Hannover Life Re of Australasia Limited (ACN 062 395 485) v Farm Plan Pty Limited

REASONS FOR JUDGMENT 1 This is an appeal from a decision of the Superannuation Complaints Tribunal. The "appeal", limited to a question of law, is made pursuant to s 46(1) of the Superannuation (Resolution) of Complaints Act 1993 (Cth) ("SRC Act"). At material times (Hannover) was an insurer registered under the Life Insurance Act 1945 (Cth) and Life Insurance Act 1995 (Cth). On 29 April 1994, pursuant to a scheme of arrangement approved by this Court, the applicant assumed the rights and liabilities under policies of life insurance issued by NRG Victory Australia Limited ("the Insurer"). 2 The first respondent (the Trustee), as successor to the original trustee, is Trustee of a "superannuation fund" ("the Plan") established by a deed ("the Trust Deed") dated 1 January 1988. The founder of the Plan was Federation Life Insurance Limited ("Federation"). The original Trustee of the Plan appeared to be a company associated with Federation. Federation issued a "group term insurance policy" to the Trustee for the purposes of the Plan. 3 The second respondent (Mrs Ralph) is the personal representative of the estate of her deceased brother, Mr Hutchinson, who became a Member of the Plan on 28 October 1992 and died on the 17 December 1994. 4 By a Master Policy ("the Policy"), issued on 28 February 1992, the Insurer undertook to pay to the Trustee of the Plan benefits in respect of the death or total and permanent disablement of a "Life Insured". A "Life Insured" was defined as a "Member" who had been accepted by the Insurer as a Life to be insured under the Policy. A "Member" was defined by the Policy as "Sponsored Employee" or "Non-sponsored Person" accepted by the Trustee as a Member of the Plan. A Sponsored Employee was defined in the Policy as "a Member in respect of whom an Employee makes contributions to this Plan" and Non-sponsored Person as "a Member in respect of whom no Employer makes contributions to the Plan". 5 On 28 October 1991 the Trust Deed was amended by a Deed made by the then Trustee of the Plan, consented to by the then Founder of the Plan, Switzerland Superannuation and Life Limited. The amendments substituted new substantive provisions in the Trust Deed. Under the amended provisions a Member was an Employer-Sponsored Member, or Non-Employer Sponsored Member, whom the Manager admitted as a Member of the Plan. An Employer-Sponsored Member was defined as a Member whose Employer is contributing to the Plan at the relevant time. A Non-Employer Sponsored Member was defined as a Member who is not, at the relevant time, an employee or whose Employer (if any) is not contributing to the Plan. 6 The Manager of the Plan, introduced by the amendments referred to above, was the then Founder, Switzerland Superannuation and Life Limited. Whether Switzerland was also an insurer to the Plan is unknown. The then Trustee, and Switzerland Superannuation and Life Limited shared common directors. By 1 July 1994 the Founder and Manager (also described as Administrator) of the Plan, had become Financial Synergy Pty Ltd ("Financial Synergy"). Again the then Trustee and Financial Synergy appeared to have common directors. 7 The significant parts of the amended Deed read as follows: "7.1 A participating Employer, or any other person authorised by the Act to make contributions to the Plan, may contribute to the Plan in respect of a Member such amount as is agreed between the Member and the Participating Employer from time to time provided that the maximum contribution made in any period shall not exceed the maximum permitted under the Act, to enable the Plan to obtain the maximum income tax concessions available to superannuation funds. Employer contributions shall be credited to the Employer's Contribution Account or Member's Industrial Award Account, as is appropriate. … 7.5 The Manager shall refuse to accept contributions, in respect of a Member: (a) if the Member: (i) has ceased for a continuous period of 2 years to be Employed or Self-Employed on a Part-Time Basis or Full-Time Basis, but (ii) has not retired from the workforce, unless the contributions are made by an Employer pursuant to an industrial agreement or award; or (b) if the Member has retired from the workforce. … 9.1 (a) The Trustee shall invest the whole or any part of the amount standing to the credit of a Member in the Member's Accounts in the payment of premiums of a policy or policies of life, disability or accident insurance in which the Trustee has a legal or equitable interest or in payment of the consideration for an annuity. (b) The Trustee shall effect such policies or annuities with such company or companies and on such terms and conditions and for such periods as the Trustee thinks fit. (c) The Trustee shall have the power to accept an assignment of a policy of life, disability or accident insurance or of any annuity on such terms as the Trustee in its absolute discretion determines. 