NM Superannuation Pty Ltd v Young
113 ALR 3941 FCR 182
(Decision by: Burchett J)
Between: NM Superannuation Pty Ltd
And: Young
Judges:
Burchett JHill J
O'Loughlin J
Subject References:
Bankruptcy
Life Insurance
Statutory Interpretation
Judgment date: 12 March 1993
Adelaide
Decision by:
Burchett J
I have read the judgment to be delivered by Hill J., and I am in agreement with it. However, I wish to add something for myself.
The policy embodied in s. 116(2)(d) of the Bankruptcy Act 1966 (the Bankruptcy Act) is a policy which has been reflected in a number of provisions of statutes, both in Australia and overseas. Legislation of this kind views life insurance as a desirable provision for retirement, for old age, and against the possibility of bereavement bringing destitution or want upon a family; and it supports the availability of that provision by removing it from the reach of creditors upon a bankruptcy. In the report of the committee chaired by Clyne J. (the Clyne report) which led to the enactment of the Bankruptcy Act, at para. 156, it was stated:
"It has been for many years the policy of Parliaments throughout Australia to give protection to policies of life insurance against the claims of creditors. This policy is now embodied in sections 92 to 94 of the Life Insurance Act 1945-1961 of the Commonwealth. The protection given by that Act is, however, expressed to be subject to the Bankruptcy Act. The limited charge given by section 91(b) for the benefit of creditors appears to the Committee to be a compromise that is difficult to justify and the Committee recommends that, if a policy of life or endowment assurance has been in force for more than two years before the bankruptcy, neither the policy nor its proceeds should form part of the divisible property of the bankrupt and that, in such a case, there should be no charge in favour of the trustee in respect of any premiums paid."
In Re Lin; Law v. Lin (1960) 18 ABC 142 , a case involving s. 91(b) of the Bankruptcy Act 1924, which was in closely similar terms to those of the present s. 116(2)(d), leaving aside the charge mentioned in the Clyne report, Clyne J. said (at 145):
"The legislatures of Australia, of both Colony and State have passed many enactments relating to life assurance policies designed to encourage thrift and to enable persons to make provision for their dependants. The policy of these enactments was expressed in the form of affording protection of these policies against the claims of creditors. This protection varied in manner and extent. One of the first measures of this kind was the Life Assurance Encouragement Act 1862 of the colony of New South Wales. The protection given to life insurance policies against the claims of creditors by the various State enactments has now been superseded by the protection given to such policies by the Commonwealth Parliament."
He went on to refer to the provisions of the Life Insurance Act 1945 and to s. 91(b). In In re Kerr (1943) SASR 8 at 13, Napier C.J. referred to a similar section in a state law as "the class of provision for the future which was viewed by the Legislature with sympathy and approval". The preamble to the earliest Act of this kind in South Australia (Act no. 277 of 1882) made it clear, Bundey J. said in In the Matter of Donaldson, an Insolvent (1889) 23 SALR 141 at 144, that the Act was passed "(w)ith a view to encouraging persons to insure, and to protecting persons assured". In another early case, In the Estate of Adams (Deceased) (1895) 5 NSWBC 38 at 43, Manning J., having referred to the New South Wales private Act the Australian Mutual Providence Society Act of 1857, and also to the Life Assurance Encouragement Act 1862 (NSW), said in relation to the public Act:
"The policy of the Act ... is to encourage thrift and induce a man to provide for his own, so that they may not become a burden on the State, and the protection of the fund from creditors is the inducement offered and a necessary incident of the transaction."
Special legislation, similar to that in New South Wales, was passed in the other Australian states, where its protective nature continued to be recognized, although there was not always unanimity as to the consequences: see, for example, Jenkins v. Brahe and Gair (1902) 27 VLR 643 ; In re Crothers; Crothers v. Crothers (1930) VLR 49 (as to Victoria); In re Hall (1915) 11 Tas LR 46 (as to Tasmania); Anderson v. Egan (1905) 3 CLR 269 (where Griffith C.J. at 277 referred to Western Australian legislation as giving a "privilege ... to thrifty persons"); Re Wood, deceased. A.C.F. and Shirleys Fertilizers Limited v. Wood (1949) QSR 17 (as to Queensland); and Donaldson (supra) (as to South Australia). The same principle was adopted by the Commonwealth in s. 92 of the Life Insurance Act 1945, of which Fullagar J. said in Insurance Commissioner v. Associated Dominions Assurance Society Proprietary Limited (1953) 89 CLR 78 at 91:
"(T)he prime intention of the Act is to protect policy holders."
