant conversations was not material, and thus that an innocent explanation was probable. But, as his Honour recognised, the relevant paragraphs were 'contentious'. Oates conceded the likelihood of his access to other material but Tyne and Hawkins denied any want of independence and did not purport to explain the apparent common authorship.

82 The appellants also contended that his Honour should have accepted, as a sufficient explanation, Tyne's evidence that the appellants' former solicitor asked him to prepare a narrative of his conversations. But such evidence, if accepted, would neither negate a want of independence nor compel a conclusion that it was satisfactorily explained. Elements of common authorship were thus either conceded or not convincingly explained.

83 The suggestion that the judge erred in failing to refer to the evidence of Mandalidis and Keller is in our view equally unwarranted. Mandalidis did not give evidence at the trial, but some of the transcript of the evidence in a related proceeding was admitted into evidence. The effect of that evidence was that during their negotiations in 1999, Keller told Mandalidis that investors wanted to be able to switch at the unit price at the time of giving notice and not at the end of the period of delay. The appellants, in a related context, described the evidence of Beazley as 'confused' and 'irrational' and 'unsatisfactory'. At best it went no further than that Keller 'could well have said' that he needed to know the unit price at which a switch or withdrawal of funds was to occur at the time of making the request because otherwise he would be working in the dark. Furthermore, the evidence of Beazley and Mandalidis was not of conversations between Keller, Taylor, Tyne, Hawkins and Oates, but rather of negotiations between Keller and Mandalidis and Beazley. Thus, even if the evidence were accepted in full, it would in no way corroborate that Keller and Taylor, in their capacity as agents for the respondent, orally promised the appellants that historical unit pricing was a term of their contracts. At best it was supportive of the appellants' case in estoppel, which the judge accepted.

84 Mr Taylor was a partner at Mallesons Stephen Jaques. Tyne and Oates were lawyers who had previously worked for that firm. At relevant times, the four plaintiffs worked together and communicated with each other about their investments. In effect, Tyne's evidence was that Taylor expressed a view as to whether the respondent would be bound to continue with historic pricing.[18] Consistently with that state of affairs, when the appellants spoke to Yesberg on 18 October 2000, they said nothing of any promise as to the continued use of historic pricing. Oates' evidence did not establish that that the respondent made any promise to continue with historic pricing[19] and it is apparent that he did not believe it had. In a memorandum prepared in late 2001, he wrote that the respondent had 'legitimately begun administering the property bonds such that unit prices are not known or declared until at least the next day.'[20] In effect, that was an admission that he had not understood the respondent to be contractually bound to persist with historic pricing.[21] The lack of any response or action on the part of the other plaintiffs implies that they were of a similar point of view.

85 The appellants contended that the judge's conclusion was inconsistent with his Honour's finding that the appellants invested on the faith of the assumption, induced by the respondent, that the respondent would continue to use historic pricing.[22] But in our view there is no such inconsistency. It was one thing for the respondent to have induced the assumption that it would continue its practice of historic pricing. We agree with the judge's finding that the respondent did that, and we note that that finding is not contested. It would be quite another thing for the respondent to have covenanted that it would continue to use historic pricing for the life of the bonds. And in our view, the evidence did not go that far.

86 It remains to add that the judge also had the advantage of seeing Tyne, Hawkins and Oates give evidence and that his Honour concluded that, 'The manner in which Tyne, Hawkins and Oates testified and the substance of their evidence in this regard affected my assessment of their credibility and the weight that I should attach to their evidence.'[23] Although in Fox v Percy[24] and CSR v Della Maddalena,[25] the High Court warned against according undue deference to a trial judge's advantage in observing a witness, it did so in the context of reaffirming the legitimacy of that advantage in the ordinary course. In this case we consider that his Honour's direct assessment of the witnesses' demeanour in giving their evidence was a significant advantage. There is no indication that the advantage was misused. This is not a case where, as in Fox v Percy, the trial judge's findings on credit were inconsistent with incontrovertible facts or evidence, glaringly improbable or contrary to compelling inferences. To the contrary, the patent inconsistencies, inadequately explained similarities, absence of confirmation in contemporary documentation and other features of the evidence identified by his Honour vindicate his conclusion that the witnesses' evidence was unsatisfactory in various respects and involved significant reconstruction. In our opinion, his Honour was right to reject the witnesses' account of the oral promise of an historical pricing term.

87 The appellants argued in the alternative that, if the existence of an historic pricing term were not to be deduced from cl 2.2(e), it was to be implied from a combination of cll 2.2(e), 3.2(e) and 4.20; the absence of any express provision for forward pricing; the fact that the respondent was practising historic pricing at the time of contracting with Keller and during the prior course of dealing at the time the appellants invested; from what the appellants alleged to be a finding[26] that the respondent represented to the appellants that they had a right to historic unit pricing; and from the fact that the respondent's post contractual conduct was consistent with the existence of the term.

88 In our view, that analysis breaks down at several levels:

1. For the reasons already given, cll 2.2(e) and 3.2(e) are opposed to the implication of the term contended. As previously explained, cl 3.2(e) allowed a new unit price to be set after close of business on the day of a switch, based on that day's asset values, and cl 2.2(e) permitted the respondent to delay the application of funds until after that new unit price has been set and apply that price to the switch.

2. Clause 4.20 is also opposed to the implication of such a term. As has been observed, it provided that the respondent could calculate unit prices by adjusting the benchmark unit price 'as we deem appropriate to take account of any fluctuations in the market value of the investments in the portfolio'.

3. In other circumstances, the fact that the respondent was in the habit of using historic pricing may have been something from which to infer an implied term that it would continue to use that system. The possibility of such an implication, however, was in this case necessarily excluded by the express terms of cll 2.2(e), 3.2 and 4.20. In effect, in combination, they reserved to the respondent an express right to change the basis of pricing.

4. Contrary to the appellants' contention, the judge did not find that that the respondent represented to the appellants that they had a right to historic unit pricing. Rather his Honour found that the respondent was aware that the appellants were proceeding upon the assumption that the respondent would continue to use historic pricing and refrained from informing the appellants that it did not intend to continue to do so.[27]

5. Whatever post-contractual conduct the respondent may have engaged in, it is doubtful that it could be invoked in aid of interpretation of the express terms of the policy.[28] It might be admissible in support of the existence of an implied term.[29] But in this case, the possibility of such an implied term is excluded by the express inconsistent provisions of cll 2.2(e), 3.2(e) and 4.20.

89 The appellants contended that the judge's approach to the implication of terms was erroneous because it rested on his Honour's construction of the express terms.[30]

90 In our view, that is not so. We accept that his Honour erred in the construction of cl 1.8 of the policy. As we see it, the proper construction of the clause was to allow the appellants to make switches on three days' notice, and to cancel before expiration of that notice, as they contended. But so to say does not necessitate the implication of daily publication and historic pricing terms. The most that can be said is that the proper construction of cl 1.8 would not be inconsistent with the implication of such terms. Having come to that point, it is then necessary to take into account the other relevant express provisions of the policy, about the construction of which we consider that the judge was correct; and in particular, cll 2.2(e), 3.2(e) and 4.20, which, upon their proper construction, are necessarily inconsistent with the existence of the alleged implied terms.

91 Counsel for the appellants submitted that, having found that the effect of cl 1.8 was to afford the appellants the three day option for which they contended, it was necessary to imply daily pricing and historic price terms in order to afford the appellants the benefit of that for which they had contracted.

92 We reject that submission too. As observed earlier in these reasons, the special terms of the policies, and in particular cl 1.8, gave the appellants the right to make unlimited switches between portfolios on three days' notice and to cancel a proposed switch without penalty before the expiration of the three days. But those terms did not give the appellants the right to make switches at a profit. It is one thing (which the law requires) to imply terms in order to yield to a party the benefits for which he or she has contracted. It is quite another (which the law does not require) to legislate for benefits which that party may have hoped, even expected, to derive, but for which he or she has not contracted. Especially is that so when, as here, there are express provisions of the contract (in this case, cll 2.2(e), 3.2(e) and 4.20) which enable the other party to act in a manner which frustrates such hopes and expectations.[31]

93 Last on this aspect of the matter, counsel for the appellants contended that judge had erred in failing to have proper regard to s 53 of the Insurance Contracts Act 1984 (Cth). It provides that:

Variations of contracts of insurance

Where a provision included in a contract of insurance ... authorizes or permits the insurer to vary, to the prejudice of a person other than the insurer, the contract, the provision is void.

Counsel argued, that if upon its proper construction cl 2.2(e) permitted, or the policy otherwise contained a provision which entitled, the respondent to change to forward pricing, it necessarily prejudiced the appellants by removing the ability to engage in historical pricing arbitrage and to that extent was void.

94 As neither Keller nor Taylor made or conveyed a promise to use historical pricing, it is unnecessary to consider the question whether they acted as the respondent's agents or whether the move to forward pricing amounted to a variation of the appellants' contracts within terms of s 53 of the Insurance Contracts Act. In our view, however, the argument appears to be misplaced. Section 53 does not apply to contracts of life insurance.[32]

95 Counsel for the appellants argued in support of the alleged daily publication of prices term that the judge had erred in concluding that such would be inconsistent with express terms of the policy and not supported by custom. In counsel's submission, inasmuch as cl 3.2(e) of the policy provided that unit prices 'are usually declared on a daily basis, but may be declared more or less frequently' it was a breach of the express provisions of cl 3.2(e) for the respondent to adopt a practice of failing to declare prices daily.

96 We disagree. There could be no breach of the kind alleged unless upon its proper construction cl 3.2(e) amounted to a warranty that the respondent would usually declare unit prices on a daily basis. In our view, it appears from other clauses of the policy, and in particular from cll 2.2(e) and 4.20, that it did not have that effect but rather was in the nature of a warning that the pricing system could be changed.

97 Counsel for the appellants made much of the fact that the special terms entitled the appellants to make unlimited free switches. He submitted that, in order for that express right to be effective and for the appellants to get the benefit of it, the respondent had to declare and publish a unit price daily. Otherwise, he said, an investor could not make a rational decision as to whether or not to switch. On that basis he contended that the judge should have found that the implication of a term as to daily publication of unit prices was not only necessary to give business efficacy to the special terms, but also to be implied as part of the respondent's duty to do all things necessary to give the appellants the benefit of the right to unlimited and free switches.

98 We reject that contention too. It proceeds upon the same misconception as was advanced in support of the implication of a term as to the continuation of historical pricing practice. The appellants may have hoped, perhaps even expected, to derive profits from historical pricing arbitrage. But they did not contract for an entitlement so to profit. They contracted for the right to switch as and when they chose but subject expressly to the risk that the respondent could exercise the powers conferred on it by cll 2.2(e), 3.2(e) and 4.20) to frustrate the hope and expectation of profits.

99 Counsel for the appellant argued that the judge erred in concluding that neither Keller nor Taylor had actual or implied or ostensible authority to agree terms with or make representations to the appellants which were binding on the respondent. He submitted that, contrary to the judge's findings, those men were deemed by s 12 of the Insurance (Agents and Brokers) Act 1984 (Cth)[33] to be the respondent's agents and also satisfied the general law requirements for the relationship of principal and agent with the respondent. Consequently, he said, the 'promises' made by Keller, Coneview and Taylor to the appellants, including those in relation to their right to historical unit pricing, and their right to cancel switches within three days, were binding on the respondent.

100 The problem with all that, however, is that, even allowing that Keller or Taylor or at least Coneview may have been an 'insurance intermediary', in that he or it arranged for the issue of the prosperity bonds as the appellants' agent[34] (and thus that as to matters relating to the insurance as between the appellants and the respondent he or it was to be the agent of the respondent),[35] the judge was not persuaded that any of Keller, Taylor or Coneview promised the appellants that the policies contained or would contain an historic pricing term as opposed to telling them that the respondent's practice was to use historic pricing which could be exploited by historic pricing arbitrage in order to generate substantial returns, and further or alternatively, that in his or its opinion, the respondent was unlikely to change its historical pricing practice.

