The appeal to this Court
28 Taking issue with the determination by the Tribunal, the insurer as applicant filed an application for extension of time in which to appeal on 27 January 2017. The application was placed on the Insurance List and the first case management hearing was held on 27 March 2017. At that hearing, the applicant and Mr Lancaster were represented by counsel and solicitors. Maritime Super, as the second respondent, did not appear and has not entered an appearance at any stage of these proceedings.
29 At the conclusion of the hearing, I made orders extending the time in which to file a notice of appeal, and a notice of appeal was filed by the applicant on 28 March 2017. Counsel for the first respondent indicated at the hearing that Mr Lancaster did not wish to participate in the appeal, and he was excused from any further attendance. The applicant was required to file submissions and the material upon which it sought to rely and provision was made for the filing of material by the second respondent if it was minded to participate. It did not file any material. Subject to the parties requesting an oral hearing, I reserved the matter to be dealt with on the papers.
30 The grounds of appeal relied upon by the applicant were principally focused on the proper construction of the policy and, as set out in the notice of appeal, were as follows:
1. The Tribunal erred in law in failing to find that the relevant decision for the purposes of section 37(2) of the Superannuation (Resolution of Complaints) Act 1993 was the decision by the Applicant to calculate the Monthly Benefit in accordance with the terms of the Policy.
2. The Tribunal erred in law in failing to find that upon the proper construction of the Policy, the Monthly Benefit payable by the Applicant in respect of the First Respondent was the Amount Insured by reference to the Income last notified to the Applicant as at the date the applicant ceased employment as a result of his injury.
3. The Tribunal erred in law in failing to have regard to the effect of clause 5.8 of the Policy.
4. The Tribunal erred in law by having regard to an irrelevant consideration, viz the effective date of the increase in the First Respondent's salary.
5. The Tribunal erred in law in finding that the effective date of the increase in the First Respondent's Income was a relevant consideration for the Applicant to have made inquiries about.
6. The Tribunal erred in law in finding that the effective date of the increase in the First Respondent's Income was a relevant consideration for the purposes of the Tribunal determining what was fair or reasonable as between the Applicant and First Respondent.
7. The Tribunal erred in law by finding that the Applicant was liable to pay interest on a compounding basis, which basis is contrary to the effect of section 57 of the Insurance Contracts Act 1984 and regulation 32 of the Insurance Contracts Regulations 1985.
31 An appeal to this Court under s 46(1) of the Act lies only in respect of a question of law. The applicant submitted that the grounds of appeal it relied upon were, in substance, allegations of a failure by the Tribunal to properly construe the terms of the policy. It was submitted that the proper construction of a contract of insurance is a question of law, relying upon Federation Insurance Ltd v Banks [1984] VR 525 at 533 per Kaye J, and so the issues were within the scope of the appeal allowed for by s 46(1). I accept that questions of whether the Tribunal misconstrued the terms of the policy and made a determination contrary to those terms amount to questions of law in this context.
32 The applicant's principal submission was that the Tribunal had erred in setting aside the decisions under review as the determination made by the Tribunal was inconsistent with the terms of the policy. Reference was made to s 37(5) and (6) of the Act and also to my decision in Retail Employees Superannuation Pty Ltd v Crocker [2001] FCA 1330; 48 ATR 359 at 366- 367 [27]-[33], where I discussed the relationship between the terms of an insurance policy and the task of the Tribunal in determining whether a decision made by a trustee or insurer is fair and reasonable in the context of a complaint under the Act. In Crocker [2001] FCA 1330; 48 ATR 359, I outlined the essential principles regarding this interrelationship as follows:
[27] The task of the Tribunal and the meaning of the phrase "unfair or unreasonable" are inextricably intertwined and both are governed by the Act, and, especially, by s 37. It is the decision of the Trustee, recognising its obligation to act in conformity with the governing rules of the fund, and the decision of the Insurer, recognising its obligation (and entitlement) to act in conformity with the terms of the relevant policy, which must be reviewed for unfairness or unreasonableness. The unfairness or unreasonableness must be of the decision (as expanded by s 4) under, and in conformity with, the governing rules or the terms of the policy. It is not some other perceived (rightly or wrongly) unfairness or unreasonableness in and about the conduct of the fund.