The law reports of other countries indicate that protective provisions in relation to life insurance policies have been adopted in New Zealand, North America and South Africa: In re Watkins (deceased), Guardian, Trust, and Executors Company of New Zealand, Limited v. Watkins (1938) NZLR 847 at 871-872, where the New Zealand Court of Appeal held (in the words of Fair J.) that "the weight of the statutory provision for the preservation of the life policy from the creditors" justified the Court, the insured having granted a collateral mortgage over the policy, in taking the unusual step of marshalling the securities so as to maximize the statutory protection; Re Nakashidze (No. 2) (1948) 2 DLR 522 ; Tayler and Ries, Ltd v. Clift, N.O. (1935) GWLD 1.
Fifteen years after the passing of the Bankruptcy Act 1924, Paine J. decided Re Ackland; Ex parte Ackland (1939) 11 ABC 60 . At 64-65 his Honour said:
"Before this Act was passed in 1924, the field of law pertaining to bankruptcy and insolvency was covered by statute law in each of the States, and every State then had in force legislation which preserved, in varying measure, to a bankrupt his interest in any policy of life assurance on his own life so that it did not form part of his estate distributable among his creditors. That legislation also protected his interest from other action by his creditors, short of bankruptcy.
In s. 91(b) the Commonwealth parliament adopted in ample measure these protective provisions. The aim of such legislation is obviously to encourage life insurance as a provident form of thrift, by ensuring to every person practising it that, however severe might be his financial vicissitudes, its benefit should be preserved for him and his dependants. The indirect benefit to the State as a whole needs no specific emphasis. In this connection it is interesting to note that the original legislation passed to this effect in New South Wales in 1862 was entitled 'the Life Assurance Encouragement Act.'
In my opinion it is this most benevolent intention that is to be regarded as dominant in the mind of the Commonwealth legislature when it framed s. 91(b)."
In Re Este, deceased; Official Receiver v. Paton (1940) 11 ABC 179 at 186, Lukin J. referred to "the benevolent purposes" of the Act and, having quoted from the judgment of Fair J. in Re Watkins, he followed that case in the matter before him.
This survey of authority, which is far from exhaustive, shows that provisions from which s. 116(2)(d) derives have been consistently regarded as of a beneficial or remedial nature. That brings the provision within a well known rule. It should not be construed in any narrower or more restrictive sense than its language would fairly allow. In Pratt v. Cook, Son and Company (St. Paul's), Limited [1940] AC 437 at 452, Lord Wright said:
"As the statute is remedial and for the benefit of the workman (his Lordship was referring to the Truck Act 1831), there is no reason to construe it strictly against him, though it does limit the employers' common law rights. On the contrary, the statute should be, if required, that is, if it is ambiguous, construed in favour of the workman."
Similarly, in Wilson v. Wilson's Tile Works Proprietary Limited (1960) 104 CLR 328 at 335, Fullagar J. referred to "the established principle that, where two constructions of a Workers' Compensation Act are possible that which is favourable to the worker should be preferred".
Whether the moneys paid in the present case were "the proceeds" of "policies of life assurance or endowment assurance (other than policies for pure endowment) in respect of the life of the bankrupt" (if they were, the other conditions of s. 116(2)(d) were admittedly satisfied) depends, of course, on whether the policy under which those moneys were paid was a policy of the requisite kind. (See Lloyd v. Public Trustee (New South Wales) (1930) 44 CLR 312 at 317.) The policy provided for benefits to be payable in three circumstances, which are set out in clauses of the trust deed of the National Mutual Simple Superannuation Fund. I have omitted reference to clauses which did not apply in the case of the bankrupt. The three applicable provisions were the following:
- 1.
- Under cl. 11, a benefit was payable "if (the bankrupt) retires from the Service on or after his Retirement Date", the retirement date being fixed in respect of the bankrupt at the date when he should achieve the age of 65 years;
- 2.
- Under cl. 13, there was provision for a benefit to become payable in respect of the bankrupt "if (he) dies while in the Service before his 75th birthday";
- 3.
- Under cl. 17, provision was made for a benefit to be payable to the bankrupt "if (he) leaves the Service before his Retirement Date."
In each case, the benefit payable would be the employer's contributions together with interest thereon at rates determined by The National Mutual Life Association of Australasia Limited ("National Mutual") from time to time pursuant to a provision in the policy.
The policy to provide those benefits is described in cl. 20 of the trust deed as a "life assurance policy". So far as cl. 11 is concerned, this plainly provides for a form of endowment, since the terms of the clause require the insured to survive until retirement at or after the age of 65 years. So far as cl. 13 is concerned, the benefit is payable on death, subject to two conditions, that is to say, that death occurs while the bankrupt is in the employment of the employer and that it occurs before his 75th birthday. These conditions are not inconsistent with the nature of life insurance as expounded in The National Mutual Life Association of Australasia Limited v. Federal Commissioner of Taxation (1959) 102 CLR 29 . In The Commissioner of Stamp Duties of the State of New South Wales v. Jones (1971) 125 CLR 511 , the point was made quite clear. Menzies J. (at 515) said:
"I do not know how a policy upon the life of a person while he is in the employ of a company is to be described if it is not to be described as a policy on the life of that person."