101 Counsel for the appellants contended that the evidence was overwhelming that Keller or Taylor had promised that it was a term of the policy that the respondent was bound to continue with historical pricing and that Tyne and Hawkins and Oates relied upon it. In our view that is not so. Rather, it tended to suggest, if not establish on the balance of probabilities, that the appellants well knew that the policy did not include an historical pricing term but were persuaded by Keller and Taylor's assurances that the respondent was unlikely to depart from historical pricing practice. As has already been observed, the judge analysed that evidence extensively and, in our view, his Honour's conclusion on this aspect of the matter was correct. The statements made by Keller and Taylor were not in a promissory form. They purported to be descriptive or explanatory of one of the formal terms of the policy into which the appellants proposed to enter. It is impossible to say that either of the parties actually intended that the statements should constitute a term of the policy or that an objective inference can be drawn that they did so intend. In form the representations were not promissory and, even if they had been promissory, they would have been inconsistent with the express provisions of the policies; and so, as already explained, could not have stood as terms of the policy or as a collateral contract consistently with the policy. In the words of Gibbs, CJ in Gates v City Mutual Life Assurance Society Ltd:

Even if a different view had been taken on the question of intention, the alleged contractual agreement constituted by the statements could not stand consistently with the main written agreement and for that reason, according to established authority in Australia (including Hoyt's Pty Ltd v Spencer[36] and Maybury v Atlantic Union Oil Co Ltd[37]), could not be enforced. The learned author of an article[38] criticizes those decisions but I find no need to reconsider them here, since the present is not a case in which one party made a promise to modify or to refrain from enforcing a term of the principal agreement. The absence of an actual contractual intention, and of any circumstances which could give rise to estoppel, is enough to defeat the appellant's claim in contract.[39]

102 'Dilution' is a natural consequence of historic price arbitrage between a stable Cash portfolio and a relatively volatile Secure portfolio. It occurs because arbitrage between those portfolios consists in the arbitrager taking advantage of an increase in the value of assets in the Secure portfolio. The way in which the process plays out is illustrated in the following example.

103 Assume that at the end of day 0 there are 10 units in the Cash portfolio and the total value of cash in the Cash portfolio is $10.00. The day 1 unit price of units in the Cash portfolio is thus $1.00 per unit. At the same time, assume that at the end of day 0 there are 10 units on issue in the Secure portfolio and that the total value of securities in the Secure portfolio is $10.00. The day 1 unit price of units in the Secure portfolio is thus $1.00 per unit. Now assume that during day 1 the value of the securities in the Secure portfolio rises to $15.00 such that, but for any other developments, the unit price for day 2 would be $1.50. Assume then, however, that shortly before the close of trade on day 1 all the unit holders in the Cash portfolio switch out of that portfolio and into the Secure portfolio, by purchasing 10 units in that portfolio at the day 1 unit price of $1.00 per unit. There would then be $15.00 of securities in the Secure portfolio plus the $10.00 of cash switched into that portfolio, producing total assets in the Secure portfolio of $25.00, with 20 units on issue. It would follow that when the day 2 unit price came to be calculated at the end of day 1 - by dividing total assets in the Secure portfolio (that is $25.00) by the total number of units on issue in the portfolio (that is 20) - it would be only $1.25 and thus the amount of so called dilution would be $0.25 per unit.[40]

104 As can be seen in that example, the arbitragers would profit from the switch, because they would increase the value of their holdings from $10.00 to $12.50 (in effect at the expense of the other unit holders in the Secure portfolio). But the arbitragers would not profit as much as they could do if the unit price for day 2 were the same as the cost price for day 1.

105 The evidence before the judge was that, before the appellants' policies were issued, the effect of switches between portfolios inevitably produced dilution but that the volume of transactions was so small that the effects of the dilution were more than matched or outweighed by increases in asset values over time. It was not until the appellants' policies issued and the appellants began to engage in a far greater number of switches, that the effects of dilution became significant. The natural increase in the value of assets over time was no longer enough to cover the effects of the dilution and so the value of assets represented by non-Coneview investors' units began to decline. Due, however, to the way in which the respondent's records were kept, the change was not detected until the value of assets represented by non-Coneview investors' units was seriously reduced. As was recorded in the AXA Group CEO report of Mr Yesberg of 30 October 2000 as follows:

The [Coneview investors are] a group of policyholders acting in concert who have all purchased a Prosperity Bond policy since October 1999, under special terms and conditions, including the waiver of switching charges and limited redemption periods. These special terms were negotiated by Distribution Management in mid 1999.

The policies have been introduced on a 'no advice basis' by an aligned adviser in NSW, acting as a facilitator for a Dr Peter Keller, who has coordinated policyholder action.

The [Coneview investors] have invested in the Cash and Secure portfolios of the product and have actively switched between the portfolios on a regular basis. There are currently 212 policies with investments totalling $166m.

The method used for setting unit prices for this product (and many other AXA products written under the statutory funds) is to set a unit price one day in advance, to allow same day processing when cash or switch instructions are received. This practice is, I understand, not unusual for unit linked insurance bonds in the Australian market although has long since been changed in the UK.

However, this provides clients who become aware of the practice with the opportunity to arbitrage by actively moving portfolios on yesterday's price but based on knowledge of subsequent market movements.

In the normal course of events, any profit or loss from setting prices in advance is charged to the fund and reflected in the investment return received by all investors with that type of product. In addition, the switching fee which is charged on most products acts as a deterrent to clients wanting to switch with unlimited frequency. Normally, policyholders would be unaware of the detailed unit pricing policy and there would be no systematic arbitrage. Clearly the coordinator of this club was aware of our practice and has actively sought to gain advantage by frequent switching in and out of the Secure Fund by taking advantage of being in possession of information of market movements on the day of the switch but be being able to switch on the previous days price. The problem was exacerbated by the inability of our mainframe systems to support the terms offered[41] and by the administration being put onto spreadsheets which were not linked to other systems.

To make matters worse, the unit holdings for the [Coneview investors] policies were switched on the spreadsheet, but no corresponding change in investments was executed for the physical assets. The corrected position has been calculated. This shows a difference between of $7.1m the actual investments held in the funds and the value notified to policyholders ....

106 The thrust of the appellants' case as to dilution was that, vis-à-vis the appellants, the respondent was bound for the life of the prosperity bonds to pay from the respondent's own funds into the Secure portfolio sufficient moneys to neutralise the effects of dilution and so in effect to underwrite the continuing arbitrage profits of the Coneview prosperity bonds for the duration of the appellants' policies. Despite the absence from the Coneview policies of an express term to that effect, the appellants argued that:

1. The existence of the obligation was to be inferred from cl 3.2(a) of the policy, inasmuch as it provided that unit prices shall reflect changes in the market values of the investments in each portfolio and because cl 4.20 did not state that the respondent may dilute unit prices or adjust unit prices when switches are backdated. In the appellants' submission, the combined effect of cl 3.2(a) and the second paragraph of cl 4.20 was that the only thing that was capable of affecting unit prices was asset values and, therefore, that the respondent was not permitted to take changes in the number of units into account for the purposes of determining unit prices.

2. Alternatively, it was necessary to imply the obligation in order to give the Coneview prosperity bonds business efficacy or because it would be contrary to s 32 of the Life Insurance Act 1995 (Cth) for the respondent to allow dilution to occur.

3. In the further alternative, if there was a term of the Coneview prosperity bonds which entitled the respondent to dilute, it was an unusual term which the respondent had not explained to the appellants before they invested; and hence that the respondent was prohibited from relying upon it.

107 The judge rejected each of those arguments because, as his Honour put it:

The provisions of the policy, in particular, cl 3.2(a) and 4.20 do not give rise to some inconsistency if dilution is permitted. If the correct construction of the special terms permits the plaintiffs to arbitrage, there is no inconsistency with that right for the defendant to utilise the pricing mechanism contained in cl 4.20, which would produce dilution because an increased number of units would be used to arrive at the unit price. Neither clause, in my view, precludes dilution of the unit price if cl 1.8, whether alone or in conjunction with the use of historic pricing, enables the making of an arbitrage profit... The class of assets to which cl 4.20 can apply is not restricted to those purchased with investors' premiums but that does not give rise to obligation by the defendant to contribute to the pool to maintain unit prices.[42]

108 We agree with his Honour's analysis. As set out above, cl 3.2(a) provides that portfolios are to be divided into parts of equal value, called Units, 'to keep track of your entitlements under this policy' and that 'changes in market values of the investments in each portfolio are reflected in the Unit Prices which rise and fall as a result.' That amounts to a clear statement that unit prices will rise and fall in a manner that reflects the value of the assets in the portfolio from time to time. Clause 3.2(a) provides for dividing portfolios into parts of equal value to keep track of entitlements. Similarly, the first paragraph of cl 4.20 expressly provides that the Benchmark Unit Price is to be determined by dividing the value of the assets in the portfolio by the number of units on issue. That means that the number of units in a portfolio must be taken into account when determining unit prices.

109 Counsel for the appellants submitted that, because sub-cl 4.20(ii) did not refer expressly to any change in the number of units since calculation of the last Benchmark Unit Price, the clause necessarily implied that the only matter to which the respondent was permitted to have regard was any movement in asset values since the Benchmark Unit Price was last calculated. It followed, counsel submitted, that the respondent was not permitted to have regard to any change in units on issue since the last Benchmark Unit Price.

110 In our view that is not so. It is contrary to the essential nature of an investments linked policy and it would be productive of irrational results. The better view is that the reference in sub-cl 4.20(ii) to the respondent making such adjustments (as the respondent deems appropriate to the Benchmark Unit Price most recently determined) imports the requirement in sub-cl 4.20(i) that the unit price be determined by dividing total assets by total units and thus requires that the total value of assets as so adjusted be divided by the total number of units on issue at the time of adjustment.

111 To illustrate that point, consider a modified version of the example earlier given. Assume that when the most recent Benchmark Unit Price was calculated the assets in the Secure portfolio were valued at $25.00 and there were 10 units on issue, so that the Benchmark Unit Price was $2.50 per unit. Assume too that the holders of 100,000 units of $1.00 each in the Cash portfolio decided to switch into the Secure portfolio and upon switching were issued with 40,000 units in the Secure portfolio representing their $100,000 cash. There would then be total assets in the Secure portfolio of $100,025 with 40,010 units on issue. The nature of the policy as described in cl 2 of the policy; the requirement in cl 3.2(a) that the portfolio be divided into parts of equal value; and the explanation of cash flows in cl 3.5 of the policy, all dictate that the value of each of those 40,010 units then on issue would be $100,025 ÷ 40,010 = $2.50. But according to the appellants' interpretation of cl 4.20, the unit price would be $100,025 ÷ 10 = $10,002.50 per unit. That would do nothing to 'keep track of your entitlements under this policy' and in our view it cannot have been intended.

112 According to the appellants, the judge's process of reasoning inverted the proper process of contractual construction by failing to consider first whether the Policy or any special term of the Policy enabled the respondent to dilute unit prices. But in our view it is the appellants who invert reason and the proper process of contractual construction. As has been explained, dilution was a natural consequence of Coneview investors arbitraging from the Cash portfolio to the Secure portfolio. It occurred because the Coneview investors sought to take advantage of an increase in the value of assets underlying the non-Coneview investors' units in the Secure portfolio. Contrary to the appellants' case, dilution was not something which the respondent did or for which it needed to identify a contractual authority. It was something which occurred because the respondent did nothing to prevent it. What the appellants are seeking to do is to impose an unexpressed contractual obligation on the respondent to do something to prevent it.

113 Counsel for the appellants put an alternative argument that, assuming it were necessary to take into account the number of units on issue at the time of determination of the unit price, the respondent would be bound to procure the redemption of sufficient of its own units or alternatively to procure the funding and issue of sufficient further units to the appellants to ensure that the value of the appellant's investment was not reduced by the effects of dilution.