[28] The question as to whether a decision was unfair or unreasonable cannot be judged otherwise than by having regard to the conformity of the decision with the governing rules of the fund and the terms of the policy. The conformity of the decision with those matters is therefore a relevant consideration in the sense discussed in Minister for Aboriginal Affairs v Peko-Wallsend (1986) 162 CLR 24 at 39-40 and see Telstra Corp Ltd v Seven Cable Television Pty Ltd (2000) 178 ALR 707 (special leave refused on 20 August 2001). If conformity with the governing rules or the terms of the policy required the very decision, which was made, to be made, the strictures of subs 37(5), the universe of possible conduct under subs 37(3) and the balance of the Act, including subs 37(6), would require a conclusion of the Tribunal that the decision was not unfair or unreasonable. It could not be otherwise, as it would, on this hypothesis, be the only decision capable of being reached by the Trustee or the Insurer in the light of the governing rules or terms of the policy; or, put another way, any determination under para 37(3)(b), para 37(3)(c) or para 37(3)(d) would involve the Tribunal doing an act contrary to the governing rules or the terms of the policy.
[29] It may be that a decision of a trustee or an insurer is in conformity with, but not required by, the governing rules of the fund or the terms of the policy. This may be because the decision could be described as one of a discretionary character: see s 14AA of the Act and Merkel J in Collins v AMP, supra at 578-79. For myself, I would prefer not to use any dichotomy between discretionary and non-discretionary decisions as a tool in this analysis. I do not think that the presence of s 14AA mandates it. The presence of s 14AA is to be understood for reasons other than any which make the terminology used within it a compulsory tool for analysis of the understanding by the Tribunal of its task: see National Mutual v Campbell, supra at 568-70 [21] to [30] and Seafarers' Retirement Fund v Oppenhuis, supra at 596-98. It may be that the decision of a trustee or an insurer is in conformity with, but not required by, the governing rules or policy terms not because there was involved any exercise of discretion, properly so-called, but because the decision was one which so involves elements of fact, degree, opinion or value judgment that different minds can legitimately differ in reaching a decision or because one aspect of the rules or policy terms, but not another, has been the foundation of the decision. A decision of a trustee or an insurer about a matter of judgment, for instance one involving weighing competing expert or lay opinion about a state of affairs, might be lawful and in conformity with the governing rules and policy terms. It might be described as "correct" in that it was the product of an inquiry directed to the right question and in that there was material available to support it. In this, perhaps limited, sense the decision was correct and was open to be made. However, the Tribunal is not engaged in a form of judicial review. It reviews the decision (as expanded by s 4) complained of from the position of the trustee or insurer (paras 37(1)(a) and 37(2)(b)). The Tribunal may find, in its opinion, in some degree (see subs 37(4)), the decision to be unfair or unreasonable and may act under subs 37(3) to give effect to its view of the merits as long as subs 37(5) is not infringed. It seems to me that this analysis accords with the approach described by the Full Court in National Mutual v Campbell, supra at 570-71 [32] and [33] and see also Kirby J in Attorney-General v Breckler (1999) 197 CLR 83 at 129 [88]. It seems to me that the very use of the words "unfair" and "unreasonable" in their breadth, individually and in the composite phrase "unfair or unreasonable", supports this view: see, in other contexts, George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 at 815-16, and Samuels JA in Antonovic v Volker (1986) 7 NSWLR 150 at 154-55.
[30] … In many cases, for non-discretionary questions, the governing rules or policy terms will only yield a single result.
[31] The Tribunal's task is not to engage in ascertaining generally the rights of the parties, nor is it to engage in some form of judicial review of the decision of the trustee or insurer. Rather it is to form a view, from the perspective of the trustee or insurer, as to whether the decision of either was (recognising the overriding framework given by the governing rules and policy terms, respectively) unfair or unreasonable.
[32] Thus, essential to the task before the Tribunal, as a consideration mandated by the terms of s 37, is an inquiry as to whether the decision by the trustee or insurer was in conformity with the governing rules or the terms of the policy. If the Tribunal finds that the decision is contrary to the governing rules or the terms of the policy it may well be an easy step to conclude that it is unfair or unreasonable. I do not need to decide whether a finding by the Tribunal that the trustee's or insurer's decision was contrary to the governing rules or policy terms required a finding of unfairness or unreasonableness: cf Merkel J in Collins v AMP, supra at 578-579 and Sundberg J in Wilkinson, supra at 492. If the Tribunal finds that the decision of the trustee or the insurer is in conformity, with and required, by the governing rules or policy terms, in the sense which I have discussed above, it cannot other than find or be satisfied that the decision is fair and reasonable. If the Tribunal finds that the decision of the trustee or the insurer is in conformity with, but not required by, the governing rules on policy terms, in the sense which I have discussed above, it may proceed, in effect, to supplant the decision of the trustee or insurer with its view of the merits, bearing in mind the limitations of subs 37(4) and subs 37(5).
[33] Certainly, what the Tribunal is not entitled to do is to make a determination reflecting its view of the rights of the parties inter se, if that is contrary to the terms of the governing rules or policy terms.
