NM Superannuation Pty Ltd v Young

113 ALR 39
41 FCR 182

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(Judgment by: Hill J)

Between: NM Superannuation Pty Ltd
And: Young

Court:

Judges: Burchett J

Hill JO'Loughlin J

Subject References:
Bankruptcy
Life Insurance
Statutory Interpretation

Hearing date: 10 November 1992, 11 November 1992
Judgment date: 12 March 1993

Adelaide

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Judgment by:
Hill J

The appellant, N.M. Superannuation Pty Ltd, appeals against the judgment of a judge of this Court in which it was held that an amount payable by it to the second respondent, Mr Jeffrey Charles Barrett ("the bankrupt"), relating to the bankrupt's interest in a superannuation fund, was not property excluded from the definition of divisible property pursuant to s 116(2)(d) of the Bankruptcy Act 1966 ("the Act").

The facts were not in dispute.  Prior to 30 June 1987, the bankrupt was an employee of J.C. Barrett Pty Ltd and a member of the National Mutual Simple Superannuation Fund ("the Simple Super Fund"). The appellant was trustee of that fund and the bankrupt's employer was a "participating employer" as that expression is defined in the Deed constituting it.  On 30 June 1987, the bankrupt ceased to be employed by J.C. Barrett Pty Ltd and, as a result, became entitled to receive an amount pursuant to cl.17 of the Trust Deed constituting the fund.

On 2 July 1987, the bankrupt, at a meeting of his major creditors, gave notice that he had suspended payments of his debts.  He thereby committed an act of bankruptcy.  On 2 September 1987, a creditor's petition was issued against the bankrupt and a sequestration order was made on 5 October 1987.  By force of s 116 of the Act, but subject to the exclusions from that section, all property that belonged to or was vested in the bankrupt at the commencement of the bankruptcy, that is to say as at 2 July 1987, became property divisible among the bankrupt's creditors.  Prima facie, therefore, this would include the amount payable to him on that date by the respondent under the provisions of the Trust Deed constituting the Simple Super Fund.

However, s 116(2)(d) excludes from the category of property divisible among the creditors of the bankrupt: 

"policies of life assurance or endowment assurance (other than policies for pure endowment) in respect of the life of the bankrupt or the spouse of the bankrupt that have been in force for not less than 2 years before the commencement of the bankruptcy and the proceeds of such policies received on or after the date of the bankruptcy or not earlier than one year before that date;."

Also excluded from the category of property divisible among the creditors of the bankrupt are: 

"(e)

policies for pure endowment that have been in force for not less than five years before the commencement of the bankruptcy and the proceeds of such policies received on or after the date of the bankruptcy or not earlier than one year before that date;."

The expression "policy for pure endowment" is defined in s 5(1) of the Act as meaning: 

"a policy under which an amount is payable at a specified date if the person to whom the policy relates survives to that date, but a lesser amount is payable if that person dies before that date, being an amount not exceeding the sum of the premiums that have been paid and any interest payable on those premiums."

The Simple Super Fund and the Personal Super Bond Policy

The Simple Super Fund was constituted by deed poll ("the Deed") executed by the appellant on 29 September 1978.  According to the recitals to the Deed, the purpose of the fund was to provide superannuation benefits "by means of the policy" for employees of such employers as might agree to participate in the fund in the event of the retirement of those employees or in the circumstances of their incapacity for work attributable to illness or accident as approved by the Commissioner of Taxation and in the event of the death of such employees, for their dependents.

An employer may become a "participating employer" as that expression is defined in cl.2 of the Fund Deed by executing a Deed of Adoption.  Such a Deed of Adoption was in fact executed by the bankrupt's employer on 9 April 1985. Although nothing turns upon it, it seems that the bankrupt was the only member to which that particular Deed of Adoption applied.

The Fund Deed is clearly drafted by reference to the then income tax laws governing deductibility of contributions to superannuation funds and exemptions from income tax of the income thereon.  The benefits payable under the Deed are to be provided by the appellant as trustee effecting, in respect of members or their dependents, what the Deed refers to as a "policy".  Clause 20(a) of the Fund Deed thus provides: 

"The Trustee shall effect in its name a life assurance policy or policies with National Mutual and where the context so requires Annuity Policies to provide the benefits which become payable under this Deed and shall receive and give full and effectual receipts, releases and discharges in respect of payment of any moneys under the said policy or policies including any Annuity Policies as may be required of it and it may think proper having regard to the circumstances."

The reference to "annuity policies" is not relevant to the present facts.

Premiums payable for the policy, so far as that policy relates to a particular member, are funded from the contributions of the employer of that member under the Deed of Adoption executed by that participating employer, or the member himself.

In the circumstances of the present case, the bankrupt's employer made contributions which were used to fund the policy effected in respect of the bankrupt by the appellant.  No contributions were made by the bankrupt himself.