114 The judge rejected that argument too, and so do we. There is no express term to that effect and we see no sufficient basis to imply it. Such a term is not necessary in order to give the Coneview prosperity bonds business efficacy. The special terms of the policies, in particular the second paragraph of cl 1.8, gave the appellants the right to make unlimited switches between portfolios. But, as has already been observed, the special terms did not give the appellants the right to switch at a profit. Where the policy was intended to provide for guaranteed results, as with protection, it provided for them expressly. In other respects, the clear implication is that the policyholders were at risk.[43]

115 Nor could a term of the kind contended for be regarded as reasonable. According to the appellants' particulars of loss and damage, the respondent was required to put into the portfolio over the life of the policies sufficient of the respondent's own money to enable the appellants to reap more than $1 billion in arbitrage profits (and apparently for no more reward than the relatively modest asset management fee charged to all policy holders plus the intangible advantages of having such a large amount of funds under management). As the judge said, that 'would impose an extraordinary burden on [the respondent], not for the purpose of preserving the benefit of the contracts, but to give the [appellants] the return they hoped for'.

116 For the same reason, it would be absurd to suggest that such a term was so obvious as to go without saying.[44]

117 The appellants contended that the judge's reasoning flew in the face of s 14(4) of the Life Insurance Act 1995 (Cth), which provides that:

(4) An investment-linked contract is a contract:

(a) the principal object of which is the provision of benefits calculated by reference to units the value of which is related to the market value of a specified class or group of assets of the party by whom the benefits are to be provided; and ....

118 According to the appellants, the judge's reasoning necessarily entailed that the value of units in the Cash and Secure portfolios bears no relation to the market value of assets in each portfolio whereas, as the appellants would have it, 'the statutory requirement is that unit prices reflect changes in the market value of assets in the secure and cash portfolios, not changes in the number of units issued'.

119 We reject that suggestion. The construction which the judge put on cl 4.20 of the policy requires that the unit price be determined by dividing total assets by total units. That means that unit prices will inevitably bear a direct relationship to the value of assets in the portfolio. Nor does the definition of an investment-linked contract mean that one is to take no account of the number of units on issue when determining the unit price for such a contract. To the contrary, it requires the division of the value of assets represented by those units on issue by the number of those units in order to determine the 'benefits calculated by reference to units' which are to be provided. The construction which the appellants put on the definition would mean that if 10 people each invested $1.00 in a portfolio, the value of each of the 10 units in the portfolio would be $1.00 per unit but, if a further 990 people each invested $1.00 in the portfolio, the value of each of the 1000 units in the fund would be $1,000 per unit, yielding total benefits of $1 million (of which the respondent would be bound to fund $999,000). That too would be absurd.

120 The appellants contended that, be that as it may, 'good life insurance practice' required that the respondent put in sufficient of its own funds to compensate for the effects of dilution. That result was said to flow from the requirement in cl 4.5.2 of The Institute of Actuaries of Australia - Professional Standard 200 that 'the unit price before and after the processing of unit transaction should normally be the same'. It was also said that the effect of evidence given by Lyon was that 'where the dilution effect is large, the life insurance company should meet the cost of switching and it would not be good industry practice for such dilution effects to be passed onto policyholders' and that 'this was a 'black and white case' for contribution by the Life Company to support the unit price so as to meet its obligations under the contract'.

121 We reject those submissions as well. Clause 4.5.2 of The Institute of Actuaries of Australia - Professional Standard 200 does not have the effect for which the appellants contend. It is directed to reports made under s 116 of the Life Insurance Act 1995 (Cth) prior to the issue of new policies. In effect it requires an auditor to point out to a life company if the system of unit pricing which it proposes to use for the product is fair and equitable. Furthermore, even if the Standard were applicable, its effect, as Lyon explained, would be that where a life company runs a unit pricing system which enables arbitrage of the kind which occurred here, it is up to the life company to make good out of its own funds the losses suffered by the policy holders at whose expense the arbitrage has been conducted:

And in your observation, is it a well known fact in life insurance circles that the use of historic pricing carries with it an inherent risk [of] arbitraging?--- Yes.

Is that the usual reason given for a major institution not using historical pricing?---Yes.

In your knowledge and experience of industry practice, if you were offering an investor unlimited free switches between Cash and Secure portfolios, and using historical pricing, how real would be the risk of arbitraging?---It would be enormous.

And are you aware of any of the major life companies that continue to use historical pricing? --- Not for new business and not to - well, not to any great extent for new business, no.

...

[COUNSEL]: As a matter of industry practice, if a life company wanted to continue to use historical pricing, would there be matters it could put in its policy documents to take away or reduce the impact of arbitraging? --- Yes. Exactly what I was describing there: the ability to delay processing the transaction for at leas 24 hours, and often a week or more.

...

Is there an industry practice that would apply to a situation where a life company, in arms' length negotiations, has agreed to unlimited fee switches, at a time when it was using historical prices and the risk of arbitraging was real, and where that arbitraging has the potential to adversely impact on the entitlements of other unit holders, as to whether and in what circumstances the life company should make good the loss to the other unit holders?--- Other than this case, it is not a situation which has arisen in my experience.

HIS HONOUR: Well, I would have been very surprised if there was an industry practice to accommodate that, [counsel].

[COUNSEL]: Sure; but are there analogous situations that you can draw in aid? --- What I was going to say was that life companies, from time to time, find themselves having to honour contracts which they may otherwise prefer not to, and industry practice is to honour those contracts and not to disadvantage policy holders.

122 In this case, that is what the respondent did. It put in sufficient of its own funds to make good the loss to the non-Coneview investors.

123 It is true that Lyon later said in evidence that:

In my opinion, it is black and white. In my opinion, the entitlement [of the Coneview investors] to the backdated switch shouldn't be diluted. So if it is diluted by the mechanics of the unit pricing system, that has got to be corrected. That is my opinion, your Honour.

But cross-examined further on the matter, Lyon conceded that he based that view on what he thought would be the expectation that a policy holder might have, and ultimately upon his interpretation of the contract:

The policy provides for the policyholder to switch on ... Thursday night at Monday's price? --- Yes.

It also provides for the unit price on any, at any particular time, to be determined by dividing the value of the assets in the pool by the number of units on issue? --- Yes, that's correct.

Yes. A switch is carried out on Thursday, and you then calculate a unit price, and the result is whatever it happens to be. Where is the breach of the policy in that happening? --- In my view, it is not the intent of the policy that the price be diluted. It is not the expectation which I would read into the terms and conditions.

So your opinion as to the obligation of the operator to fund or to prevent a dilution or the unit price is not based upon any particular term, but upon what you would understand a an expectation that a policyholder might have? ---Yes.

...

You are interpreting - you are interpreting the contract? --- Yes.

But not the written terms of the contract, because you agreed there isn't a written term of the contract that says 'no dilution'? --- There is no written term that says 'no dilution'.

...

But you have never seen a term like this before you? --- No, I haven't.

As that shows, Lyon's testimony as to the obligation of the respondent to fund against dilution was mere lay opinion as to a matter of law posing as expert evidence. It was irrelevant and the judge was right to disregard it.

124 The appellants called in aid Actuarial Standard 3.03, but in our view that takes the matter no further. It may be assumed the standard imposed an obligation on the respondent to ensure that the reasonable expectations of the Coneview investors were met. But, for the reasons already expressed, any expectation that the respondent would continue to fund the arbitrage profits of the Coneview investors for the duration of the policy would have been unreasonable. As the judge put it:

The status of actuarial standard 3.03 received only brief attention during the closing arguments of the parties. It was not the subject of any particular focus during the course of evidence. On one view the standard is to be employed, as it was in Equitable Life,[45] as relevant to an insured's expectation as to the future declarations of discretionary bonuses.[46] Having regard to the conclusions which I have reached about the use which may be made of an insured's 'reasonable expectations' when determining the interpretation of contentious terms of an insurance contract, I have not found it necessary to make a determination as to the status of this particular standard. In any event the inquiry as to what constitutes an insured's 'reasonable expectations' or how they are to be ascertained and when they are relevant will not be advanced by reference to the standard. Whatever meaning is to be ascribed to the phrase within the standard, it does not assist me in determining how the special terms are to be interpreted.

125 Counsel for the appellants contended that, if the express or implied terms of the policy permitted dilution, the judge should have held that the respondent's reliance on the provisions amounted to a failure by the respondent to act with the utmost good faith and, consequently, that the respondent was precluded by ss 13 and 14 of the Insurance Contracts Act 1984 (Cth) from relying on those provisions.

126 We also reject that contention. At the risk of repetition, there was nothing in the terms of the policy which required the respondent to continue to fund the arbitrage profits of the Coneview investors for the life of the policies. That being so, there was no lack of good faith involved in the respondent's refusal to assume an

126 obligation to continue to fund the arbitrage profits of the Coneview investors for the life of the policies.[47]

127 Finally, on the subject of dilution, the appellants argued that, if there were an express or implied term of the policy which permitted dilution, it was of a kind not usually included in contracts of life insurance and that the respondent had failed to inform the appellants (in writing or at all) prior to entering into their contracts that the effect of such a term was that the respondent could dilute. It followed, it was said, that the respondent was precluded by s 37 of the Insurance Contracts Act 1984 (Cth) from relying on the term.

128 We reject that argument, too. Again at the risk of repetition, dilution was not an action or activity of the respondent for which it required contractual authority. It was the natural consequence of the Coneview investors arbitraging at the expense of the non-Coneview investors. No doubt it could have been eradicated if the respondent had been prepared to pay in sufficient of its own funds to provide the Coneview investors with continuing arbitrage profits for the life of the policy. But there was nothing in the policy which required the respondent to incur that obligation. It is not a question of the respondent relying on a term of the contract which was of a kind not usually included in contracts of life insurance. It is a question of the appellants contending for the existence of a term which never existed.

129 The appellants contended that the judge erred in holding that the respondent was permitted under the policy to segregate the assets of the Coneview investors from other prosperity bond investors in order to ensure that the effects of dilution resulting from Coneview investor arbitrage were confined to Coneview investors. Counsel for the appellants submitted that his Honour's reasoning on the point rested

on a flawed premise that the respondent was not obligated to put its own money into the Secure portfolio to eliminate the effects of dilution resulting from arbitraging between the cash portfolio and the Secure portfolio.

130 We agree with the judge. In our view, the respondent was not required by the terms of the contract to guard the appellants against the effects of dilution.

131 Counsel for the appellants argued in the alternative that, even if there were no requirement to guard against the effects of dilution, there was no clause in the policy which permitted the segregation of assets. To the contrary, he submitted, the customer information brochure with which the policy had been marketed and the policy document itself expressly provided that all assets acquired by the respondent with prosperity bond premiums were to be held in the Statutory No 5 Fund. In counsel's submission, the segregation of assets was inconsistent with those provisions.

132 We reject the argument. The express terms of the policy permitted an investor to redeem his or her investment more or less at any time and, as was conceded, if all of the non-Coneview investors had redeemed their investments and taken them elsewhere there could be no complaint. In effect, that is what happened. The respondent redeemed each of the non-Coneview investors investments in the Secure portfolio and the cash portfolio; established two new portfolios in the No 5 Statutory Fund (called the 2001 Cash portfolio and the 2001 Secure portfolio); placed the non-Coneview investors' redeemed investments into those new portfolios; and procured the issue of units corresponding in amount with the amount of each non-Coneview investor's redeemed investment.

