R v Treasurer

The prosecutor is incorporated in a State of Australia and carries on business within the meaning of s. 9 of the Act. As required by the Act, it has lodged and maintained with the Treasurer securities of a value which conform, and which the Treasurer has accepted as conforming, to the requirements of the Act (see ss. 11 and 13). The parent company, also locally incorporated and carrying on such a business, has done likewise. However, the parent company became and now is the beneficial owner of the shares of the prosecutor. For such an event, the Act makes provision in s. 14 as follows:

(1.) Where the Treasurer is satisfied that a company (in this section referred to as "the parent company") has become the beneficial owner of the shares of another company (in this section referred to as "the subsidiary company"), a deposit made and maintained by the parent company of a value equal to the value of the deposit that would be required by this Act to be made and maintained by the parent company if it carried on the business of the subsidiary company in addition to its own business is, if the Treasurer, by writing under his hand, so certifies, a sufficient compliance by the subsidiary company with the requirements of this Act, and, where the parent company makes and maintains such a deposit, a deposit is not required to be made and maintained by the subsidiary company.

(2.) Where the parent company has made and maintains a deposit that, by virtue of the last preceding sub-section, is a sufficient compliance by the subsidiary company with the requirements of this Act -

(a) the Treasurer shall return to the subsidiary company any money or approved securities previously deposited by that company in accordance with this Act;

The Treasurer has clearly indicated his satisfaction that the parent company has become the beneficial owner of the shares of the prosecutor. He has also in a written admission made for the purposes of these proceedings conceded that in fact the deposit presently made and maintained by the parent company is of a value equal to the value of the deposit that it would be required by the Act to lodge and maintain if it carried on the business of the prosecutor in addition to its own business. But, though this be the factual situation, the Treasurer refuses to give any certificate under his hand either of the fact that the securities lodged by the parent company are of such a value or that, being of such a value, they are a sufficient compliance with the Act. He takes the stand that he has an absolute discretion whether or not the benefit of the section shall be extended to the prosecutor. The prosecutor claims that, in the admitted circumstances of the case, the Treasurer is bound to certify that which is the fact, namely, that the parent company's deposit is of the required amount as specified in s. 14 (1.). The prosecutor then says that upon the issue of such a certificate the benefit of the section will extend to it.

The answer to the difference between the parties is to be found in the proper construction of a section drawn in the relevant part with what might well be thought to be unnecessary and obscure brevity. To what does the expression "so certifies" refer? Does it refer to the fact of the extent of the deposit of the parent company, or does it refer to a determination by the Treasurer that, though of the required extent, that deposit is, as well, or should, in his opinion, be a sufficient compliance with the Act?

There are some matters which to my mind are of assistance in the construction of the section. In the first place, the question whether a deposit lodged by an insurance company measures up to the requirements of the Act calls for the determination of the premium income of the company so as to ascertain the nominal amount of the required deposit, and thereafter an opinion must be formed as to the value of the securities lodged by the company so as to ascertain whether or not on current value they reach the required amount of deposit. The decision of both these matters is elsewhere committed to the Treasurer, finally except as to the first: see ss. 17 and 24. It would therefore not be surprising if in s. 14 the certification of the fact of the extent of the parent company's deposit were committed to the Treasurer rather than left for determination by some other, and that probably a litigious, process. Indeed, without the knowledge of the Treasurer's view of the current value of the securities, the fact of the relative extent of the deposit could not be established.

Then it is quite apparent that the amount of the required deposit is set by the Act itself and not left to the discretion of the Treasurer. I will deal later with s. 20A which in its operation might be suggested to be an exception to the universality of that statement. The amount of the deposit is relative to the amount of the annual premium income: see ss. 13 and 13C. But there is a maximum deposit which may be required: see those sections. Of course, the purpose of requiring deposits is the protection of policy holders. No doubt the choice of the specified relationship of deposit to premium income as the means of securing that protection is the result of experience and of actuarial calculations. I infer that in setting a maximum amount of deposit, the Parliament, having regard to the expert actuarial advice available to it through the Executive, considered that that amount sufficiently protected policy holders when the premium income exceeded the stated figure. Apparently after a certain premium income is exceeded, the protection of the policy holders is calculated to be adequate by the maintenance of a deposit of the stated maximum amount. Again, no discretion is given to the Treasurer in any circumstances to increase that maximum.