9.2 The premiums for such policies or consideration for such annuities shall be paid for out of the amount standing to the Member's credit in the Employer's Contribution Account and/or the Industrial Award Contribution Account and/or the Supplementary Contribution Account and/or the Rollover Account and/or the Member's Contribution Account. The proceeds of such policies shall be credited to the Employer's Contribution Account and/or the Industrial Award Contribution Account and/or the Supplementary Contribution Account and/or the Rollover Account and/or the Member's Contribution Account in the same proportion as premiums for such policies were paid from those accounts. 9.3 The Trustee shall have power to continue such policies or annuities for such periods as the Trustee thinks fit and to discontinue or surrender such policies or annuities. 10 The Manager and the Trustee, between them, shall keep a complete record of all matters essential to the administration of the Plan including: … (b) an Employer's Contribution Account for each Employer Sponsored Member… (iv) amounts debited to such account to pay premiums on policies of insurance… (c) an Industrial Award Contribution Account for each Member in respect of whom contributions are made pursuant to an industrial award… (iv) amounts debited to such account to pay premiums on policies of insurance… … 13.1 In the event of the death of a Member before retirement, the amount of the Member's Benefit shall be held by the Trustee upon trust for the benefit of such one or more of the Member's Dependants, to be paid in a lump sum in such shares and proportions as the Manager, in its absolute discretion, determines. 8 The Member's benefit referred to in cl 13.1 is defined as follows: "The net amount then standing to his credit in the Employer's Contribution Account…" 9 It was not in issue that the deceased was a Member whose estate was entitled to the Member's Benefit. 10 On the death of Mr Hutchinson a claim was made by Mrs Ralph for payment of the Member's Benefit payable under the Plan. The Trustee declined to pay any amount by way of a death benefit payable under the Policy, stating that the deceased was "not insured" at the time of death "as the last contribution payment was paid on 5 July 1994 and with a three month period of grace, death cover ceased on 4 October 1994". The Trustee appeared to base its decision on advice received from the Insurer to the effect that "as the last contribution was received on 5 July 1994…the member was not financial. We have therefore withdrawn this claim". 11 Mr Hutchinson's Member's Account as administered by the Trustee showed that as at the date of death an Employer's contribution to the plan had been made on Mr Hutchinson's behalf on 5 July 1994. Between 30 June 1994 and 17 December 1994 a "Group Life Premium" had been deducted, shown as a calculation of $6.50 for "13 weeks @ 0.50˘ per week". The balance of the account as at 17 December 1994 was shown as $407.03. 12 Ms Ralph lodged a complaint with the Tribunal pursuant to s 14 of the SRC Act in respect of the decisions of the Trustee and of the Insurer. Pursuant to s 18 of the SRC Act, the Tribunal directed that the Insurer be joined as a party to the complaint. 13 The Tribunal determined under s 37 of the SRC Act that the decision of the Insurer, and of the Trustee, was unfair and unreasonable in their operation in relation to the second respondent. The respective decisions were set aside and decisions substituted which required the Insurer to pay to the Trustee the "insured benefit" less any premium unpaid to the date of death, plus interest from the date of death to the date of payment. The Trustee was required to distribute to Mrs Ralph the balance of the deceased's Member's Account plus "the insured component" of the death benefit and interest at "the fund crediting rate" from the date of death to the date of payment. 14 On the hearing of this "appeal" the Trustee did not seek to have its decision re-instated and submitted that the Tribunal had determined the complaint correctly. 15 The principal issues on the "appeal" involve construction of the Policy and whether the terms of the Policy had been amended by the Insurer. 