33 The principles outlined in that passage have been adopted by judges of this Court on a number of subsequent occasions: see, eg. Alcoa of Australia Retirement Plan Pty Ltd v Thompson [2002] FCA 256; 116 FCR 139 per Nicholson J; Cameron v Board of Trustees of the State Public Sector Superannuation Scheme [2003] FCAFC 214; 130 FCR 122 per Whitlam, Kiefel and Dowsett JJ; Hornsby v Military Superannuation & Benefits Board of Trustees (No 1) [2003] FCA 54; 126 FCR 484 per Mansfield J; Noel v Cook [2004] FCA 479 per Bennett J; Board of Trustees of the State Public Sector Superannuation Scheme v Edington [2011] FCAFC 8; 119 ALD 472 per Kenny and Lander JJ; Mercer Superannuation (Australia) Ltd v Billinghurst [2016] FCA 1274 per Moshinsky J.
34 Within this framework, the applicant submitted that the determination made by the Tribunal was inconsistent with the terms of the policy and so transgressed upon the boundaries imposed on the Tribunal's proper task by s 37(5) and (6).
35 It was submitted that cl 5.8(f) of the "General Conditions" of the policy, set out at [21] above, applied in Mr Lancaster's case, and that the Tribunal's determination was inconsistent with this clause properly construed. Clause 5.8(f) provided that where the "Amount Insured" increased by more than 30% in the previous 12 months, coverage of the increased amount only commences upon the insurer accepting the risk following an application by Mr Lancaster as the insured, or upon the insurer advising the trustee of acceptance by Mr Lancaster of any special terms or conditions applied by the insurer. The applicant submitted that the change in the "Amount Insured" from one calculated by reference to his previous salary of $44,849 as compared to one calculated by reference to his increased salary of $97,000 was a change of more than 30% in the "Amount Insured" and that the requisite steps to obtain coverage of the increased amount had not been taken prior to Mr Lancaster's disablement.
36 Furthermore, the applicant highlighted that according to the "Policy Schedule", the "Benefit will be determined as at the date that the Insured Member ceased employment as a result of an Injury or Sickness". This date was 3 May 2013. It was after the salary increase, but before any notification of that increase was made to the applicant. Accordingly, there could be no increase in coverage and so the benefit fell to be calculated based on Mr Lancaster's previous salary as notified to the applicant.
37 Clause 5.8(f) was headed "Commencement of Cover". It outlines where particular cover under the policy commences, and so can correctly be seen to be critically important to whether Mr Lancaster was entitled to benefits calculated according to his original or increased salary. Clause 5.8(f) in its terms is clear that a change in the "Amount Insured" by more than 30% did not take effect until notification is made to the insurer and the increase is accepted. Whether the insurer would have accepted the increase as a matter of course is not the right question. The question is the proper construction of the clause, as this sets the parameters for the Tribunal's exercise of its powers. Properly construed, as the increase in the "Amount Insured" would be more than 30% the increased cover did not commence until these events had occurred. They had not occurred at the date of Mr Lancaster's disablement.
38 In support of its preferred construction, the applicant also submitted that this result was consistent with the effect of other clauses contained within the policy and that properly construed these clauses provided that any increase in coverage following notification of an increase in income is to take effect from the date of notification of that increase to the insurer, rather than the actual date of increase. Reference was made to the following other clauses:
Clause 4.3(c), one of the "Eligibility Conditions", which provided that any increase in coverage due to changes in income after 30 June 2012 would be subject to the insured member providing "Evidence of Insurability" to the insurer;
Clause 5.7(a), one of the "General Conditions", which provided that where there was an increase in the "Amount Insured" by more than 30% in the past 12 months, the insured member must make an application for increased cover and provide, amongst other material, "Evidence of Insurability";
Clause 5.8(g), one of the "General Conditions" , which provided that where there was an increase in the "Amount Insured" due to an increase in income but that increase does not exceed 30%, the increase still only takes effect from the date of notification of the increase in income, although Evidence of Insurability does not need to be provided. It was submitted that it would be inconsistent with this clause if, in respect of an increase in coverage of more than 30%, notification did not have to occur before the increase could take effect.
39 Considered in the context of the policy as a whole, the intention appeared to be that increases in coverage due to an increase in income will not simply occur automatically, and there must be some notification or additional step taken. This is consistent with the construction of cl 5.8(f) reached above.