As in the present case, the policy there in question was taken out to secure benefits payable under a superannuation scheme. It was described by Windeyer J. at 523 as a "group endowment assurance policy. ... The policy can in relation to the deceased be called a life policy. It would unquestionably answer that description in other contexts." His Honour continued at 525:
"Superannuation schemes for the benefit of employees of large business organizations are well known today. Sometimes participation by an employee is compulsory as an incident of his service. Sometimes it is voluntary. Contributions to superannuation funds are allowable deductions, subject to relevant statutory requirements, in the assessment of income for the purposes of income tax. The trust deed in the present case was obviously drawn with the provisions of the Income Tax Assessment Act, s. 66, in mind, as witness the recital that the benefits that members of the plan should receive were to be 'fully secured'. An insurance policy covering the obligations under a superannuation scheme may well be, as in this case, an essential part of the scheme. Moneys payable under a superannuation policy are generally, as in this case, payable in full when a person assured reaches the retiring age and leaves the employer's service, or on his service being terminated by his death - the surrender value being payable in certain circumstances if he retires from the service before reaching the retiring age, when in respect of him the policy is cancelled. A policy of that kind is no doubt a complex and composite form of life insurance partaking of the older forms of a term policy and an endowment policy with continuance in the employer's service until death or reaching the prescribed age as contingencies of its maturity. Such a policy answers to Bunyon's classic definition of life insurance, frequently accepted by courts, as a contract 'in which one party agrees to pay a given sum upon the happening of a particular event contingent upon the duration of human life'. But that such a policy is a form of life policy, commonly written by life companies, is not enough to bring it within the terms of s. 102(2)(h)."
The effect of his Honour's judgment is to hold that the policy was a form of life policy, but one not falling within the special provision made by s. 102(2)(h) of the Stamp Duties Act 1920 (NSW).
Owen J., who decided the case on a different point, expressed (at 527-528) a doubt whether the policy fell within s. 102(2)(h), but I do not understand him to have had any doubt that it was properly to be described as "an endowment policy", which would make it a policy of life insurance in the modern sense. Barwick C.J. and McTiernan J. agreed with Owen J., Barwick C.J. adding at 513, in respect of the question whether s. 102(2)(h) applied, the significant comment:
"But in any case in my opinion the matter is not resolved merely by deciding that according to ordinary concepts of insurance the policy ought to be regarded as in the category of life insurance."
It will have been observed that in the long passage I have quoted from the judgment of Windeyer J., reference is made to policies of life insurance, in relation to superannuation schemes, in which provision is made for payment of the surrender value upon retirement of a member of the scheme from the service before reaching the retiring age, when in respect of him the policy is cancelled. Clearly, Windeyer J. did not regard such a provision as detracting from the character of the policy as a policy of life insurance. In my opinion, no distinction can be drawn between the situation to which his Honour adverted and the situation contemplated by cl. 17 in the present case. It is of the nature of superannuation, and indeed is implicit in the very name, that it is concerned with retirement by reason that a person has reached the end of his years of work. Therefore endowment assurance is to be expected in a policy of the present kind. The relevance, too, of life insurance is obvious. But an employee may wish to retire early, and therefore to leave the scheme. An endowment policy, providing also death benefits, does not lose that character simply because it permits the life assured to terminate the policy, and upon doing so, to withdraw an appropriate amount calculated by reference to the contributions made towards the policy and an amount referable to the earnings of those contributions. If, on the other hand, an early retirement benefit should not be regarded as merely incidental to the cancellation of the policy by reason of the retirement, it may be that it should be seen as an independent benefit itself falling within what Windeyer J., in the passage I have quoted, describes as "Bunyon's classic definition of life insurance". The benefit is payable "upon the happening of a particular event (namely the early retirement) contingent upon the duration of human life" - for there will be no early retirement, and therefore no benefit, if the member of the fund should die before the employment ends.