133 The appellants contended further that, because there is no evidence that the non-Coneview investors gave their consent to those changes, it is to be inferred that they did not consent and, if the changes were made without their consent, they were made in breach of the policies. That may or may not be so, for there is no evidence either way. But, even if it were so, it would not be a breach of policies about which the Coneview investors would be entitled to complain. Subject to exceptions not here applicable,[48] it is fundamental that the only persons who may sue on a contract are the parties to the contract: 'Our law knows nothing of a jus quaesitum tertio arising by way of contract'.[49]

134 Of course, it is true that, by removing the non-Coneview investors from the Cash portfolio and the Secure portfolio, the respondent effectively deprived Coneview investors of the ability to arbitrage at the expense of non-Coneview investors. It is also true that, by depriving Coneview investors of that ability, the Coneview policies ceased to be as profitable as they otherwise would have been. But there was nothing in any of the Coneview investors' policies which expressly prohibited the respondent from removing non-Coneview policy holders from the Cash and Secure portfolios or which required the respondent otherwise to ensure that the Coneview policies remained as profitable as they had been before removal of non-Coneview policies. We also reject the idea that any such obligations should be implied. The Coneview policies are efficacious without the addition of a term of that kind and it is not necessary in order to afford the Coneview investors the benefits for which they contracted. They have a Prosperity Bond policy with the ability to effect unlimited switches between the Cash and Secure portfolios. So far as the evidence goes, it is profitable in the same way that non-Coneview policies are profitable. It is capable of delivering all the benefits for which it provides. This is not a case in which it is necessary to imply a term in order to yield to the appellants any benefits for which they contracted.[50]

135 In any event, the appellants did not allege in their pleadings that there were implied terms prohibiting segregation and they did not argue below for the existence

of implied terms of that kind. It is not open to them now to argue the point without first obtaining leave to amend, and none was sought.[51]

136 Counsel for the appellants submitted that the judge ignored the fact that the Customer Information Brochure and the policy document expressly provided that all assets acquired by the respondent with prosperity bond premiums are held in the Statutory No 5 Fund and they submit that segregation was inconsistent with those statements.

137 We reject that submission. There is nothing inconsistent between the sort of segregation which was implemented in this case and the requirement to place all premiums and assets acquired with them in the Statutory No 5 Fund. Both of the new portfolios were within the Statutory No 5 Fund.

138 Counsel for the appellants also suggested that it appeared from a diagrammatic representation of the two new funds which was in evidence that they were a pretence or a nullity constituted only of book entries.

139 We reject that submission too, for two reasons. First, it was not argued below and, if it had been, it is at least conceivable that evidence may have been called to rebut it.[52] Secondly, it does not follow from the fact that the new funds were constituted by book entries that they were a pretence or a nullity. As is apparent from the diagram in question, and from other evidence which was before the judge, all portfolios were constituted by book entries delineating the extent to which different classes of policies were represented by a mixed pool of underlying assets. Evidently, that was not a pretence or lacking in substance. There is nothing to

139 suggest that it was anything other than an accurate documentary recognition of real rights and obligations in relation to the underlying assets.[53]

140 Counsel for the appellants argued that the judge overlooked evidence of life insurance industry practice that segregation is only acceptable where it does not detrimentally affect policyholders or where the possibility of segregation was fully disclosed to the policyholders at or before the point of sale. Counsel relied in particular on evidence given in chief and in re-examination by Lyon that segregation 'is unacceptable where it does have a detrimental effect [on the 'benefits of policyholders'] and that segregation was not disclosed at the point of sale'. As counsel put it, the effect of that evidence was that a life company which offered unlimited free switches while retaining an ability to cancel switches would have to have set out a right to segregate clearly in the policy document, so that the policyholder was left in no doubt about such a right.

141 In our view that was not the effect of the evidence. The substance of it was rather that it accorded with good industry practice for the respondent to segregate the Coneview and non-Coneview investors because of the Coneview special terms. Indeed, in cross-examination Lyon said that if two sets of policy holders had different terms it would be good practice to treat them separately so that each class could get the 'correct outworking of the terms and conditions that apply to their policies'.

142 In any event, the segregation of Coneview investors and non-Coneview investors did not impermissibly affect the benefits of Coneview investors. As has been explained, the opportunity to arbitrage at the expense of non-Coneview investors was not something for which Coneview investors contracted.

143 Counsel for the appellants also emphasised evidence given in re-examination by Lyon that 'the test of good disclosure is that a policyholder's reasonable expectations, as a result of that disclosure, are met by the way in which the contract actually is operated.'

144 In our view that takes the matter no further. The Coneview investors cannot reasonably have expected that the respondent would not take action to protect non-Coneview investors once the arbitrage operations of Coneview investors came to light; and in fact it is plain that Coneview investors did not expect the respondent to protect arbitrage profits. A memorandum written by Tyne on 25 February 2000, before purchasing one of the policies, shows that Coneview believed that the respondent would do whatever it could to prevent arbitraging once it woke up to the problem. Tyne wrote this:

It is quite apparent however that National Mutual do not fully appreciate the economic consequences of these terms. Apparently National Mutual do not keep a running register of the switches made. Hence National Mutual can only ever confirm: (a) which fund, Cash or Secured, your investment is held with; (b) how many units you have in the fund; and (c) the current unit price. In other words, National Mutual have no appreciation of your trading history and so have no appreciation of the value of the arbitrage attendant upon the concessions made available to us.

Keller is concerned that this may change and that National Mutual will soon have a program that tracks your trading history. Whilst there is no doubt that National Mutual are contractually bound to continue these terms with current investors, there is a concern that they may 'rule off the books.'

145 The appellants contended that segregation was inconsistent with s 32 of the Life Insurance Act 1995 (Cth), which so far as relevant provides that:

(1) In the investment, administration and management of the assets of a statutory fund, a life company:

(a) must comply with this Part; and

(b) must give priority to the interests of owners and prospective owners of policies referable to the fund.

...

(4) A reference in subsection (1) or (2) to the interests of owners of policies referable to a statutory fund is a reference to the interests of such persons viewed as a group.

In the appellants' submission, segregation contravenes s 32 because it involves the respondent giving priority to its interests rather than the interests of the owners of policies.

146 We do not agree. The plain and ordinary meaning of the 'interests of owners and prospective owners of policies referable to the fund' is their interests as framed by their entitlements under the policies. That interpretation was supported by evidence given by Lyon that life companies generally understand s 32 as requiring the treatment of all policy holders with reference to their entitlements under their policies. Section 32 does not require a life company to confer benefits for which policies do not provide and, as we have said, the Coneview policies did not provide that non-Coneview investors would remain invested in the Cash and Secure portfolios so as to ensure profitable Coneview investor arbitrage. The suggestion that segregation gave priority to the respondent's own interests over the interests of Coneview investors is also misconceived. In effect it simply repeats the fallacy that the respondent was required to put sufficient of its own funds into the Secure portfolio to eradicate the effects of dilution on arbitrage switching between the Cash and Secure portfolios.

147 The appellants pointed to the fact that once the respondent became aware of what was happening it had real concerns for its own position. There is no doubt that that was so. It is plain that the respondent feared that it would be sued by non-Coneview policy holders if they learned that it had allowed the worth of non-Coneview policies substantially to be depleted by the effects of Coneview investor arbitrage. Consequently, the respondent determined to use its own funds to make good the loss to non-Coneview investors and ultimately to move the non-Coneview investors to the new portfolios. In a memorandum from Mr Josling of the respondent to Mr Griffin on 4 October 2000, Josling noted that unless the respondent took those steps:

This would surely result in litigation and we would presumably be on very shaky ground when the policy holders are faced with such a large one-off fall in unit prices. Unless we got legal advice that we had a good case and we have not had that to date then this would not be a sensible avenue to go down.

Recoup the loss from Shareholder

• Realistically I don't see that we have any alternative to allowing this to come through as a Shareholder loss.

According to the appellants, that shows that the whole exercise of segregation was one in which the respondent put its own interests ahead of the interests of Coneview investors in being able to arbitrage to the detriment of non-Coneview investors.

148 We reject that contention. The memorandum shows no more than that the respondent took steps to close the opportunity for Coneview investors to arbitrage at the expense of non-Coneview investors, and to make good the loss suffered by non-Coneview investors as a result of Coneview investor arbitrage. So to do was not to put the respondent's own interests before the interests of Coneview investors. It was rather to face up to the respondent's responsibility to the non-Coneview investors for a problem of the respondent's own making. So much is confirmed by the Group CEO report of Yesberg of the respondent of 30 October 2000:

The problem came to light in June this year, when it was brought to the attention of management that the scheme was being administered off line and that [Coneview] clients were switching frequently.

...

Whilst the [Coneview] policy holders have done nothing illegal in their dealings, there is no doubt they have intended to take action to make extraordinary arbitrage gains at the expense of other policyholders and AXA.

The errors in processing the switches and calculating unit holdings and process have led to the position where the effect of the arbitrage gain have not, in effect, been met by the fund as should have been the case under the policy conditions. AXA has repeatedly erred in determining the unit prices, allocating the funds between the two portfolios and determining the number of units each policyholder is entitled to.

...

Therefore the solution that is being implemented is to correct the number of units to which each [non-Coneview] policyholder is entitled by reconstructing the unit holdings from inception. The unit price calculation will not be reconstructed, because to do so would cause a significant impact on [non Coneview] unit holders and would result in their account balances being reduced to zero. Clearly this situation would be inequitable.

...

Frankly this is a story of incompetence from beginning to end which in my view is a function of both culture and weak management. The cultural issues relate to a lack of understanding - and probably interest - in profitability. The original decision in 1999 to offer special terms seems to have been based purely on the desire for volume. Anyone with experience or understanding of unit linked business should be aware of the risks of arbitrage through switching. I am investigation the background to how the decision to offer these terms was made.

149 The appellants contended that the segregation of Coneview investors from non-Coneview investors was a contravention of s 46 of the Life Insurance Act 1995 (Cth). At relevant times it provided that:

Restriction or restructure or termination of statutory funds

(1) A life company must not:

(a) change the statutory fund or funds to which a policy is referable; or

(b) terminate a statutory fund;

except in accordance with:

(c) subsection 35(4) and section 55; or

(d) Division 3.

(2) Subsection (1) does not prevent a liquidator doing anything authorised or required by or under this Act or any other law of the Commonwealth or of a State or Territory.

The appellants claimed that segregation entailed the division of the Statutory No 5 Fund because, they say, the judge found that it involved the separation of the assets underlying investments made by Coneview investors from the assets underlying investments of other investors in the Statutory Fund.

150 In our view, that is not so. At one point in his reasons, the judge described segregation in terms of 'separation of the assets of the Coneview investors from the other assets in the Statutory No 5 Fund'. But it is apparent from the context that his Honour was using the expression as a shorthand descriptor of the process which the evidence established had occurred. As already noted, what happened in fact was that the respondent created two new portfolios in the Statutory No 5 Fund - the 2001 Cash portfolio and the 2001 Secure portfolio; redeemed the non-Coneview investors' investments in the Cash portfolio and the Secure portfolio; and reinvested the proceeds in units for the non-Coneview investors in the 2001 Cash portfolio and the 2001 Secure portfolio. At all times throughout the process, the underlying assets remained in the Statutory No 5 Fund. That fund was not changed and it was not terminated. As was recorded in a contemporaneous record which tendered in evidence below, and on which the appellants relied:

From a unit pricing perspective the investments held in the composites for CES and CEN [scil, the 2001 Cash and Secure Portfolios composites] will be exactly the same and similarly for CAS and CAN [scil. the Cash and Secure Portfolios composites]. In this way there is no chance that either the [Coneview investors] or [non-Coneview investors] can ever accuse us of changing the investment objectives or strategies. Note that the investments have not moved. The assets both before and after this change are exactly the same for both groups of investors.[54]

151 The appellants' final contention concerning segregation was that, if the Coneview policies contained a term permitting the respondent to segregate, it would necessarily have been an unusual term and the respondent's right to segregate was not disclosed to the appellants or to Keller or Coneview at the time the appellants invested or the special terms were agreed. Consequently, it was said, s 37 of the Insurance Contracts Act 1984 (Cth) precludes the respondent's reliance on any such term.