As I have mentioned, it might be thought that s. 20A provides for a comparable occasion to that which s. 14 covers and that it operates to allow the Treasurer to increase the amount of the required deposit. But, in my opinion, this is not the purpose or effect of s. 20A. It gives the Treasurer an absolute discretion in any case to refuse to return any part of securities lodged as a deposit when at current values they represent an excess of value over the required amount if he is not satisfied that the company making the deposit has made adequate provision to meet its liabilities to policy holders in the Commonwealth. But the liabilities here referred to do not, in my opinion, include the contractual obligations of the company to policy holders where no liability, absolute or contingent, has arisen. Section 20A relates to a situation where the securities as lodged meet the required amount of deposit. The occasion for its operation is some increase in this value which might be transient though possibly of longer duration, and the section assumes that some specific liabilities have accrued under some policies issued by the insurer. It thus allows the Treasurer to have regard, not to the relationship of deposit to premium income, but to current liabilities under policies. But perhaps the most noticeable feature of the section is that the discretion is expressly given to the Treasurer, and the condition of its exercise precisely specified. Further, the Life Insurance Act 1945-1965 Cth which contains in s. 32 a substantial counterpart of s. 14 (1.) though without the extensive provisions of sub-s. (2.), has no provisions comparable with s. 20A. The two Acts are sufficiently in pari materia in relation to such a provision as s. 14 (1.) that the construction of s. 14 (1.) should not be different from the meaning assigned to s. 32. Consequently, one would not expect the construction of s. 14 (1.) to be affected by the presence or content of s. 20A. However, in any case, to my mind, its influence upon that construction would tend against reading s. 14 (1.) as conferring a discretion upon the Treasurer to refuse to give his certificate, though the parent company's deposit were of the required amount. In other words, I do not think that s. 20A is really an exception from the clear policy of the Parliament itself to determine the amount of the required deposit, that is to say, to determine whether it be sufficient or not for the protection of policy holders generally.

There are then the detailed provisions of s. 14 (2.) which treat the business of the parent company and that of the subsidiary as one, making the parent company's deposit available to the policy holders of the subsidiary. They also require the parent company to keep its deposit up to the value that would be appropriate to the premium income of both businesses regarded as one whole.

In the event that both parent and subsidiary have lodged and maintained the maximum deposit, a refusal by the Treasurer to certify whatever it is that he is to certify, would mean that he has thereby doubled the maximum. I can find no trace in the Act of any policy or reason for the concession of such a discretion to the Treasurer. The Act, as I have said, as it seems to me, has worked out fully the amount of deposit to be required. If the maximum is sufficient for the business of the parent company when it reached in its own business the premium income now attained by the combined businesses, why should a greater sum be required simply because it conducts part of the business in the name of a wholly owned subsidiary? I fail to comprehend why when one company becomes the wholly owned subsidiary of another, the amount of the deposit required should come within the Treasurer's discretion. With due respect to those who have discovered some reason, I am bound to say I can find none. The provisions of sub-ss. (2.), (3.) and (4.) of s. 14 rather suggest that there is no such reason, rather than that there may be. The presence of s. 14 in the Act, even with the ambiguous expression with which this case is concerned, does not suggest to my mind that there are any.

An instance was given during argument of a subsidiary being a foreign company, the maximum deposit for foreign companies being greater than that for domestic companies. However, upon the parent company, being a domestic company, becoming the owner of the subsidiary's shares, it seems to me that any reason for requiring the larger maximum deposit may have gone. The consequence for policy holders of foreign incorporation and therefore of possible foreign control would scarce obtain once the ownership and control were vested in a domestic company. In addition, sub-ss. (2.), (3.) and (4.) give direct access by policy holders to the assets of the parent company. But, even if the instance raises difficulties, I prefer to think it a situation for which the draftsman has made no provision than to think that its possibility should control the meaning of the sub-section.