16 Before looking to the terms of the Policy it is necessary to have regard to the nature of the Plan and the arrangements for its administration. The Plan was designed to provide superannuation benefits to be paid to a worker after retirement from the workforce, and death or disablement benefits to be paid for events which occurred prior to retirement. Members of the Plan were to be employees or self-employed persons. An employer of an employee paid the contribution to the Plan required by the Plan. A self-employed person, of course, paid such contributions on his own account. An employee was not required to pay any contribution to the Plan but could a voluntary payment. Historically the Plan was established by an insurer to be administered by a trustee associated with the insurer. 17 Before turning to the issue whether the Policy had been amended, as submitted by Hannover, it is necessary to have regard to the terms of the Policy in respect of the payment of premiums and the provision of insurance. 18 The Policy provided as follows in Condition 2 under the heading "Commencement of Insurance": "On or before each Entry Date the Policyowner shall notify [the Insurer] in writing in such form as [the Insurer] shall require of all Members who are to become Lives Insured in accordance with the Trust Deed as from the Entry Date stated in such notification and of any increase or decrease in the Sum Insured required in accordance with the provisions of the Trust Deed. Such notification shall constitute an application for [the Insurer] to effect a Sum Insured for or increase the existing Sum insured to the amount stated in such notification. The notification shall contain such details of the Members as [the Insurer] may from time to time require. Such statements shall be accompanied by such other notifications, statements and evidence as to the health and special hazards applicable to such Member as [the Insurer] shall require. After considering such notifications, statements and evidence [the Insurer] shall decline the insurance applied for in relation to that Member or accept it as the Base Premium or subject to a Loading. On acceptance by [the Insurer] of a part or all of the insurance applied for and on payment of the appropriate Instalment Premium, the insurance applied for shall commence." 19 The terms "Member"; "Entry Date"; "Life Insured"; "Instalment Premium"; "Premium"; and "Base Premium" were defined as follows: "'Member' means a Sponsored Employee or Non-sponsored Person who has been accepted by the Policyowner as a Member of the Plan" "'Entry Date' means in respect of a Member the date advised by the Policyowner as being the date from which insurance is required." "'Life Insured' means a Member who has been accepted by [the Insurer] as a life to be insured under this Policy and who has not previously received a Benefit under this Policy. 'Lives Insured' shall have a corresponding meaning." "'Instalment Premium' means the periodical amount payable in accordance with Condition 8." "'Premium' means the Base Premium increased by any Loading applicable and adjusted in accordance with the notes to the Third Schedule and payable by the Policyowner to [the Insurer] for the provision of Benefits under this Policy." "'Base Premium' means the base premium payable in respect of a Life Insured for the Review Period being that calculated from the appropriate table and column of the Third Schedule based on the Sum Insured in force and the age of the Life Insured at the commencement of that Review Period and the type of insurance cover required." 20 Condition 8 of the Policy was headed "Premium Adjustment" and provided as follows: "Premiums are payable when due except that where premiums are payable in respect of an Employer, a premium adjustment may be calculated by [the Insurer] at the completion of each Review to take into account: (a) Changes in the amounts of Sums Insured in the preceding Review Period; (b) Members who became Lives Insured during the Review Period; and (c) Lives Insured who ceased to be insured under this Policy during the Review period excluding Lives Insured who received a Benefit under this Policy and Lives Insured who are no longer Actively at Work, pending assessment of a claim for Total and Permanent Disablement; and the amount of such premium adjustment shall as appropriate forthwith be paid by the Policyowner to [the Insurer], or be applied as an offset against Premiums due at the current or a subsequent Annual Review Date unless the Policyowner requests [the Insurer] to pay any premium adjustment in favour of the Policyowner." 21 Under the heading "Premiums" Condition 7 of the Policy provided as follows: (a) "At the Commencement Date, Entry Date and at each Annual Review Date [the Insurer] shall on the basis of such information relating to the lves Insured as it may require the Policyowner to supply, calculate the instalment Premium to be paid by the Policyowner to insure the Benefits to be provided. (b) 45 days of grace shall be allowed from the Premium Due date for payment of an Instalment Premium to [the Insurer] but where any Instalment Premium remains unpaid at the end of this period the applicable insurance or insurances hereunder shall cease and determine except any Benefit payable under an insurance as a result of any event occurring before the said Premium Due Date. (c) if any part of a Benefit is accepted subject to a Loading, the premium will be varied accordingly." 