152 In our view, that submission is untenable. In effect it repeats the misconception that segregation somehow bore upon the rights and obligations established by the Coneview policies. As has been explained, it did not. It affected the rights and obligations of non-Coneview investors under their policies, by way of redemption of their investments in the Cash and Secure portfolios, and reinvestment in the 2001 Cash and 2001 Secure portfolios. The result was to deprive the Coneview investors of an opportunity to continue to arbitrage at the expense of non-Coneview investors. But that opportunity was not something for which Coneview investors had contracted. They contracted on terms which did nothing to prohibit non-Coneview investors moving out of the Cash and Secure portfolios at any time.

153 The judge found that the respondent was estopped from relying on its contractual right to move to forward pricing but held that the minimum equity required no more than that the respondent be compensated for their costs of borrowing and maintaining their property bond investments plus management fees incurred and loss of investment opportunities foregone until the effluxion of such time as represented reasonable notice by the respondent.

154 The appellants contended that his Honour's holding depended on the erroneous conclusion that, as a matter of principle, an estopped party may, by giving reasonable notice, from that point avoid further obligation to compensate for the detriment resulting from a claimant's reliance on an assumption induced by the liable party. Such an approach was, the appellants submitted, contrary to relevant authority, which did not permit the interception of a 'running equity' by giving reasonable notice. Counsel submitted that his Honour appeared not only to misconceive the reasoning of cases such as Central London Property Trust Ltd v High Trees House Ltd[55] ('High Trees') and Emmanuel Ayodeji Ajayi v R T Briscoe (Nigeria) Ltd,[56] but also to apply it inappropriately to the present case.

155 The appellants argued, first, that the doctrine exemplified by High Trees, did not, on a proper analysis, authorise the truncation of an equity by the giving of reasonable notice. Rather, in those cases, the giving of notice had accompanied or formalised the expiry of an inherent temporal limitation which defined the extent of the equity and marked its determination. According to the appellants, the relevant cases concerned a purely defensive equity and the notice doctrine did not apply in the present context, where estoppel was used as a sword. The judge however, it was said, had approached the matter as if reasonable notice was invariably sufficient to bring the equity to an end.

156 We reject that argument. The judge did not purport to enunciate an inflexible principle that reasonable notice would, as a matter of course, consistently bring forward or accelerate the determination of an equity (whether purely defensive or otherwise) irrespective of whether that course would prevent the full redress of the claimants' detriment. His Honour relied, inter alia, on the statement of Campbell J in Vella v Wah Lai Investment Australia that:

Further, the fact that, as at one point of time, two such parties are estopped from denying that there has been an effective assignment of lease does not necessarily mean that that estoppel will endure indefinitely into the future. If one party, who has encouraged another to act on the basis that a particular state of affairs exists, gives notice that that state of affairs should no longer be regarded as existing then, unless the other party has already irretrievably prejudiced himself by acting on the assumption that that state of affairs exists, the estoppel will case to bind, either immediately or after the other party has been given reasonable notice. This is the result of the principle that the relief which is appropriate to give effect to an estoppel is the minimum relief which would prevent the injustice arising by the person estopped departing from the assumption or expectation which has been induced: The Commonwealth of Australia v Verwayen [1990] HCA 39; (1990) 170 CLR 394 at 413, 429, 442-3, 487 and 501; Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at 113-14 and 119; Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 at 516-518.[57]

157 In Vella, Campbell J found that the plaintiff acted on the basis that he was the assignee of the lease of certain premises, due to the landlord's representation that it consented to the assignment. He took possession of the premises, arranged insurance, employed staff to operate a business, payed rent, and complied with regulations. Campbell J found that none of the activities done during the period of the continuing representation irretrievably prejudiced the plaintiff's position, so as to disentitle the landlord from retracting its representation. The estoppel held in Vella to be determinable on reasonable notice was thus consistent with the full redress of the relevant detriment.

158 Secondly, the appellants argued that his Honour's determination was informed by his erroneous conclusion that estoppel could not be invoked to fulfil expectation interests and by a mistaken apprehension that, contrary to the principles of Verwayen[58] and Giumelli v Giumelli[59], the loss of a bargain or expectation profits could not constitute detriment in the relevant sense.

159 We reject that argument, too. In the present case, his Honour, on the basis of a careful analysis of relevant authorities, stated correctly that, in the context of estoppel, detriment is what results from acts or inaction in reliance on the assumption rather than from the breach of promise or departure from the assumption per se.

160 His Honour did not erroneously conclude that expectation interests could not constitute detriment. He expressly recognised that, in some cases, such as Giumelli and Verwayen, the detriment which would otherwise have been suffered was such that, as the minimum necessary to do justice, it required the assumption to be made good.

161 His Honour recognised that the fulfilment of a claimant's assumption is a remedy more characteristic of proprietary estoppel and that Australian authority tended to prefer a different remedy in other types of cases. He also acknowledged, however, that the nature of the minimum remedy will always depend on all the circumstances of the case. His Honour specifically recognised that the detriment constituted by the loss of a corporate opportunity could, in an appropriate case, require holding the defendant to the assumption as the minimum equity provided that the remedy was not disproportional to the detriment.

162 The appellants further contended that the requirements of conscientious conduct required the respondent to make good the assumption on the basis of which they acquired the prosperity bonds - namely, that they would hold the bonds for at least 10 years in order to obtain statutory tax concessions and that they would be in a position to engage in historical price arbitraging throughout that period - and hence that the judge should have held that the respondent was bound to adhere to that assumed state of affairs for a minimum of 10 years. The gist of that argument was that the judge's reasoning was critically dependent on an erroneous conclusion that it would have been unreasonable for the appellants to rely upon anything said by Keller or Taylor as to enlarging the contractual obligation of the respondent. In the appellants' submission, the evidence was all the other way.

163 In our view that argument is also unsound. His Honour's reasoning did not depend upon the impugned finding. It proceeded on the basis that:

The evidence left no room for doubt that the defendant was aware that the plaintiffs were proceeding upon the assumption that the defendant would continue to use historic pricing ... By the time the plaintiffs made their investments, the defendant knew or ought to have known that potential Coneview investors, who were introduced to the special terms by Keller, would be told that and would believe that the defendant would continue to use historical pricing and would be given the price on the day of the switch. It also knew or should have known that potential investors such as the plaintiffs were likely to be aware that it had continued to use historical pricing since Keller had commenced to manage the Coneview investors investments and would expect to be able to make the same returns. It knew that such investors, including the plaintiffs, would be aware that Keller had made frequent switches between the cash and the secure portfolios to make arbitrage profits as a consequence of the defendant's continued use of historic pricing.

The plaintiffs assumed, with good reason, based upon the information with which they had been provided by Keller and Taylor and the manner in which the defendant had conducted itself in administering the prosperity bonds, that the defendant would continue to use historic pricing. The defendant, knowing that the plaintiffs were intending to invest upon such an assumption, contrary to good conscience, refrained from informing the plaintiffs that it was not intending to do so. Such conduct gives rise to an equity sufficient to support an estoppel.[60]

164 It is true that the judge found that Yesberg of the respondent did not think that the special terms conferred upon the appellants any enforceable right to make arbitrage profits. As his Honour said:

[Mr Yesberg] did not believe that the defendant had any obligation to continue to use historical pricing. He was not aware that the plaintiffs and Keller considered that the special terms conferred a three day option to arbitrage. As Yesberg's evidence and the contemporaneous documents demonstrate, he considered that the defendant could take legitimate steps to bring the Coneview investors' capacity to arbitrage to an end. While obtaining the benefit of substantial further investment, the view which he held, and the defendant adopted, was that as Keller and the plaintiffs and other Coneview investors had not expressly required historical pricing to be a term of the prosperity bond and had not openly stated to the defendant that they assumed that the defendant would continue to use historical pricing to value units, the defendant was under no obligation to tell them that their assumption was wrong or that it would not continue to do so or that it was intending to move to a different method of valuation.[61]

165 But whether or not Yesberg knew or believed that Keller considered that the special terms conferred a three day option to arbitrage was beside the point. The judge accepted that:

The defendant knew and ought to have known that the plaintiffs were acting upon the assumption that the defendant would administer their contracts in the same manner as it had administered the other Coneview investors' policies, that it knew that they were investing upon the basis that it would continue to use historic pricing and that if it were not intending to do so it would inform them of its intentions. It had a duty in conscience to correct the false assumption upon which the plaintiffs were intending to invest and which gives rise to an estoppel. The plaintiffs' claim under s 52 of the TPA is also made out as the defendant's conduct was false and misleading.[62]

166 As has been observed, the reason that the judge limited relief to the avoidance of detriment was because of what his Honour perceived to be the difference between cases like Dillwyn v Llewellyn,[63] in which the requirements of conscience necessitate that a defendant be held to an assumption which he or she has created, and what his Honour called 'other cases' in which 'the Australian preference is not to fulfil the plaintiff's expectation but to analyse what is the detriment suffered by the plaintiff from doing acts and things which he or she might no otherwise have done because of the promise'.[64] Based upon his extensive survey of the authorities, his Honour concluded that this case fell within the latter category.

167 With respect we agree. As Brennan J explained in Waltons Stores (Interstate) Ltd v Maher,[65] (Waltons Stores) the object of the principle of equitable estoppel is the avoidance of the detriment occasioned by the conduct of the party against whom the equity is raised. It follows that satisfaction of the equity calls for the enforcement of a promise only as a means of avoiding the detriment and only to the extent necessary to achieve that object. As such equitable estoppel complements the tortious remedies of damages for negligent misstatement or fraud and enhances the remedies available to a party who acts or abstains from acting in reliance of what another induces him to believe.[66]

168 Building on that approach, in Verwayen v The Commonwealth,[67] Deane J said that although the prima facie operation of an estoppel by conduct is to preclude departure from the assumed state of affairs, that will yield to some lesser form of relief if relief framed on the basis of the assumed state of affairs would be inequitably harsh; and holding an estopped party to the assumed stated of affairs is inequitably harsh if it exceeds what could be justified by the requirements of conscientious conduct and is unjust to the estopped party. Similarly, Mason CJ,[68] Brennan,[69] Dawson[70] and Gaudron JJ[71] all spoke in terms of the doctrine as one which permits the court to do what is required in order to avoid detriment to the party who has been induced to act upon an assumed state of affairs and thus that, according to the circumstances of any given case, the relief required may be less than making good the assumption on the basis of which the plaintiff was encouraged to deal. McHugh J[72] also concluded that what is required to satisfy the equity which arises against an estopped party depends on the circumstances.

169 It is true that in Giumelli v Giumelli,[73] Gleeson CJ and McHugh, Gummow and Callinan JJ said that Verwayen did not foreclose as a matter of doctrine relief making good the assumption in an appropriate case. But nothing which their Honours said in Giumelli suggests that there was any change from the view expressed in Verwayen that the doctrine of equitable estoppel enables a court to do what is required to avoid detriment to the party who has been induced to act upon an assumed state of affairs, and thus that that the relief required in a given case may be less than making good the assumption. Accordingly, since Giumelli, in the majority of commercial cases not involving the acquisition of an interest in real property[74] in which the doctrine of equitable estoppel had been invoked, the relief accorded it has been no more than was necessary to avoid detriment.

170 In concluding that the relief required in this case was no more than was necessary to avoid detriment, the judge said this:

To frame the relief on such a basis 'would be inequitably harsh' and 'would otherwise exceed what could be justified by the requirements of conscientious conduct.' The plaintiffs have the right and have always had the right to have their investment returned in full. They may be entitled to be compensated for such costs as they reasonably incurred in borrowing and maintaining their investment until such time as they were given reasonable notice of the defendant's intention to discontinue its use of historical pricing. They may also make out a right to compensation for the payment of management fees to Coneview until the expiration of such time. They may also make out a claim that they would have made other investments or entered into other contracts had they not been induced to invest in the defendant's prosperity bonds. If they are able to establish such a claim they may be awarded such damages as they can establish arising from such a loss of opportunity. That is the minimum equity needed to avoid the plaintiffs' detriment.