As I have indicated, I can understand a provision that depends for its application upon the certification by the Treasurer of a fact particularly within his knowledge and competence. But I am sonewhat at a loss to understand what he is to certify, if it is not the fact of the extent of the deposit of the parent company. If he is to certify that the adequate deposit is a sufficient compliance with the Act, that in one sense is no more than certifying its adequacy in point of amount. But if the word "sufficient" is not used in that sense, by reference to what considerations is it to be regarded as a sufficient compliance with the Act? What are the elements in the sufficiency beyond the adequacy of the amount of the deposit? It is not, in my opinion, the sufficiency of a deposit of the stated amount as a security for policy holders which is committed to the Treasurer. That as I have said is, in my opinion, determined by the Parliament as a matter of policy.

I think it would be strange for a draftsman to use the expressions of this sub-section if he desired to provide that the making and maintenance of a deposit, though it be of an amount appropriate to the totality of the premium income of both companies should only be deemed a sufficient compliance with the Act, if the Treasurer in his absolute discretion was of opinion that such a deposit ought in the circumstances to be regarded as sufficient compliance with the Act.

The use of the word "certifies", so appropriate to a state of fact and so inappropriate to the expression of a discretionary opinion, coupled with the words "is a sufficient compliance with the Act" also tends, in my mind, towards the view that the Treasurer's function under the sub-section is to verify by his certificate the extent of the parent company's deposit in relation to the totality of the premium income of both parent and subsidiary. If the draftsman desired to make the applicability of the sub-section to depend upon the judgment of the Treasurer that it should apply, he would, in my opinion, have used entirely different expressions.

In my opinion, the natural reading of the sub-section associates the expression "if the Treasurer so certifies" with the fact of the extent of the parent company's deposit. According to its terms, the Treasurer is not to express an opinion or to exercise a discretion but to certify a fact - as I see it, a fact peculiarly within his own knowledge and of which the Act elsewhere makes him in substance the arbiter.

The sub-section proceeds to say that where such a deposit is made and maintained by the parent company, a deposit is not required by the subsidiary. This is not made contingent upon any discretion of the Treasurer even though "such a deposit" is a deposit which the Treasurer has certified as of the required amount. It is not, in my opinion, a reference to such a deposit as the Treasurer has certified in his opinion should be deemed to be a sufficient compliance with the Act. The Act provides, in my opinion, that the deposit is a sufficient compliance with its provisions, and does not make its sufficiency dependent upon the exercise of any discretion of the Treasurer, apart of course from his opinion as to the current value of any securities lodged as part of a deposit.

Therefore, it seems to me that conformably to the clear policy of the Act as to the amount of a deposit, and the exclusion from that policy of any discretion in the Treasurer as to that amount, the sub-section should be read as providing that if the Treasurer is satisfied as to the ownership of the shares of the subsidiary, and certifies that the amount of the parent company's deposit is equal to what it would be required to make and maintain if it did the whole of the insurance business of both companies, the making and maintenance of that deposit is a sufficient compliance with the Act and the subsidiary is freed of the obligation itself to make and maintain a deposit so long as the parent company maintains the amount of deposit appropriate to the totality of the premium income of both companies.

What the sub-section does is to accommodate the formal situation of two entities, of which one is wholly owned by the other, conducting two businesses to the reality, which is that of one beneficial owner conducting its business in two departments. It is not really a relaxation of the general policy of the Act as to relationship of the deposit required to the premium income of the insurance business. The Act is constructed on the footing that deposits maintained according to that relationship adequately protect policy holders. It is not of course for the court to consider how that protection might be extended by the exercise of an absolute discretion of the Treasurer.

To sum up, with respect to other views, I have formed the clear opinion that upon its proper construction the sub-section by the expression "if the Treasurer so certifies" commits no more to the Treasurer than the certification that the parent company's deposit is of that amount which it would be required to make and maintain if it carried on its own and the subsidiary's business. I am quite unable to discover any indication in the Act that, whereas in all other circumstances the amount of the deposit is determined by the Act itself, it should in this instance be in the absolute discretion of the Treasurer. I say "absolute discretion", for if the Treasurer has a discretion as to whether or not the companies shall have the benefit of the provisions of s. 14, I can find no considerations indicated by the Act, or to be inferred from it, within which he should confine himself in its exercise. Nor were any suggested in argument.