22 The "Annual Review Date", as defined in the Policy, appeared to be 30 June each year. "Premium Due Date" was defined as the date on which any Instalment Premium is due as specified in the Policy. The date specified was the last day of each calendar month in each Review Period. 23 "Review" and "Review Period" were defined respectively as follows: "'Review' means the recalculation of Sums Insured and Premiums effective at the Annual Review Date based on the information supplied by the Policyowner." "'Review Period' means, the period between two consecutive Annual Review Dates except that the last Review Period shall be the period from the Annual Review Date applicable to the Policy immediately preceding the Termination Date to the Termination Date." 24 The Third Schedule to the Policy set out "Group Life Rates per $100,000 per Annum" for the Plan. The rates were less for Sponsored Employees than for Non-sponsored Persons. 25 Under the heading "Cessation of Insurance", Condition 6 of the Policy provided as follows: "Insurance in respect of a Life Insured shall cease on the earliest of the following events: (a) Insurance in respect of a Life Insured shall cease on the earliest of the following events: (a) the attainment by the Life Insured of the Normal Retirement Date; (b) 30 days after termination of employment with the Employer in the case of a Sponsored Employees or cessation of Gainful Employment in the case of a Nonsponsored person except where the Policyowner submits to [the Insurer] before such termination of employment or cessation of Gainful Employment a claim in respect of the Life insured for Total and Permanent Disablement Benefit in which case insurance shall continue until the claim is either first admitted or declined by [the Insurer]. PROVIDED THATinsurance shall not be extended beyond the date on which the Life Insured attains the Normal Retirement Date; (c) non-payment of an Instalment Premium in respect of the Life Insured within 30 days of its Premium Due Date; (d) the Life Insured ceasing to be a Member; (e) payment of a Benefit under this Policy; and (f) termination of this Policy. (g) the member ceasing to be Life Insured. (h) in respect of Total and Permanent Disablement insurance, the attainment of age 65 for a Life Insured who is a Sponsored Employee and age 60 for a Life insured who is a Non-sponsored Person." 26 Condition 15.1 of the Policy provided the following under the heading "Termination of Policy". "This policy shall terminate if:- (a) all Instalment Premiums have become unpaid for at least 45 days following their Premium Due Date or Premium Due Dates; or (b) subject to the Insurance Contracts Act 1984, [the Insurer] is satisfied that material information has been withheld by or on behalf of the Policyowner and/or fraudulently untrue statement or information have been given to [the Insurer] by or on behalf of the Policyowner; or (c) a notice is given in writing by the Policyowner to terminate the Policy with effect from the next following Annual Review Date; or (d) it is agreed between [the Insurer] and the Policyowner to terminate the Policy at any time; or (e) the Policyowner fails to comply with any of the Conditions of this Policy." 27 The Tribunal did not find it a simple matter to reconcile the provisions of Conditions 2, 6, 7 and 8. With respect to Sponsored Employees, the Policy suggests that premiums are annual sums. It is not clear that the premiums are payable by monthly instalments. 28 The only meaning for "Instalment Premium" defined is the periodical amount payable in accordance with Condition 8. Having regard to the definition of Employer set out in the Policy, the reference to "premiums payable in respect of an Employer" in Condition 8 must contemplate contributions made by an Employer under the Plan from which payments will be made by the Trustee in respect of a Life Insured employed by the Employer. The definition of "Employer" reads as follows: "'Employer' means any person other than a Member admitted as a contributor to the Plan, the inclusion becoming effective as from the date of such admission. Where used in relation to a Life Insured, 'Employer' means the Employer or Employers by which that Life Insured is for the time being employed." 29 In respect of all Life Insured who are Sponsored Employees, as opposed to Non-Sponsored Persons for whom there are no employer contributions, the Trustee may pay an annual adjustment if the amount paid in the year has been less than required by the Policy for the insurance cover provided thereunder. 