Munich Reinsurance Company of Australasia Limited v AMP Limited

Background

1. NM Super is the trustee of the AMP Super Fund. Until recently, RLA (which was previously known as AMP Life Limited and was part of the AMP Group of Companies) provided life insurance benefits to certain members of the AMP Super Fund pursuant to master policies for life insurance between NM Super and RLA. The AMP Group sold a majority of its interest in RLA in June 2020 and the balance in June 2022. RLA reinsured its obligations under the master policies with MRA under a Life Insurance Quota Share Reinsurance Agreement (the Treaty), which was first entered into by RLA and MRA on 27 October 2016. The Treaty required the payment of an upfront commission by MRA to RLA of a total amount of AUD551 million. MRA made a further payment of commission of AUD145 million in 2017, when the level of reinsurance under the Treaty was increased from 50 percent to 60 percent.
2. In 2022, NM Super put out for tender the contract to provide life insurance to members of the AMP Super Fund. Following an unsuccessful attempt by RLA to restrain NM Super from terminating its contracts with RLA, the tender was awarded to TAL Life Limited and the master policies by which RLA provided life insurance to scheme members were terminated, with the result that the Treaty between RLA and MRA was also terminated.
3. In these proceedings, MRA alleges that the defendants (that is, RLA and the AMP Defendants) engaged in misleading and deceptive conduct in relation to its entry into the Treaty and the amendments negotiated in 2017. It also alleges that RLA breached certain warranties in the Treaty and that AMP Services and NM Super committed economic torts including interfering with the contractual relationship between MRA and RLA. It claims losses which include the commissions it paid, the loss of profits it has suffered as a consequence of the termination of the Treaty and the additional costs of doing business arising from termination of the Treaty.
4. RLA has filed a cross‑claim against AMP Services claiming a contractual indemnity and against NM Super claiming that NM Super, by entering into agreements with TAL Life, has breached terms in the master policies entered into between NM Super and RLA. By its amended cross-claim filed on 22 April 2024, it included a claim under s 55(3) of the SIS Act. As I have said, MRA seeks to advance a similar claim in its further amended statement of claim.