Upon this construction of the sub-section and upon the admissions made by the Treasurer, there arose in this case, in my opinion, a duty to certify that which is the fact. Accordingly, in my opinion, the order nisi for mandamus should to that extent be made absolute.

This case arises under s. 14 of the Insurance Act 1932-1965 Cth. It turns upon the use of the words "if the Treasurer, by writing under his hand, so certifies". In showing cause against the order nisi Mr. Byers, who appeared for the Treasurer, took the broad ground that these words vest in the Treasurer a discretion to issue, or to refuse, a certificate under the section. I am of opinion that this proposition is right. It appears from the affidavit on which the prosecutor applied for the order nisi that the Treasurer declined to accede to the prosecutor's demand to put the provisions of sub-s. (1.) of that section in motion - thereby exonerating the prosecutor from maintaining the deposit which it had made with the Treasurer - unless the prosecutor satisfied the Treasurer's requisition for further information. I do not repeat the terms of the requisition. In my opinion the information sought was relevant to the exercise by the Treasurer of the authority vested by the words quoted above. No ground appears for deciding that the Treasurer acted wrongfully in not issuing a certificate pursuant to that authority.

According to the terms of the order nisi the writ of mandamus sought by the prosecutor would command the Treasurer to certify that the deposit of "the parent company" is of the extent set out in s. 14 (1.). I am of the opinion that the insertion by the draftsman of those words between "is" and the words "a sufficient compliance" prevents ambiguity as to the sense in which the word "so" is used. It is not used to avoid repetition of what is previously said in the sub-section as to the deposit of the "parent company". The result of this construction is that there would be no utility in the Treasurer's certifying formally that the deposit of the "parent company" is of the extent mentioned. A writ of mandamus does not lie to command the Treasurer to certify that. I am of the opinion that upon the true construction of s. 14 (1.), the authority which is vested in the Treasurer by the words under consideration is to certify that a deposit which has the attributes mentioned is a sufficient compliance by the subsidiary company with the requirements of the Act. This is a matter which the sub-section leaves to the ministerial judgment and discretion of the Treasurer. Mandamus does not lie to command him to issue a certificate pursuant to the sub-section unless it appears that he has formed a judgment that the deposit of the parent company is "a sufficient compliance by the subsidiary company" with the requirements of the Act. It is clear that the Treasurer has not reached such a conclusion. I would discharge the order nisi.

The Insurance Act 1932-1965 Cth is plainly a law for the protection of those who insure in Australia against loss or damage contingent upon the happening of a specified event. Its central provisions require every person carrying on such insurance business in Australia to lodge and maintain with the Treasurer approved securities to a value of not less than £1,000 and not more than £80,000 in the case of a person other than a foreign company, and not more than £100,000 in the case of a foreign company, and within these limits in the proportion of one to five with its premium income (s. 11) and make the deposit so lodged available (1) to satisfy judgments by policy holders against insurers in respect of policies and (2) in the event of the bankruptcy of an individual insurer, or the winding up of a company who is an insurer to meet liabilities under policies issued in the Commonwealth (s. 22). From the generality of the requirement that every insurer must lodge and maintain a deposit, s. 14 provides a particular relaxation. Section 14 (1.) and (2.) (a) are as follows:

(1.) Where the Treasurer is satisfied that a company (in this section referred to as "the parent company") has become the beneficial owner of the shares of another company (in this section referred to as "the subsidiary company"), a deposit made and maintained by the parent company of a value equal to the value of the deposit that would be required by this Act to be made and maintained by the parent company if it carried on the business of the subsidiary company in addition to its own business is, if the Treasurer, by writing under his hand, so certifies, a sufficient compliance by the subsidiary company with the requirements of this Act, and, where the parent company makes and maintains such a deposit, a deposit is not required to be made and maintained by the subsidiary company.