30 There is no question that at all material times the deceased had a sufficient sum standing to his credit in his Member's Account to permit the Trustee to discharge the obligation imposed on it by cl 9 of the Trust Deed to make such payment as was required to discharge payment of the premium payable for the insurance provided by the Policy. The amount of annual premium payable on behalf of the deceased was approximately $30. 31 There was a paucity of evidence before the Tribunal as to how the Trustee discharged its obligations in respect of the payment of premiums. The Plan was designed primarily to cover workers engaged in rural industries, often in casual employment, and to establish a fund and trustee to receive the superannuation contributions Employers were required by law to make on behalf of such employees. A director of the then Trustee was the joint national secretary of a federally registered union with responsibility for pastoral industry matters. 32 The Tribunal stated that to the knowledge of the Trustee and the insurer, the Plan involved "numerous Employers who inevitably will forward payments in a manner which is somewhat erratic and unpredictable". The Tribunal noted that the record-keeping and administration of the Plan was inadequate and unreliable and suggested that the general administration of the Plan and the Insurance Contract fell short of the standard required to enable the Trustee to act in the best interests of the beneficiaries as required by s 52 of the Superannuation Industry (Supervision) Act 1993 (Cth). 33 From the material before the Tribunal it could be assumed that the insurer participated in receiving payment of the premium by irregular instalments, but, importantly there was no evidence before the Tribunal that the premium paid by the Trustee at the time of the death of the deceased was less than that required under the Policy for the insurance cover provided or that any amount of premium had been outstanding for any period of time. No conclusion could be drawn that any terms of the Policy providing for cessation of insurance in respect of a Life Insured were either available or acted upon by the Insurer. 34 Furthermore, the claimant under the Policy is the Trustee, as Policyowner, and although Condition 6 states that "insurance in regard of a Life Insured shall cease", the policy remains on foot between the Policyowner and the Insurer. Pursuant to Condition 6 the insurer may rely upon that condition as a ground on which the insurer may refuse to pay a claim made by the Trustee if the Insurer considers that the terms of Condition 6 should be so applied. Condition 6 is to be given no greater force than cl 15.1(e) which states that the policy shall terminate if the Policyowner fails to comply with any conditions of the Policy. Obviously, termination of the Policy on that ground would be a matter in the discretion of the Insurer. 35 If the terms of the Policy are so construed, the provisions of s 54(1) of the Insurance Contracts Act 1984 (Cth) prevent the Insurer from refusing to pay the claim where the omission of the Trustee to pay the relevant premium is relied upon by the Insurer as the ground for refusal to pay the claim. Pursuant to s 54(1) the Insurer's liability is reduced by the amount that fairly represents the extent to which the Insurer's interests were prejudiced as a result of that omission. In the instant case, it is plain that if Condition 6 applies, it is the omission of the Trustee that has caused that circumstance. It does not appear that the Insurer is able to point to any prejudice it suffered that is capable of quantification in monetary terms. 36 I turn now to the alternative argument of the Insurer that the Policy was "amended" in November 1992. Condition 16.7 of the Policy provided as follows: "A term, provision or condition of this Policy shall not be deemed to be amended, deleted, waived or modified unless it is amended, waived or modified in writing by or on behalf of an officer of [the Insured] authorised so to do. No servant or agent of [the Insured] other than such officer thereto authorised has power to amend, delete, waive, or modify this Policy or any provision of this Policy or to waive any breach of the terms, provisions and conditions of the Policy by the Policyowner, or to bind [the Insured] by making any promise or representation or by receiving any information." 37 The document, in writing, said to constitute an amendment or modification of the policy, was a handwritten document sent by facsimile transmission to Financial Synergy as Manager/Administrator. It read as follows: "…I refer to our previous discussions on the insurance benefits and confirm the following