The claim under s 55(3) of the SIS Act

1. Section 55(3) of the SIS Act provides: (3) Subject to subsection (4A), a person who suffers loss or damage as a result of conduct of another person that was engaged in in contravention of subsection 54B(1), 54B(2) or 54C(1) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
2. Section 54B provides: Civil and criminal consequences for contravening sections 52 and 52A covenants Section 52 covenants (1) A person must not contravene a covenant that: (a) is to the effect of a covenant set out in section 52; and (b) is contained, or taken to be contained, in the governing rules of a superannuation entity. Section 52A covenants (2) A person must not contravene a covenant that: (a) is to the effect of a covenant set out in section 52A; and (b) is contained, or taken to be contained, in the governing rules of a superannuation entity. Contravention has civil and criminal consequences (3) Subsections (1) and (2) are civil penalty provisions as defined by section 193, and Part 21 therefore provides for civil and criminal consequences of contravening, or being involved in a contravention of, those subsections. (4) A contravention of subsection (1) or (2) does not result in the invalidity of a transaction. (5) This section does not limit the operation of section 55.
3. Section 54C(1) provides: A person must not contravene any other covenant contained, or taken to be contained, in the governing rules of a superannuation entity.
4. Sections 52(1) relevantly provides: If the governing rules of a registrable superannuation entity do not contain covenants to the effect of the covenants set out in this section, those governing rules are taken to contain covenants to that effect.
5. Section 52(2) sets out the covenants referred to in subsection (1). They include a covenant by each trustee of the entity: (a) to act honestly in all matters concerning the entity; (b) to exercise, in relation to all matters affecting the entity, the same degree of care, skill and diligence as a prudent superannuation trustee would exercise in relation to an entity of which it is trustee and on behalf of the beneficiaries of which it makes investments; (c) to perform the trustee's duties and exercise the trustee's powers in the best financial interests of the beneficiaries; (d) where there is a conflict between the duties of the trustee to the beneficiaries, or the interests of the beneficiaries, and the duties of the trustee to any other person or the interests of the trustee or an associate of the trustee: (i) to give priority to the duties to and interests of the beneficiaries over the duties to and interests of other persons; and (ii) to ensure that the duties to the beneficiaries are met despite the conflict; and (iii) to ensure that the interests of the beneficiaries are not adversely affected by the conflict; and (iv) to comply with the prudential standards in relation to conflicts; (e) to act fairly in dealing with classes of beneficiaries within the entity; (f) to act fairly in dealing with beneficiaries within a class; …
6. Section 52A sets out additional covenants where the trustee of a superannuation entity is a body corporate.
7. MRA and RLA each alleges that by terminating the insurance arrangements with RLA and entering into alternative arrangements with TAL Life, NM Super breached certain covenants that are set out in s 52 or that are contained in the governing rules of the AMP super fund. It is not necessary to identify all the breaches. They are said to include breaches of ss 52(2)(b), 52(2)(e) and 52(2)(f).
8. The breaches are said to arise from the fact that (1) termination of the master policies with RLA has exposed NM Super and the assets from which it is entitled to indemnity to claims for compensation from MRA and RLA; (2) in the case of some members, the insurer (RLA) and the terms they selected (the terms offered by RLA) have been replaced by an insurer (TAL Life) and terms (the terms offered by TAL Life) that they did not select; and (3) the terms available to some members (such as the age limit for death cover) are less favourable under the policies offered by TAL Life than were available under the equivalent policies offered by RLA.
9. It is alleged that by reason of those breaches, MRA and RLA have suffered loss. In the case of MRA, that is said to include the commission paid by MRA under the Treaty and the loss of opportunity in the future of earning ongoing profits from premiums and other sums payable to MRA under the Treaty. In the case of RLA, it is said to be the net premium income under the master policies less expenses.
10. The AMP Defendants advance two reasons for why the claims based on s 55(3) of the SIS Act must fail.
11. First, they submit that in construing s 55(3), it is necessary to have regard to the text, context and purpose of the legislation: see SZTAL v Minister for Immigration and Border Protections (2017) 262 CLR 362; [2017] HCA 34 at [14] per Kiefel CJ, Nettle and Gordon JJ. The context in which s 55(3) appears and the purpose of the SIS Act demonstrate that the Act, and s 55(3) in particular, were designed to protect members of superannuation funds, not insurers who provided insurance cover to members of the fund let alone reinsurers of those insurers. The legislative history is said to support that view. Moreover, the structure of Part 6 of SIS Act, which contains ss 52 and 55, is to insert into the governing rules of a superannuation entity covenants to the effect of those set out in s 52 if the relevant rules do not already contain covenants to that effect. Under s 54B "a person" must not contravene such a covenant. Under s 55(3), "a person" who suffers loss as a contravention of such a covenant is entitled to claim damages. "A person" in s 54B must be a person bound by the rules and "a person" in s 55(3) must be a person for whose benefit the covenants are given.
12. Second, the AMP Defendants submit that any loss claimed by MRA and RLA is not loss or damage as a result of conduct of another person that is engaged in a contravention relevantly of subsection 54B(1). There is no alleged causal connection between the breach and the loss and damage for which MRA and RLA seek to recover. Moreover, the construction of s 55(3) for which MRA and RLA contend would place the trustee of a superannuation fund in an impossible position, since in discharging its obligations under s 52 the trustee would have to consider not only the interests of the members of the scheme but also the interests of all third parties who may be entitled to make a claim under s 55(3). That is not what the legislature could have intended.
13. As to utility, the AMP Defendants submit that if MRA and RLA are permitted to pursue their claims under s 55(3) that will add substantially to the costs of the proceedings. They submit that in that event, it is likely they will need to lead lay evidence concerning the decision to put the provision of life insurance to scheme members out to tender and the selection of TAL Life as the successful tenderer as well as expert evidence on the practice of superannuation trustees and on how the terms of cover offered by TAL Life compare with the terms offered by RLA. It is also likely that the AMP Defendants will have to give discovery in relation to those matters. Mr Lovell, the solicitor on the record for the AMP Defendants, says in an affidavit sworn on 5 July 2024 that, while it is not possible at this stage to estimate the costs involved in the additional discovery and evidence, he expects "the parties' costs would be significant and likely total in the millions of dollars". He also expresses the opinion that the evidence and submissions relating to the SIS Act claims would likely add at least 4 to 5 days to the length of the final hearing.