(2.) Where the parent company has made and maintains a deposit that, by virtue of the last preceding sub-section, is a sufficient compliance by the subsidiary company with the requirements of this Act -

(a) the Treasurer shall return to the subsidiary company any money or approved securities previously deposited by that company in accordance with this Act;

The question before us is whether under this section the Treasurer can refuse his certificate notwithstanding that he is satisfied both that a parent company has become the beneficial owner of the shares in a subsidiary company and that the deposit made and maintained by the parent company is of a value equal to the value of the deposit that would be required if the parent company carried on the business of the subsidiary company in addition to its own business.

My conclusion that the Treasurer can so refuse rests principally upon the language and the grammatical construction of s. 14 (1.). Both the interpolation of the qualifying provision "if the Treasurer, by writing under his hand, so certifies" between the words "is" and "a sufficient compliance" and the use of the word "if" to introduce the qualification, indicate that as a matter of grammar and language the required certificate is one that the parent company's deposit is a sufficient compliance by the subsidiary with the requirements of the Act, that is s. 11. It seems to me that the section applies when, and only when, three conditions have been fulfilled: (1) that the Treasurer is satisfied that the parent company has become the beneficial owner of the shares of the subsidiary company; (2) the fact is that the parent company's deposit is of the requisite value; and (3) the Treasurer certifies that the parent company's deposit is a sufficient compliance by the subsidiary with the requirements of the Act. It is to be observed that although the Treasurer must be satisfied of (1), no certificate particularly limited to that area of satisfaction is required. It is further to be observed that (2) is not expressed as a matter for the satisfaction of the Treasurer at all; it is expressed as a matter of fact, although an examination of the Act shows that in many cases, though not all, this will be a matter upon which the Treasurer will have to form an opinion. In any case where the deposit of the parent company is at the maximum sufficiency will be obvious. This review of the sub-section itself reveals sound internal reason for reading it according to its natural sense and as requiring a certificate going to the full operation of the sub-section and so covering all conditions.

What I regard as the prima facie meaning of s. 14 (1.) is, moreover, powerfully supported by a consideration of the policy of the Act as appears from its terms as a whole. The consequence of the operation of s. 14 (1.) is to take a subsidiary company outside the operation of s. 11 and deprive its policy holders of the protection of a deposit by the company with which they are insured while affording them the protection of the deposit made by that company's parent company. It is obvious, however, that in some circumstances the protection which the policy holders would gain would not be as valuable as the protection which they would lose if the subsidiary company's deposit were to be returned to it. Thus if the parent company is not, but the subsidiary company is, a foreign company, a maximum deposit of £80,000 for all business would replace a maximum deposit of £100,000 available to the subsidiary's own policy holders. This is something which the Legislature might well think should not happen automatically. A discretion given to the Treasurer to make sure that policy holders are protected in such circumstances would be a safeguard for policy holders within the limits of the scope and purpose of the Act. Furthermore a more general field for the possible use of a discretion vested in the Treasurer may be indicated. If the subsidiary seeking the return of its deposit were in an insolvent condition, that is, its liabilities exceeded the assets available to meet them, it would be a grave disadvantage to its policy holders if that company's deposit were to be returned to it and assets which might be worth as much as £100,000 would thereby cease to be available for policy holders in priority to any other claims. It is clear, moreover, that the deposit of the parent company, which would become available for the policy holders of the subsidiary company, might not be a full compensation for the disadvantage I have mentioned, for the parent company's deposit might be smaller than the subsidiary company's deposit, and it would certainly be subject to a larger number of claims. That a discretion should be vested in the Treasurer to protect policy holders in such circumstances is clearly a matter that would be in keeping with the purposes of the Act. Finally the concern of the Treasurer, as revealed in the correspondence before the Court, that adequate provision has been made to meet the liabilities of a subsidiary, including its contingent liabilities, is in my opinion a matter properly to be taken into account in determining whether a certificate under s. 14 (1.) should be given to release the deposit.

Accordingly in my opinion s. 14 (1.) should be read not in a restricted sense but as widely as its terms permit to afford protection to policy holders.

In my opinion the order nisi for mandamus should be discharged.