The expectation profits or loss of bargain which would flow from the fulfilment of the plaintiffs' assumption of a right to make arbitrage profits for the life of the policies is not a detriment for which equity should provide relief. If, contrary to my view, the loss of bargain should be treated as a detriment, discretionary considerations militate against the granting of equitable relief for the loss of expected profits. The defendant has identified a number of factors which would make it inequitable and oppressive were such relief to be granted. The nature and the quantum of the plaintiffs' claim and their conduct makes it wholly inappropriate that they should have the benefit of the assumption either for the life of the policy or the specified lesser period of ten years claimed. The defendant's unconscionable conduct does not require it to be bound to give effect to the assumption after the giving of reasonable notice that it no longer intended to act as the plaintiffs assumed. The minimum equity to avoid the detriment does not call for the enforcement of the assumption.

The plaintiffs are entitled to an award of damages as the minimum equity arising from the defendant's unconscionable conduct or for its misleading and deceptive conduct under the TPA.[75]

171 With respect, we agree. By standing by and allowing the appellants to act on the assumption that the contracts would continue to be administered in the same manner as the other Coneview investors' policies, the respondent in effect represented that it would not enforce its contractual rights under the policy. The appellants' reliance upon that state of affairs gave rise to an equity in favour of the appellants. But in accordance with Brennan J's exposition of principle in Waltons Stores, the equity was subject to the qualification that the respondent could resile from its 'promise' (which is to say the assumed basis of dealing), on giving reasonable notice, unless the appellants could not resume their position. In this case the appellants could resume their position. As his Honour observed, they could have redeemed their policies and repaid their loans an any time; and they still can. The orders which his Honour made will restore them to their original positions with, in effect, the benefits, for a reasonable period following the respondent's departure from that assumed basis of dealing, of the terms which the appellants' assumed would apply.

172 The appellants alleged that his Honour's discretion to refuse expectation profits miscarried on several bases. (His Honour did not exercise the discretion, but observed that if, contrary to his view, expectation profits were appropriate, he would exercise it to refuse them.)

173 The appellants argued, first, that his Honour's reference in that context to the nature and quantum' of the appellants' claim, unjustifiably stigmatised arbitrage profits as unworthy of equitable relief. Counsel submitted that it reflected unjustified assumptions about the quantum of the claim, which were not based on evidence, and implied that equity would readily repair only minor detriment.

174 Secondly, the appellants complained that his Honour's readiness to take their conduct into account in exercising the discretion was unjustified, because he had found that it was not so unconscientious as to justify a denial of equitable relief, and they had breached no legal or equitable principle. The finding that the appellants were aware that Keller and Coneview misled the respondent was, the appellants argued, manifestly erroneous.

175 Thirdly, the appellants argued that his Honour ignored the respondent's unconscionable conduct in determining the minimum equity.

176 In our opinion, those criticisms are unfounded. Had his Honour exercised his discretion in the manner he proposed by reference to the specified matters, his determination (like the equally discretionary primary determination of the minimum equity) would probably have been unassailable, on the basis of the principles of House v R.[76]

177 On a fair reading of his observations, his Honour did not hold or suggest that arbitrage profits were, by their nature tainted or undeserving of equitable relief. His statement related to the general nature of the appellants' claim. He was entitled to take into account that they were sophisticated, well-resourced, professionally advised investors on a substantial scale, who knowingly sought to achieve an unusually high level of profit pursuant to concessional special terms.

178 His Honour was also entitled to take into account that, whatever its precise quantum, the appellants' claim was very large. The appellants' claim for loss was particularised at $37 million, with expectation based damages of $1.44 billion.[77] The absence of evidence of specific amounts did not preclude a broad assessment of the magnitude of the claim.

179 Nor did his Honour, as the appellants submitted, ignore the conduct of the respondent. His analysis of that conduct underpinned his determination of unconscionability, and it was unnecessary to repeat it in assessing discretionary considerations relevant to the minimum equity, which is directed at compensation for the claimant's detriment, rather than punishment of the party estopped.

180 We agree with his Honour's analysis. In our view the appellants' conduct and the nature and the quantum of their claim would make it inappropriate that they should have the benefit of the assumption either for the life of the prosperity bonds or the specified lesser period of ten years claimed. This is not a case in which the effects of unconscionable conduct are to be measured in the imponderables of human feelings. There is nothing personal or heartfelt or otherwise special about the appellants' disappointment at the respondent's departure from the assumed state of dealing. The case is simply about money and more precisely about how much of it each side sought to make out of the other. As is apparent from the appellants' particulars of October 2006, there is a massive disproportion between their claim for reliance/detriment based relief, which is quantified in the sum of $37 million,[78] and the supposed expectation based relief which is claimed in the sum of $1.44 billion. In the circumstances of this case, such an exorbitant amount of money could not be justified by the requirements of conscientious conduct.

181 Finally on this aspect of the matter, it is not without significance that the appellants did not frame their claim for relief at trial as one for the recovery of expectation losses. As the respondent's counsel pointed out in argument, the appellants' claim below was put in terms of the detriment which they had suffered by having borrowed moneys to invest in the bonds, paying management fees and giving up other investment opportunities. That is exactly what the judge's orders give them.

182 The respondent, by a notice of cross-appeal dated 24 January 2007, appeals from the trial judge's holding that it engaged in unconscionable conduct and misleading and deceptive conduct in relation to the appellants' policies, for which it was liable in damages.

183 The judge's determination of unconscionability and misleading and deceptive conduct depended, essentially, on the same factual findings. Broadly, his Honour found that:

(a) the respondent created or encouraged the appellants' assumption (on which they reasonably relied in investing in their policies) that the respondent would administer their policies in the same way as it had administered those of other Coneview investors, using, inter alia, historical pricing, which would permit arbitrage returns comparable to those already obtained by Taylor, Keller and the other Coneview investors;

(b) while the respondent both knew and, in the circumstances, ought to have known, that the appellants were investing on the basis of that assumption, by that stage it had realised that the existing Coneview investors were using historical pricing to make arbitrage profits and had determined to take steps, including the discontinuance of historical pricing, in order to prevent the practice;

(c) despite its actual and constructive knowledge that the appellants were investing in the policies in reliance on the assumption, the respondent did not inform or warn them of its intention to cease using historical pricing and to terminate arbitrage profits - rather, it remained silent and accepted additional funds of approximately $120 million as investment in new policies, including those of the appellants; and

(d) the respondent issued the new policies despite its discovery of the Coneview investors' arbitraging on the basis of historical pricing (and its awareness that the further investment was being made in reliance on its continuance) in order to obtain the benefit of the substantial further investment, while at the same time intending to terminate the historical pricing and the arbitraging, as its officer, Yesberg, believed it was legally entitled to do.

184 Although the appellants had neither expressly required the inclusion of an historical pricing term nor advised the respondent of their assumption, his Honour concluded that in the above circumstances:

[The respondent's] conduct was unconscionable. Independently of any duty that it owed at law or any equity which may be raised in favour of [the appellants], it had an obligation under s 52 to disclose its intention to the appellants and in failing to do so its conduct was false and misleading. [The respondent] knew and ought to have known that the appellants were acting upon the assumption that the respondent would administer their contracts in the same manner as it had administered the other Coneview investors' policies, it knew that they were investing upon the basis that it would continue to use historic pricing and that if it were not intending to do so it would inform them of its intentions. It had a duty in conscience to correct the false assumption upon which [the appellants] were intending to invest and which give rise to an estoppel. [The appellants'] claim under s 52 of the TPA is also made out as [the respondent's] conduct was false and misleading.[79]

185 Although the judge held that the respondent was entitled to permit dilution, for the same reasons given in relation to historical pricing, his Honour also held that the respondent's failure to speak was unconscionable and gave rise to an estoppel in circumstances where it had played such a part in encouraging the appellants' assumption that it would continue to administer the Coneview investments as before, without enforcing its rights to dilute, that it would be unjust and oppressive to permit departure from the assumption.

186 His Honour found that prior to the appellants' investment, the increase in unit price calculated on an historical basis reflected the 'full grid', rather than the diluted effect of increase in the underlying assets. Further, the respondent knew, or ought to have known, that Keller and Coneview would represent that as one of the benefits of the special terms, and that potential investors who followed the movement of the units, would so assume.

The [respondent] had a duty to speak if it intended by dilution and segregation of the appellants' investments to reduce [the appellants'] expected profits from arbitrage through the use of historical pricing. [The respondent] did not spell out that it reserved the right to take away the benefit of successful arbitraging by diluting the entitlement through the dilution of a finite fund with the increased number of units so that the entitlement was inexorably diluted. The failure to reserve the right to dilute was a breach of [the respondent's] duty to speak. It was required in conscience to correct the false assumption upon which [the appellants] were intending to invest which gives rise to an estoppel.[80]

188 The respondent contends that the judge erred in holding that it engaged in unconscionable conduct in failing to disclose, prior to the appellants' investment in their policies, its intention to cease calculating unit prices on an historical basis and to reduce their expected arbitrage profits through historical pricing by permitting dilution. In particular, it was said that the trial judge erred in holding that:

(i) the respondent's conduct induced or encouraged the appellants' assumption that it would continue to use historical pricing and would not permit dilution;

(ii) the appellants acted in reliance on the respondent's conduct;

(iv) the respondent was aware of the appellants' reliance; and

189 The respondent also contends that, for the same reasons, his Honour erred in holding that the respondent engaged in misleading and deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth) by its failure to disclose its intention to cease the use of historical pricing and to permit dilution.

190 The respondent advanced five principal submissions in support of those contentions. The first was that its conduct in applying historic pricing to other Coneview investors' policies was not such as to create the appellant's expectation or assumption of its continuance in relation to their policies. The previous use of historical pricing did not, the respondent argued, amount to a clear and unequivocal representation that it would not move from that method in future, as it neither said nor did anything to 'exclude the possibility of a future change of mind' or to represent that it would not, in future, move to forward pricing in accordance with its contractual rights. Thus, in reliance on Hooker Corporation Ltd v Commonwealth[81] ('Hooker'), the respondent argued that its past conduct in relation to other investors' policies could not, as a matter of principle, constitute a representation which could estop it in relation to the pricing method applied to the appellants' policies.

191 We reject that submission. First, Hooker did not, in our view, establish that conduct in relation to previous transactions, whether with the claimant or others, can never, for the purposes of estoppel, constitute a representation to prospective transacting parties that like conditions or treatment will apply to their dealings.

192 In Hooker, the plaintiff, which had leased land from the Commonwealth government, built on the land without first obtaining a valid approval. The plaintiff, by its statement of claim, alleged that for many years since the introduction of a specified building ordinance, the Commonwealth had, to the plaintiff's knowledge, always granted building approval to Crown lessees (including the plaintiff) pursuant to a particular 'administrative usage, custom, procedure and practice', which the plaintiff had again followed in relation to the subject leased land. The Commonwealth had never before, the plaintiff alleged, required any further steps of Crown lessees who sought building approval. The plaintiff pleaded that the Commonwealth's 'conduct, administrative usage, custom, procedure and practice' constituted a representation, in reliance upon which it did not seek further or other approvals, and thus acted to its detriment constituted by the risk of breach of its obligations as lessee.

193 Kelly J held that the plaintiff's statement of claim did not disclose a cause of action because the facts as pleaded could not amount to 'such a representation as is required to found an estoppel'.[82]

194 He observed that the statement of claim implicitly alleged that the plaintiff observed or came to know of the relevant administrative usage and concluded that it extended to the consent required under its particular lease, that the form of approval it in fact obtained was therefore sufficient, and that because of what had occurred in relation to previous leases, it had no need to seek further consent.