Consideration

1. Although applications to strike out and for summary judgment are discouraged in this list (see Practice Note SC Eq 3, Supreme Court Equity Division - Commercial List and Technology ad Construction List, para 62), I accept that in this case there would be utility in summarily disposing of the claims under s 55(3) of the SIS Act if there is a proper basis for doing so.
2. MRA and RLA point out that RLA pleads in its defence that at the time it allegedly engaged in the misleading and deceptive conduct on which MRA relies, there was no risk or possibility that RLA would terminate the Treaty because, among other things, any such conduct would have involved breach of the covenants implied by the SIS Act which are the subject of its cross‑claim. Consequently, they submit the Court will need to address the scope of s 55(3) of the SIS Act whether or not the claims are permitted with the result that any costs savings are likely to be small.
3. They also submit that the claims under the SIS Act form only a small part of what on any view is a very substantial case. In that context, the utility of dealing with those claims on a summary basis is small.
4. I do not accept those submissions. The issues raised by the defence are substantially different from those raised by the cross-claim and proposed further amended statement of claim. The defence does not require RLA to prove that there has been a breach of s 55(3). Rather, what RLA appears to allege in its defence is that the risk of a breach at the time the Treaty was entered into and varied provided a sufficient basis for thinking at that time that NM Super would not seek to terminate the master policies in the future. Consequently, the defence raises questions about the AMP Defendants' state of knowledge and beliefs at a different time and about different matters (the effect of s 55(3) on its ability to terminate the insurance arrangements NM Super had entered into rather than the thought processes they went through in deciding to change insurers). Moreover, although the AMP Defendants may have to produce some documents in relation to the defence, they will not be required to lead any lay or expert evidence on the matters raised by it, and it is unclear what evidence will need to be led by RLA or MRA on the topic. Consequently, dealing with the matter now may lead to significant costs savings. The fact that the costs of the case will be large in any event is not a reason for not seeking to achieve costs savings if they are available. The case is already a large and complicated one. Claims under the SIS Act will add significantly to its costs and complexity. In my opinion, that provides a sufficient justification for dealing with the claim on a summary basis if there is a proper basis for doing so.
5. I have also concluded that this is an appropriate case in which to strikeout (or not permit) the relevant paragraphs of the pleadings. However, that conclusion does not depend on reading the reference in s 55(3) to "a person who suffers loss or damage" as a reference to a person who relevantly is entitled to the benefits of the covenants in s 52 who has suffered loss or damage. I accept the submissions of RLA and MRA that it is at least reasonably arguable that s 55(3) should be construed broadly so that the reference to "a person" is read as a reference to any person.
6. However, in order to make out a claim under s 55(3) it is necessary for MRA and RLA to prove that they suffered loss relevantly as a result of conduct of NM Super that contravened one or more covenants to the effect of those set out in s 52 or were otherwise contained in or taken to be contained in the governing rules. That requirement is not satisfied simply by proving that (1) they suffered loss as a consequence of NM Super's conduct, and (2) that same conduct amounted to a breach of one or more of those covenants. Rather, what must be proved is a causal connection between the loss and damage and the contravention itself.