40 It is clear, therefore, that properly construed cl 5.8(f) required an application to be made to the applicant, and for that application to be accepted, before Mr Lancaster's coverage could be increased due to his increased salary. The benefit payable to him therefore fell to be determined based on the salary recorded, and accepted, by the applicant at the date of his disablement, this being the actual "Amount Insured". As noted above, the Tribunal itself accepted that the insurer had correctly calculated the benefit payable to Mr Lancaster in accordance with the policy when it did exactly that.
41 Accordingly, I am satisfied that the determination of the Tribunal to set aside the decisions of the insurer and Maritime Super and substitute a benefit calculated by reference to Mr Lancaster's increased salary as if the increased coverage had been accepted was inconsistent with the terms of the policy, properly construed, and principally with cl 5.8(f). As I stated in Crocker [2001] FCA 1330; 48 ATR 359 at 367 [31]-[33], the Tribunal cannot make a determination that is contrary to the terms of the relevant insurance policy. The decisions of the insurer and Maritime Super were consistent with the policy, and indeed were required by cl 5.8(f) of it.
42 Despite this, I accept how Mr Lancaster may justifiably have a sense of grievance about the handling of his claim by the applicant and Maritime Super, and in the approach of his then employer to notifying both of these parties of his increased salary, the policy being owned by Maritime Super as trustee and being entered into for Mr Lancaster's benefit as a member of the Maritime Super Fund. This dispute may not involve a large sum of money to the insurer, though, if I may respectfully say so, from the point of view of Mr Lancaster it might. Within this context, the determination of the Tribunal can be well understood. The observations made by the Tribunal that it was reasonable to assume that the employer informed the applicant and for the applicant to make inquiries are legitimate and pragmatic ones. However, I return to what I said in Crocker [2001] FCA 1330; 48 ATR 359 at 367 [33] that whatever the Tribunal's "view of the rights of the parties inter se" it cannot make a determination reflecting this view "if that is contrary to the terms of the governing rules or policy terms". The Tribunal erred in making a decision that was inconsistent with the terms of the policy, properly construed.
43 The argument of this appeal was limited by the fact that neither of the respondents participated. The submissions of the applicant were directed solely to issues of construction. I accept they have been of substantial assistance and that they have put forward the proper construction of the policy. However, it may be that several issues regarding provisions of the Insurance Contracts Act 1984 (Cth) potentially arise in a case such as the present. The first of these relates to the "unusual terms" provision in s 37 of that Act. It provides that an insurer may not rely upon a contractual provision "of a kind not usually included in contracts of insurance that providing similar insurance cover unless, before the contract was entered into, the insurer clearly informed the insured in writing of the effect of the provision…". I am not suggesting that cl 5.8(f) or any of the similar terms would be an unusual term within s 37. There was no argument or evidence to that effect on this appeal and the difficulties of establishing a clause as such can be seen in cases such as Dumitrov v SC Johnson & Son Superannuation Pty Ltd [2006] NSWSC 1372 at [12]-[18] per Gzell J.
44 Secondly, there is a question as to whether s 53 of the Insurance Contracts Act 1984 (Cth) might have been said to be potentially relevant. Section 53 provides that where a provision in an insurance contract permits the insurer to unilaterally vary the contract to the prejudice of a person other than the insurer, the provision is void. There may be have been an issue as to whether the clauses relating to the commencement of increased coverage have this effect, in particularly cl 5.8(f) in that it permitted the insurer to determine unilaterally whether it accepted the increased risk presented by an insured's salary increase and that such increased cover only commenced upon that acceptance.
45 These provisions were not the subject of submissions. It is therefore not appropriate to express a concluded view as to the relevance of these provisions or indeed the prospects of an argument based upon them being successful. However, I highlight them as issues that could have potentially been relevant in this appeal and, indeed, before the Tribunal in determining whether the decisions were fair and reasonable, within the parameters of the law and terms of the policy.
46 While strictly unnecessary to deal with given my conclusion regarding the Tribunal's determination, the applicant also contended that the Tribunal erred by holding that Mr Lancaster was entitled to compound interest under s 57 of the Insurance Contracts Act 1984 (Cth). Regulation 32 of the Insurance Contracts Regulations 1985 (Cth) sets out how interest is to be calculated under that section. The general position is that simple interest is to be awarded under those provisions in respect of sums withheld, not compound interest: see Nguyen v QBE Insurance Ltd [2007] SASC 454; 215 FLR 447 at 451-452 [27]-[30] per Duggan J; Dumitrov v S C Johnson & Son Superannuation Pty Ltd (No 2) [2007] NSWSC 42 at [22]-[33] per Gzell J. Therefore, the applicant's submission on this point can also be accepted.
47 It was conceded by the applicant that, as Mr Lancaster did not defend the appeal, s 46(5) of the Act requires that there be no order for costs against him. Accordingly, there will be no order as to costs.