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

Court of Appeal (Vic)|2008-12-05|Before: BUCHANAN, NETTLE and DODDS-STREETON JJA

INSURANCE - Life assurance - Prosperity Bonds - Premiums and earnings invested in portfolios of assets divided into units - Policyholders entitled to switch between portfolios - Arbitrage profits gained by switching with the benefit of hindsight - Insurer prevented arbitraging by changing from historic to forward pricing of units - Contract - Interpretation - Plain and ordinary meaning - Clause of Prosperity Bonds entitling investor to switch investment between 'Cash Portfolio' and 'Secure Portfolio' on three days' notice to life company - Upon its proper construction, clause did not entitle life company to complete switch before the expiration of notice - Short selling - Upon its proper construction, clause did not entitle investor to switch amount from one portfolio to another unless amount in hand at time of giving notice - Buy/sell price - Upon its proper construction, clause referred to both buying price and selling price of units in portfolios - Historical pricing - Express terms of Prosperity Bond entitling life company to switch from historical pricing to forward pricing - Deduced terms - Implied terms - Alleged deduced terms and implied terms inconsistent with express terms of Prosperity Bonds - No deduced terms or implied terms of Prosperity Bond preventing change from historical pricing to forward pricing - Daily pricing - No express or implied term of Prosperity Bond requiring life company to publish unit prices daily - Agency - Whether third parties insurance intermediaries within meaning of (Cth) - Whether life company bound by representations of insurance intermediaries as to continuation of historical pricing - Any such representations inconsistent with express terms of Prosperity Bond and therefore not binding - Dilution - No implied term that life company would add sufficient funds to portfolios to enable investors to continue to arbitrage between portfolios at a profit - Segregation - No express or implied term of Prosperity Bonds prohibiting life company from segregating investors funds from the funds of other policy holders - No entitling investors to complain of breach of contract as between life company and other policy holders - ; referred to - Estoppel - Equitable estoppel - Minimum equity - Minimum equity not exceeding any detriment suffered - Appeal allowed in part.

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

The appeal is allowed in part.
It is declared that the second paragraph of cl 1.8 of the Prosperity Bond policies entered into by the plaintiffs, upon its proper construction, means 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;
The respondent was not permitted to effect the switch until the expiration of the notice;

The Coneview investor was entitled to revoke the notice at any time before its expiration;

If not so revoked, upon the expiration of the notice, the respondent was bound to give effect to the switch.

2 It is now further ordered and declared as follows:

It is further declared that the term 'unit price' in the second paragraph of cl 1.8 refers to both the buying price and the selling price such that, in the case of a switch, the buying and selling prices are those which apply at the date of giving the notice of intention to switch, as those prices are to be determined in accordance with the terms of the Prosperity Bond.

Paragraphs 4, 5 and 6 of the orders made on 15 December 2006 are set aside.

a) The plaintiffs' claims for a declaration that the defendant failed to act in the utmost good faith towards the plaintiffs is dismissed.

b) The plaintiffs' claims for orders that the defendant specifically perform the Prosperity Bond policies in accordance with the terms alleged by the plaintiffs is dismissed.

c) The plaintiffs' claims for orders that the defendant recalculate and maintain account balances of the plaintiffs' policies by giving effect to notices of intention to switch and cancellations of those notices after 16 October 2000 is dismissed.

d) The plaintiffs' claims for rectification of clause 1.8 of each plaintiff's policy and the Undertakings/Special Agreements letter to reflect the 21 June 1999 and No Advice letters is dismissed.

e) The plaintiffs' claim that the defendant repudiated the Prosperity Bond policies is dismissed.

The following questions are remitted to the trial judge or, if he not be available to consider the matter further, to another judge of the Trial Division, for determination according to law:

a) Whether the defendant committed any and what breach or breaches of clause 1.8 of the plaintiffs' Prosperity Bond policies.

b) In the case of any breach of clause 1.8, whether the plaintiff in question is entitled to damages for breach of contract in respect of the breach and, if so, the amount of those damages;

c) In the case of any breach of clause 1.8, whether the plaintiff in question is entitled to damages in lieu of specific performance in respect of the breach and, if so, the amount of those damages.

It is directed that the judge to whom the above questions are so remitted for determination shall:

a) determine in light of the evidence already adduced whether it is just and appropriate for the parties to be permitted to adduce any further evidence or should be confined to that already adduced;

b) determine whether any question should be referred to a special referee for decision or opinion and, if so, may refer the question accordingly.

In paragraph 8 of the orders on 15 December 2006, the words 'departure portfolio' shall be replaced with the words 'portfolio from which funds are to be switched'.

The respondent shall pay one quarter of the appellants' costs of the appeal.

The appellant shall pay three quarters of the respondent's costs of the appeal.

The respondent shall pay the appellants' costs of the cross-appeal.

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Judgment (26 paragraphs)

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