7. To put the point slightly differently, the words "conduct of another person that was engaged in in contravention of subsection 54B(1)" in s 55(3) must be read as a compound expression so that the required causal connection must be between not simply the conduct but conduct having a particular quality (that is, conduct that breaches the identified subsections). Any other interpretation seems to me to be untenable. It would mean that a person would be entitled to claim damages that were unconnected with the relevant contravention. In my view, it is plain that that is not what the legislature intended. The whole purpose of s 55(3) and its natural meaning is to give persons who have suffered a loss as a consequence of a breach of one or more of the covenants identified in s 55(3) by reference to ss 54B(1), 54B(2) and 54C(1) a right to recover that loss from a person who breached that covenant or those covenants.
8. MRA and RLA seek to answer these points by pointing out that the question of causation is a factual question that should be left to trial and cannot be dealt with on an application for summary disposal. Moreover, they do plead the necessary causal connection. For example, the proposed further amended statement of claim contains the following allegations: 14.21 By reason of the matters alleged in paragraph 14.20 above [which pleads the relevant conduct] and each of them, NM Super has contravened s 54B(1) of the SIS Act. 14.22 As a result of the conduct of NM Super pleaded in paragraph 14.21 above [MRA] has suffered loss and damage. Particulars [MRA] has suffered loss and damage in the form of: A. the Initial Commission, Additional Prepaid Commission and New Business Commissions paid by [MRA] under the Treaty; B. the Initial Commission, New Business Commissions and Ongoing Commissions paid by [MRA] under the Treaty, less amounts recovered under the Treaty since its commencement; C. lost commercial opportunity in the form of ongoing profit from premium and other sums payable to [MRA] under the Treaty; D. increased cost compared with reinsurance premium income resulting from the reduction in the size of [MRA's] total reinsurance portfolio; and E. additional cost of capital required to be held to support [MRA's] remaining reinsurance portfolio.
9. Similarly, in paragraph 82 of its cross claim RLA pleads that as a result of the termination of the contracts between it and NM Super it has suffered "the RLA Loss" (defined to include the net present value of net premium income less claims paid and claims expenses that RLA would have earned if the contracts had not been wrongfully terminated). It then relevantly pleads: 84 By reason of the matters alleged in paragraph 70 above, RLA has suffered the RLA Loss as a result of the conduct of NM Super in contravention of section 54C(1) of the SIS Act. 85 By reason of the matters alleged in paragraphs 76, 78 and 81 above, RLA has suffered the RLA Loss as a result of the conduct of NM Super in contravention of section 54B(1) of the SIS Act. 86 By reason of the matters alleged in paragraphs 84 and 85 above, RLA is entitled to the amount of the RLA Loss from NM Super under section 55(3) of the SIS Act. Paragraphs 70, 76, 78 and 81 identify breaches of the SIS Act by NM Super including those referred to earlier in this judgment.
10. The difficulty with these pleadings, and MRA and RLA's argument, is that there is no apparent causal connection between the losses claimed by them and the breaches of ss 54B(1) and 54C(1) of the SIS Act. At most, all that can be said is that the conduct or matters pleaded in para 14.20 or the equivalent paragraphs of the cross-claim caused or amounted to a breach of ss 54B(1) and 54C(1) of the SIS Act and that same conduct or those same matters caused the losses particularised in paragraph 14.22 (in the case of MRA) and the RLA Loss (in the case of RLA). But it does not logically follow from that that the breaches of ss 54B(1) or 54C(1) caused those losses. Those losses would have occurred whether or not the conduct amounted to a breach of those provisions. The same event can have a number of consequences, but it does not follow from that alone that there is a causal connection between those consequences. In the present case, termination of the master policies may have caused MRA and RLA loss. It may also have breached the covenants implied contained in the governing rules of the AMP Super Fund. But it does not follow that those breaches caused that loss. And a bare assertion in a pleading that it did does not overcome the problem. Yet that is what MRA and RLA seek to do.
11. The point made in the previous paragraph does not depend on any factual findings concerning the relationship between the parties and members of the fund and their conduct, which would make it appropriate to leave the issue to trial. Rather, it depends on the absence of any pleaded facts that could arguably provide a causal connection between the alleged breaches of covenant and the losses claimed by MRA and RLA.