But although the policy meets Bunyon's definition, so often adopted by the courts, the respondent says that it is not a policy of life insurance because the nature of the benefit secured by it is such as to deny it the character of insurance at all. The benefit, under each of the three clauses, being the amount of the premiums together with a sum calculated as interest upon that amount, the respondent says the policy is really in the nature of an investment bearing a guaranteed return, and nothing more. But there are policies commonly accepted as life insurance policies which do not differ significantly in this respect from the present policy. For example, an endowment policy for a period of five or ten years, issued to a young and healthy man. The mortality tables would not justify a reduction of the benefit payable, in the case of such a policy, significantly below an amount representing the sum paid together with interest. If the policy were a policy of pure endowment, the resemblance to an investment at interest would be even greater. In any case, life insurance is not antithetical to investment. Hamilton J. (as Lord Sumner then was) made the point in Gould v. Curtis (Surveyor of Taxes) [1912] 1 KB 635 at 640, when he said:
"The case further finds that the appellant 'admitted that he took out this policy partly as an investment of money, his main object being to make provision for people if he died.' In a sense life insurance is always an investment of money, for it enables those who have not opportunities of making profitable investments out of their savings and have not very great opportunities of making savings at all to secure an ultimate fund, which if left to themselves they would have found beyond their means."
Gould v. Curtis was a case involving endowment insurance. The views of Hamilton J. were adopted in In re Kerr (supra, at 11-12). See also article, Some Thoughts on the Notion of Life Insurance, by J. Allsop (1992) 5 ILJ 123 .
In my opinion, it is not necessary to try to force life insurance into the same mould as other forms of insurance, such as fire insurance and marine insurance. In a case principally relied upon by the respondent, the effect of attempting to do so was the production of reasoning which is, with respect, quite whimsical. The case is Prudential Insurance Company v. Commissioners of Inland Revenue [1904] 2 KB 658 , where Channell J. said at 664:
"A contract of insurance, then, must be a contract for the payment of a sum of money, or for some corresponding benefit such as the rebuilding of a house or the repairing of a ship, to become due on the happening of an event, which event must have some amount of uncertainty about it, and must be of a character more or less adverse to the interest of the person effecting the insurance."
Having laid that down, his Lordship had to attempt to apply it to the case of endowment insurance, where a man may receive a sum upon happily attaining an age beyond that of many of his contemporaries. The reasoning proceeds as follows:
"(I)t seems to me that the event, in addition to being uncertain, is prima facie adverse to the interests of the insured. A person whose life was insured at a premium of 6d. a week would presumably be a poor person and one who would have to earn his own living, and his capacity of so earning his living would probably be materially diminished by the time he reached the age of sixty-five. The reaching of that age, with its attendant disadvantages, is to my mind an event which is sufficiently adverse to the interest of a poor person to make it a proper subject against which to insure."
How his Lordship would have dealt with a rich man's endowment policy, taken out for its attendant taxation advantages, is far from clear.
I think it is better to accept the special character of life insurance, in the broad sense which includes endowment and term insurance, as explained by Windeyer J. in the two High Court decisions to which reference has been made. On this understanding, the present policy is a policy of life insurance. That it is such a policy is, I think in agreement with Hill J., supported by the decisions in In re Commonwealth Homes and Investment Company Ltd (1943) SASR 211 and Marac Life Assurance Ltd v. Commissioner of Inland Revenue (1986) 1 NZLR 694.
The last point is whether the policy is excluded from s. 116(2)(d) on the basis that it is a policy for pure endowment. A policy for pure endowment, as originally understood, involves that "no payment is made unless the person whose life is insured survives the date when the policy matures": National Mutual Life (supra, at 44), per Windeyer J.; although Hamilton J. in Gould v. Curtis (supra, at 640) tells us that early endowment policies of this kind did, in certain cases, allow a return of the whole or part of the premiums. There is, however, in the Bankruptcy Act a definition of the expression "policy for pure endowment" approximating the case mentioned by Hamilton J. That definition is contained in s. 5(1).
I agree with Hill J. that no aspect of the present policy brings it within the definition of a policy for pure endowment. But even if one of the three types of benefit promised by the present policy fell within the definition of a policy for pure endowment, it would not follow that s. 116(2)(d) would cease to apply to the policy or its proceeds. A policy for pure endowment is a particular kind of life policy, and so within the general words of para. (d). If the policy, having regard to all the benefits for which it provides, including that aspect of it thought to be in the nature of pure endowment, is a policy of "life assurance or endowment assurance", it is protected, unless it should be excluded as a policy for pure endowment. When that is not the policy's only character, I do not see why it should be so labelled; it plainly involves benefits of several kinds, some characterizing it as life insurance of a nature other than that of pure endowment. The policy would not properly be described as a policy for pure endowment (a description in language suggestive of the exclusivity evoked by the word "pure"), being in reality a combined policy for several forms of life insurance: cf. the remarks of Windeyer J. about a different kind of combined policy in National Mutual Life (supra) at 50. This conclusion does not, of course, mean that a life insurance policy, containing some subsidiary provision not partaking of the character of life insurance, must inevitably be held, by a similar process of reasoning, to be properly described as a combined policy only, and so not within s. 116(2)(d) at all. In the context in which that question would arise, the principle to which Fullagar J. referred in Wilson (supra) would be likely to require a different approach.
I agree with the orders proposed by Hill J.