195 Kelly J considered that, on such facts and inferences, the Commonwealth had not 'by any relevant representation induced the plaintiff to alter its position to its detriment'. [83]

196 He relied, in that context, on a number of nineteenth century and early twentieth century authorities on estoppel by deed, which held that third parties could not rely upon recitals in instruments. He considered that such reasoning applied to all estoppels by convention, whether by deed or not.

197 Kelly J thus, at one point in his judgment, appeared to require the relevant representations to be made in the context of the subject transaction itself.

Anyone though not capable of raising an estoppel against himself in favour of the public or a class, in its entirety can address a representation to that public or class in a particular transaction which is of such a nature that the representation is intended or expected or ought to be expected to be acted upon by a member or more than one member of such body of undesignated and unidentified persons so that the representation it acted upon to this prejudice by any such member of that body may operate as an estoppel against the representor in favour of those member ...[84]

199 If, as Kelly J recognised, a representation capable of founding an estoppel can be acted upon by members of 'a body of undesignated and unidentified persons' he cannot have intended to limit such representations to those made in the very transaction with the claimant from which the complaint arose.

200 On a fair reading of Hooker, Kelly J assumed that representations capable of founding an estoppel are not confined to those made in a given transaction with the claimant. Rather, he recognised that a representation may be made to the public or to a class of the public and would found an estoppel in favour of any member of 'such body of undesignated and unidentified persons', provided that the transaction were of such a nature that the representation was intended, expected or ought to have been expected, to be acted upon by such persons.

201 Kelly J's reference to a particular transaction, when taken in context, was directed to a transaction of the requisite nature, rather than a specific transaction with the party asserting an estoppel.

202 That construction is fortified by Kelly J's statement that the probable mischief of a contrary approach would be that a person could claim estoppel because he entered a contract with a defendant identical to contracts the defendant had with third parties and, having observed the defendant's conduct towards those third parties, could act to his detriment 'on no basis other than his observations in relation to the earlier contracts.'[85]

203 Hooker thus indicates that if a representation is made in the course of a transaction which is of such a nature that as yet unidentified members of the public, or a class thereof, may be expected to act on the representation, the representation may be treated as addressed to those parties and is capable of founding an estoppel in their favour.

204 In the present case, the respondent's prior transactions with Keller, Taylor and other Coneview investors were of such a nature that the representations made therein were, or should have been, expected to be acted on by prospective Coneview investors, such as the appellants.

205 Further, the respondent's conduct in relation to previous Coneview investments was not the sole basis of his Honour's finding that the respondent encouraged or induced the appellants' assumption that the respondent would continue to use historical pricing and they would make arbitrage profits comparable to those of Taylor, Keller and earlier Coneview investors. His Honour stated that the assumption was:

induced by what Keller and Taylor told them as to [the respondent's] use of historical pricing, the knowledge that [the respondent ]was aware that Keller would need to know the unit price at the time of a switch, the respondent's conduct in permitting the investment to be administered in that way, in permitting Keller to market the special terms knowing that it would be suggested that arbitrage profits could continue to be made in this way, and [the respondent's] deliberate concealment from investors between June and September of its proposed actions.[86]

206 The respondent's conduct in 'permitting the involvement to be administered in that way' was not the only basis for his Honour's finding. It was but one element in a number of interrelated circumstances which, collectively, his Honour found, contributed to or encouraged the appellants' assumption.

207 His Honour's finding that the respondent's conduct created or encouraged the appellant's assumption reflects the broad terms of an enquiry authorised by the reasoning in Waltons Stores,[87] which overtook and extended earlier articulations, based on estoppel by deed that principally informed some aspects of the approach of Kelly J in Hooker. While Hooker did not, in our view, hold that that conduct in another transaction or with other parties could never amount to a relevant representation, such a narrow and inflexible approach to the circumstances capable of constituting contributing conduct in the context of estoppel would not, in any event, accord with the reasoning in Waltons Stores.

208 Secondly, the respondent contended that his Honour erred in finding that the appellants relied on the assumption, or, if they did not, that the reliance was reasonable.

209 The respondent argued that the factual finding of reliance was unsafe, because it was inconsistent with other findings made by the trial judge including, in particular, his statement in relation to the three day option estoppel that:

The plaintiffs were aware that the defendant would take whatever steps it could to protect itself against arbitraging. They were aware of the potential detriment of the terms to the defendant. Absent an established contractual right to risk free arbitrage profits for the life time of the policyholder, the plaintiffs were not entitled to hold a reasonable expectation that they could exercise the three day option to cause very substantial financial loss to the defendant upon the basis of a representation, if it had been made in such circumstances.[88]

The plaintiffs appear to have proceeded on the basis the defendant would do everything in its power to alter the effect of the special terms once it came to realise how the plaintiffs and Keller were utilising the term.[89]

210 In the respondent's submission, those findings established, either that, far from relying on the continuance of historical pricing, the appellants believed that unless contractually bound to it, the respondent would probably move to forward pricing; or alternatively, that in the circumstances (including Tyne's belief that historical pricing was not a term of the written contract) any reliance on the assumption was unreasonable.

212 The respondent pointed to a number of documents and statements in evidence, including a memorandum of Tyne written in February 2000 (which predated both his initial investment of $500,000 and the further $5 million in June 2000). The respondent said that the memorandum showed that Tyne expected the respondent to do something about the special terms, including historical pricing, if it could, once it came to fully appreciate their economic consequences.

213 The memorandum also, however, expressed Tyne's view that the respondent was bound to use historical pricing in relation to the current investors and that it was therefore important for others to invest soon, in case the respondent decided to 'rule off the books'. The memorandum, taken as a whole, does not exclude reliance on the use of historical pricing under the then available contractual terms.

214 The respondent also contended that Tyne's admission that he knew that historical pricing did not form part of the written contract made the reliance unreasonable. Tyne gave evidence that he and Oates discussed the possibility of a change to forward pricing during the life of the policies, that a contractual commitment to historical pricing was important to him, and that he would have preferred the inclusion of a written term requiring it.

215 While, as his Honour recognised, there were inconsistencies in Tyne's evidence, he was entitled to conclude that when viewed in context, the above matters did not exclude reliance. Tyne also maintained that he relied on Taylor's advice as to what Keller had arranged with the respondent and Taylor's opinion of the meaning of the special terms. Tyne stated:

I relied on what was written, I relied on what David Taylor and Peter Keller told me. I relied on my own observations of the movements of these secure unit prices published by AXA in the period prior to my investing in the Tyne policy...

216 Although the allegedly confidential historical pricing term was not distilled in writing, it was not disputed that Keller and Taylor made 'statements to Tyne, Hawkins and Oates about the respondent's use of historical pricing and Keller's expressed need to know the unit price at the time of the switch'.[90]

it is also [the appellants'] case that Keller and Taylor told Tyne and Hawkins, more than once, that Keller had made clear to [the respondent] that he needed to know the unit price on the day that the notice to switch was given. I accept that Keller and Taylor made statements to that effect in their meetings with Tyne and Hawkins. I think it is likely that [the respondent] was so informed. This constituted part of [the respondent's] and [the appellants'] knowledge at the time that [the appellants] invested. No attempt was made to challenge the factual foundation for such an inference.[91]

218 In all the circumstances, his Honour was entitled to conclude that the appellants' reliance was reasonable. Various appellants at different stages discussed the possibility of a change to forward pricing, were aware that certain United States insurers had made that change, verified the respondent's current practices by their own observations, believed that arbitrage did not depend on historical pricing alone, but could be also made by three day option, considered it preferable that the special terms be reduced to writing, believed, at various times, that the respondent was likely to take such steps as were legally open to it to prevent arbitrage, and (in Oates' case) opined in November 2001 that forward pricing was legitimate under the policies. None of those matters undermines or renders untenable his Honour's factual finding of the appellants' reasonable reliance at the time of the appellants' investment.

219 Thirdly, the respondent contended that his Honour erred in finding that the appellants believed, by the time of their investment, that the respondent understood the consequences of the special terms. Such a finding was, the respondent submitted contrary to the evidence that, as at February 2000, the appellants believed, as expressed in Tyne's February memorandum, that the respondent did not understand the full implications. There was nothing, the respondent argued, to suggest that their state of mind subsequently changed.

220 We reject that submission. His Honour was alive to the fact that the parties' submissions and evidence on the appellants' belief about the respondent's understanding of the consequences of the special terms were principally directed at February 2000, rather than later, when the appellants invested.

221 As his Honour observed, however, there were developments after February 2000 which indicated that the respondent was aware of the consequences of the special terms and the returns being made by the Coneview investors. During the first half of 2000, Tyne received investor reports on his policy showing yields of 19 per cent to 21 per cent per annum from switching and a report of William Mercer dated 17 June 2000 which stated that the respondent had verified Tyne's portfolio balance. Hawkins relied on Tyne and on investment reports of the Argot Unit Trust in concluding that the respondent was administering the investment to produce arbitrage profits, as Keller had represented. Oates received the reports of Tyne and Mercer showing a 24 per cent return on his April investment, and consequently, his Honour found:

believed that the [respondent] had now been administering Coneview investments for 15 months with returns of at least 20%. He believed the [respondent] was aware of how the investment was operating.[92]

His Honour was, in our view, entitled to find that the appellants, whatever their initial beliefs, believed (correctly) by the time of making their investments that the respondent was aware of arbitraging under the special terms.

222 Fourthly, the respondent contend that the appellants' reliance on the assumption was belied by the fact that after being alerted to the changes in the administration of the policies, they each attempted to invest a further $5 million. We reject that submission. His Honour's finding of estoppel related to the appellants' investments made in June and September 2000, prior to notification of the changes in administration of the bonds. Moreover, the respondent's letter of 11 September 2000 did not, in terms, advise that the respondent would move to forward pricing and the evidence does not establish that the appellants were aware of that prior to their attempts to make further investments in November 2000. As the respondent conceded, the appellants may have intended to take advantage of cll 1-8, irrespective of other changes.

223 Fifthly, the respondent argued that his Honour erred in failing to hold that, given the appellants' own unconscionable behaviour, the respondent's conduct was not unconscionable.

224 It submitted that equity should not intervene to assist either party in circumstances where one contracting party conceals its intention to profit by the use of contractual terms combined with administrative arrangements of the other party, and the other party, discovering that intention, itself conceals it intention to change the administrative arrangements to deny the intended profit.

225 Both at trial and on appeal, the respondent submitted, in essence, that any unconscionability entailed by the respondent's silence about its intention to eliminate arbitrage was effectively nullified by the appellants' concealment of their intention to use historical pricing to make arbitrage profits, believing (as Tyne's February 2000 memorandum revealed) that the respondent was unaware of the implications of the special terms coupled with historical pricing and the possible economic detriment. His Honour rejected that contention, correctly in our opinion.

226 His Honour found that the appellants initially believed that the respondent did not understand the implications for arbitraging by Coneview investors pursuant to the special terms and historical pricing, but, contrary to the respondent's submissions, he was satisfied that the appellants believed that the respondent was aware of it by the time they invested.

227 His Honour found that 'Keller and Taylor did not reveal their purpose during the negotiations...'[93] with the respondent and that Keller and Coneview were 'less than frank'.[94] He found that the appellants knew that Keller had concealed the purpose of the special terms, which posed the potential for significant economic detriment to the respondent. Further, Tyne was aware that Keller was not acting in the respondent's best interests, but rather, thought that Keller was rowing 'with the appellants in the same canoe' against the respondent.