12. MRA and RLA point out that in other areas of the law it is not always necessary to allege or to prove a direct causal link between the contravening conduct and the claimed loss. So, for example, in the context of s 18 of the Australian Consumer Law (and its predecessor, s 52 of the Trade Practices Act 1974 (Cth)), it is not necessary in order for a person to recover damages for a contravention of those provisions to prove that the person relied on the misleading and deceptive conduct. It is sufficient if the person can prove some other causal link: see Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526; (1992) 109 ALR 638 (Janssen-Cilag) (a case decided under the Trade Practices Act); Mills v Walsh [2022] NSWCA 255 (a case decided under the Australian Consumer Law). However, the position is not analogous. In those cases, it is still necessary to identify a causal link between the contravening conduct and the loss. In Jassen-Cilag, for example, it was alleged that members of the public were induced by Pfizer's misleading conduct to acquire a drug manufactured by it rather than an alternative drug manufactured by the applicant. It was plain that the applicant asserted that there was a causal chain between Pfizer's misleading conduct and its loss: Pfizer's misleading conduct caused consumers to buy its drug. As a consequence, consumers did not buy the applicant's drug, which caused the applicant loss. The causal link asserted by the applicant was obvious and the question was whether losses caused in that way were recoverable under the Act. On the other hand, it is not possible to identify from the pleadings in this case the causal link that is said to exist between the breaches identified by MRA and RLA and the losses they claim.
13. The AMP Defendants seek to characterise the relevant pleadings as ones that fail to disclose a cause of action. It may be that that is not the correct characterisation. Whether it is or not, in my opinion, it is appropriate to strike out RLA's pleading on the basis that it has a tendency to cause prejudice, embarrassment or delay in the proceedings (to adopt the words of Uniform Civil Procedure Rules 2005 (NSW) r 14.28(1)(b)), since the pleading asserts a conclusion about causation which is not arguable on the pleaded facts. To allow the case to proceed on that pleading will unnecessarily add to the costs of the proceedings and to delay. For the same reasons, the relevant amendments to the statement of claim should not be permitted.
14. In theory, it may be possible for MRA and RLA to replead their cases to assert facts that provide a causal link between the alleged breaches and the loss. In practice, however, it is difficult to see how that could be done. Certainly, for the reasons I have given, on the facts as pleaded there is no arguable causal connection between the contraventions and the losses that they currently claim. In those circumstances, it is not appropriate to give MRA and RLA leave to replead. If they wish to replead a claim under s 55(3) of the SIS Act, they should make an appropriate application.

Orders

1. Accordingly, the orders of the Court are: 1. Paragraphs 69-81 and 84-86 of the cross-claimant's amended statement of cross-claim filed on 22 April 2024 be struck out, together with prayer 2 of the relief claimed to the extent it seeks damages under s 55 of the Superannuation Industry (Supervision) Act 1993 (Cth); 2. The cross-claimant to pay the cross-defendants' costs of the cross-defendants' notice of motion filed on 5 July 2024; 3. Leave be granted to the plaintiff to file a further amended statement of claim in substantially the form of Annexure A to the plaintiff's notice of motion filed on 5 July 2024 excluding Part 14 of that annexure; 4. The plaintiff to pay the defendants' costs thrown away by reason of the amendments; 5. The plaintiff to pay the first, third, fourth, fifth and sixth defendants' costs of the plaintiff's notice of motion filed on 5 July 2024. 6. Stand the matter over for directions to 9 August 2024.

Amendments 05 August 2024 - Typographical error on coversheet changed "Boyle-Markwick" to "Doyle-Markwick" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 August 2024