I was left in no doubt that each of the plaintiffs understood that Keller and Taylor had managed to negotiate and settle the special terms without revealing their true purpose to the defendant in seeking these terms.[95]

229 His Honour nevertheless acquitted the appellants of dishonesty. He concluded that:

By mid 2000 it was inevitable that the plaintiffs thought, as was the fact, that the defendant understood Keller's purpose in seeking the concessions which he obtained. At the time they invested they believed that the defendant understood that the special term created an opportunity to arbitrage. Their belief that the defendant was prepared to be bound by such terms, knowing the ultimate objective was to make arbitrage profits by the movement of the investment between portfolios, removes any element of dishonesty from their conduct.[96]

230 As stated above, his Honour was entitled to make that finding. The respondent contended that it was inconsistent with his Honour's statement that '[t]he plaintiffs were aware that the defendant would take whatever steps it could to protect itself against arbitraging'.[97] That statement was made specifically in relation to the three day option and the conversations between Tyne, Hawkins, Taylor and Keller in July 1999.[98]

231 While his Honour implicitly characterised the appellants' conduct as unmeritorious or immoral (in the nature of an intention to overreach or deceive the respondent, although falling short of dishonesty), he applied the principle that such conduct would not preclude equitable relief unless it had 'an immediate and necessary relation to the equity sued for'.[99]

232 He found that the appellants did not at any stage disclose their requirement or request of the respondent that historical pricing be a term of the policies. He accepted that thus, there was some connection between the appellants' own conduct and their assumption that the respondent would continue to use historical pricing, or not use its right to discontinue it.

233 Despite the sharp and exploitative elements of the appellants' conduct, by the time they invested, 'the purpose of the special terms was obviously apparent to all parties'[100] and, as his Honour found, the appellants were aware that the respondent now understood the position. His Honour therefore found no direct connection between their unmeritorious conduct and the assumption encouraged by the respondent, so that equitable relief was not precluded.

234 His Honour observed that, as the respondent insurer conceded, its own conduct in permitting the appellants' investment in reliance on the assumptions that the respondent would use historical pricing when it did not intend to do so 'was a very bad thing'.[101]

235 In circumstances where, as his Honour found, the respondent knew that the appellants were investing under a mistaken belief to which it had contributed to or encouraged, but it failed to speak and correct the assumption, taking the benefit of the funds while intending to eliminate the advantages it knew the appellants expected, the respondent's conduct was unconscionable and founded an estoppel on the basis of the principles recognised in Waltons Stores.

236 The same reasoning, based on the identical facts, justifies his Honour's conclusion that the respondent's conduct was misleading and deceptive, in contravention of s 52 of the Trade Practices Act 1974 (Cth).

237 The appellants did not press their appeal from any findings that expectation damages were not available pursuant to s 82 of the Trade Practices Act or that such damages would run only to the point of expiry of a reasonable period of notice, as the parties ultimately proceeded on the basis that no such findings were made and the assessment of damages under the Trade Practices Act was deferred.

238 The parties briefly addressed the judge's failure to vary the appellants' contracts pursuant to s 87 of the Trade Practices Act in order to reflect the terms alleged by the appellants. It was, however, unclear whether the parties intended that issue to be deferred to the assessment of damages under the Trade Practices Act. Orders under s 87 can be made 'only in so far as those orders will compensate (or will prevent or reduce) the loss or damage that is identified'.[102]

239 The appellants provided no proof of any loss or damage caused by a contravention of s 52 of the Trade Practices Act, and, in our view, the trial judge did not err in failing to order the variation.[103] Such an order would, in any event, be tantamount to granting expectation relief, and would have imposed a commercially unreasonable result on the respondent.

240 Finally, although the appellants did not abandon, they did not elaborate on, their associated ground of appeal based on his Honour's failure to make a finding of negligent misstatement. In effect, it ceased to be an issue.

241 Given that we have come to a different view to the judge as to the meaning of the second paragraph of cl 1.8, the appeal will be allowed in part and we shall make a declaration that upon its proper construction that paragraph had the effect that a Coneview investor was entitled to give three days' notice of intention to switch at the buying and selling prices applicable on the date on which the notice was given; that the respondent was not permitted to effect the switch until expiration of the notice; that the Coneview investor was entitled to revoke the notice at any time before its expiration; and that if not so revoked, upon expiration of the notice the respondent was bound to give effect to the switch.

242 In all other respects, however, the appeal has failed and therefore will be dismissed.

243 The cross-appeal has also failed and therefore will be dismissed.

[1] McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2003) 203 CLR 579, 589 [22] (Gaudron J) and 600 [73]-[74] (Kirby J); Gardiner v Agricultural and Rural Finance Pty Ltd (2008) Aust Contract Reports 90-74 [7]-[13] (Spiegelman CJ).

[3] The respondent calculated that, if the appellants' construction were adopted, it would result in a total liability of $2.8 billion to those policy holders.

[4] Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181, 188 [11] (Gleeson CJ, Gummow and Hayne JJ).

[5] Amad v Grant [1947] HCA 9; (1947) 74 CLR 327, 338 (Latham CJ).

[7] Cohen & Co v Ockerby & Co Ltd [1917] HCA 58; (1917) 24 CLR 288, 300 (Isaacs J); Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181, 188 [11] (Gleeson CJ, Gummow and Hayne JJ).

[8] Expressio unius est exclusio alterius: Blackburn v Flavelle (1881) 6 App Cas 628, 634 (Sir Peacock, Sir Montague, Sir Couch and Sir Mellor).

[9] Clarion Ltd v National Provident Institution [2000] 2 All ER 265.

[10] FASOC [11(a)]. This term was pleaded only as an implied term.

[11] This term was pleaded in FASOC [10(aa)] as an oral term and [11(aa)] as an implied term.

[12] Hawkins v Clayton (1988) 164 CLR 539, 570 (Deane, J); Breen v Williams (1996) 186 CLR 71, 91 (Dawson and Toohey JJ).

[13] 'We reserve to right to delay the application of money to or from an Account until midnight ... on the date to which your request applies. We will then use the Unit Price applicable at the end of the period of delay'.

[21] FAI Traders Insurance Company Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343, 351 (Brooking J); Grey v Australian Motorists & Insurance Co Pty Ltd [1976] 1 NSWLR 669, 684 (Samuels JA).

[24] [2003] HCA 22; (2003) 214 CLR 118.

[25] [2006] HCA 1; (2006) 224 ALR 1, 7 [15]-[24] (Kirby J).

[28] FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343, 347-349 (Brooking J); Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 325; Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2000) 215 CLR 317, 341 [71]; Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 186 ALR 289, 318 [109] (Gummow J).

[29] Council of the City of Sydney v Goldspar Australia Pty Ltd [2006] FCA 472; (2006) 230 ALR 437 [164] (Gyles J).

[30] Reasons [375]. As his Honour stated 'As I have concluded that the defendant's construction of cl 1.8 is correct, the plaintiffs' argument as to implied terms must fail. Such terms would be inconsistent with the express terms and are unnecessary to give business efficacy to the contract.'

[31] Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607-608 (Mason J); Far Horizons Pty Ltd v Mc Donald's Australia Ltd [2000] VSC 310 [128] (Byrne J).

[32] See Insurance Contracts Regulations, 1985, No 162 of 1985, (Cth) reg 31(c).

[33] At relevant times, s 12 of the Insurance (Agents and Brokers) Act 1984 (Cth), provided that:

'insurance intermediary' shall be deemed, in relation to any matter relating to insurance and as between an insured or intending insured and an insurer, to be the agent of the insurer and not of the insured or intending insured'.

[34] Insurance (Agents and Brokers) Act 1984 (Cth), s 9.

[35] Ibid s 12(1).

[36] [1919] HCA 64; (1919) 27 CLR 133.

[37] [1953] HCA 89; (1953) 89 CLR 507.

[38] N C Seddon, A Plea for the Reform of the Rule in Hoyts Pty Ltd v Spencer (1978) 52 ALJ 372.

[40] The phenomenon of dilution is illustrated in greater detail and with greater sophistication in [275] and [276] of the judge's reasons.

[41] 'Due to the fact that the administration system (Flexiplan) is only able to handle 2 free switches a year'.

[43] Expressum facit cessare tacitum: Aspdin v Austin (1844) 5 QB 671, 684 (Lord Denman CJ, Patterson, Coleridge and Wightman JJ); Ansett Transport Industries (Operations) Pty Ltd v Commonwealth of Australia [1977] HCA 71; (1977) 139 CLR 54, 73 (Mason J).

[44] BP Refinery (Westernport) Pty Ltd v President Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266, 283 (PC); Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 605-6; Byrne v Australian Airlines, Ltd [1995] HCA 24; (1995) 185 CLR 410, 441 (McHugh and Gummow JJ).

[45] [2002] 1 AC 408.

[47] Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228, [23]-[24] (Buchanan JA).

[48] See Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107, 123-4 (Mason CJ and Wilson J).

[49] Dunlop Pneumatic Tyre Company Ltd v Selfridge and Co Ltd [1915] UKHL 1; [1915] AC 847, 853 (Haldene LC, Lord Dunedin, Lord Atkinson, Lord Parker and Lord Parmoor).

[50] Cf Butt v McDonald (1896) 7 QLJ 68, 70-1 (Griffith CJ, Cooper and Power JJ); Secured Income Real Estate (Aust) Ltd v St Martin's Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607.

[51] Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658; Water Board v Mousakas [1988] HCA 12; (1988) 180 CLR 491, 497 (Mason CJ, Wilson, Brennan and Dawson JJA); Tourello Nominees Pty Ltd v Begg Dow Priday Advertising Pty Ltd [1986] ANZ Conv R 613; (1986) V Conv R 54-185; Wong v Mura [2001] NSWCA 366, [4] (Priestley JA).

[52] Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418, Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1, 7-9 (Gibbs CJ, Wilson, Brennan and Dawson JJ); Sweeney v Boylan Nominees Pty Ltd [2006] HCA 19; (2006) 226 CLR 161, 181 [61(2)] (Kirby J).

[53] Cf Snook v London & West Riding Investments Ltd [1967] 2 QB 786, 802 (Diplock LJ); Sharrment Pty Ltd v Official Trustee in Bankruptcy [1988] FCA 179; (1988) 18 FCR 449, 454 (Lockhart J); Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243, 245 (Lockhart J), 253 (Hill J).

[55] [1947] KB 130.

[56] [1964] 3 All ER 556.

[57] [2004] NSWSC 748, [169].

[59] [1999] HCA 10; (1999) 196 CLR 101.

[62] Reasons [762], citations omitted.

[63] [1862] EngR 908; (1862) 4 De G F & J 517; 45 ER 1285.

[64] Ibid [943], Henderson v Myles (No 2) [2005] NSWSC 867 [72] citing Young CJ in Eq.

[65] [1988] HCA 7; (1988) 164 CLR 387.

[66] [1988] HCA 7; (1988) 164 CLR 387, 413 (Brennan J).

[67] (1990) 170 CLR 395, 443.

[68] (1990) 170 CLR 395, 412.

[73] [1999] HCA 10; (1999) 196 CLR 101, 125 [50].

[74] Cf Cobbe v Yeoman's Row Management [2008] UKHL 55; [2008] 1 WLR 1752, 1761 [14] (Lord Scott).

[75] Reasons [952], citations omitted.

[76] [1936] HCA 40; (1936) 55 CLR 499; see also Norbis v Norbis [1986] HCA 17; (1986) 161 CLR 513, 518 (Mason and Deane JJ); AMP General Insurance Ltd v WorkCover Authority & Ors [2006] VSCA 236; (2006) 15 VR 175, 181 (Maxwell P and Neave JA); cf Flinn v Flinn [1999] VSCA 109; [1999] 3 VR 712, 750 [19] (Brooking JA).

[77] October 2006, particulars of loss.

[79] Reasons [762], citations omitted.

[80] Reasons [845], citations omitted.

[81] (1986) FLR 55, 62 (Kelly J).

[87] [1988] HCA 7; (1988) 164 CLR 387.

[92] Reasons [727], citations omitted.

[93] Reasons [312], citations omitted.

[94] Reasons [477], citations omitted.

[95] Reasons [598], citations omitted.

[98] Reasons [603], citations omitted.

[99] Reasons [731], citations omitted.

[101] Reasons [931], citations omitted.

[102] Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494, 513 ( McHugh, Hayne and Callinan JJ).