Under the Fund Deed, benefits were payable to a member in the following circumstances:

(1)

On retirement of the member on or after his retirement date (cl.11(a)).

(2)

On the death of the member while in employment of his employer before his 75th birthday (cl.13).

(3)

On the death of the member after leaving the service of the employer, in certain circumstances (cl.14).

(4)

On disablement of the member while in the service of the employer before age 65 (cl.16).

(5)

On leaving the service of the employer before the retirement date (cl.17).

Under the Deed the retirement date in relation to a member is defined as being:

"the date specified as such in respect of his membership category as contained in the Deed of Adoption, but for the purposes of this Deed it shall not be earlier than his 60th birthday nor later than his 75th birthday."

In respect of the bankrupt, the date specified in the Deed of Adoption as the retirement date was shown as "65 years".

Although these various possibilities existed in the Deed, only three of them were relevant to the bankrupt, these being the circumstances referred to in (1), (2) and (5) above.  The case was argued before us, and it would seem before his Honour, on the basis that whichever of the three possible circumstances applicable to the bankrupt occurred, in each case the benefit payable to him, or in the event of his death to his dependents, would be the same, that is to say what the Fund Deed referred to as Mr Barrett's "retirement accumulation." The retirement accumulation, as defined in the Deed and relevant to the present circumstances, consisted of the employer's contributions, together with interest thereon, at a rate determined by the National Mutual Life Association of Australasia Ltd ("National Mutual") from time to time under the policy. Although the Deed provided for an option for a group life assurance as well, that option was not selected by the bankrupt's employer in the Deed of Adoption and had no relevance to him.

Pursuant to cl.20(a) of the Fund Deed, the trustee proposed in writing to National Mutual for a Simple Superannuation Policy on 28 December 1978.  A policy was issued, pursuant to that proposal, on 21 August 1979.  Under it, National Mutual agreed to grant to the appellant, as trustee of the Simple Super Fund, the respective benefits referred to in the proposal and to issue any individual policy required by the proposal.  It is unnecessary to detail what is contained in the proposal.  Suffice it to say that the policy secures to the appellant the payment of benefits to members under the superannuation Fund Deed. The policy, therefore, secured to the appellant following the execution of the Deed of Adoption in respect of the bankrupt, the benefits payable to it under the Trust Deed as already described.

The judgment appealed against

At first instance, a number of matters were agitated.  Of these, only two questions remain to be determined in the present appeal. The first is whether moneys payable to the bankrupt by the appellant as trustee of the Simple Super Fund, may properly be described as the proceeds of a policy of life assurance or endowment assurance in respect of the life of the bankrupt.  The second, and related issue, which received no attention below, is whether the amount payable by the appellant as trustee of the Simple Super Fund to the bankrupt was properly to be categorised as the proceeds of a policy for pure endowment. Having regard to the fact that a policy of pure endowment is a form of policy of endowment, the second issue arises only if the first issue is capable of being answered in the affirmative.

In the judgment appealed against, the learned trial judge discussed the meaning of the expressions "policies of life assurance" and "endowment assurance".  His Honour was of the view that it was an essential characteristic of a contract of insurance that there be a risk to the insurer that it might suffer a loss.  It was said that the present contract did not contemplate that at any time there would be a chance that National Mutual would benefit or lose according to when the death of the bankrupt occurred. This was the case because whichever contingency occurred under the policy, all that would happen would be that the bankrupt would receive a return of the premiums paid together with accrued interest.  What his Honour referred to as the "necessary element of speculation" was, accordingly, absent.

Alternatively, his Honour was of the view that even if the benefits payable on death or retirement, as secured by the policy, could properly be described as amounts payable under a policy of life assurance or endowment assurance, the benefit payable on the bankrupt ceasing to be an employee prior to the retirement date could not be seen as a benefit payable under a policy of insurance.  It was submitted that this benefit could be looked at separately, as was done in the case of Re Carter (1962) 19 ABC 144 .

The respondent trustee in bankruptcy supported the reasoning of the judge below in all respects.  Alternatively, he submitted that if the "policy" was a policy of insurance it should be characterised as a policy of pure endowment and thereby excluded from the protection of s 116(2)(d).  The appellant, on the other hand, submitted that it was not a requirement of an insurance policy that there be a risk of loss to the insurer and that in any event there was such a risk in the present case.  The appellant submitted also that in a case where a number of benefits were provided under a policy for a single unallocated premium, there was no ability, in the absence of separate premiums, to separate out some of the benefits as benefits payable under a policy of life insurance and others as benefits not payable under a policy of life insurance.  It was submitted that the situation which arose in Re Carter should be distinguished and the amount in the present case be seen, accordingly, as money payable under a policy of life insurance.

I turn now to consider the arguments raised.

The meaning of "policies of life assurance" and "endowment assurance".

The protection given to policies of life assurance or endowment assurance in the event of bankruptcy had its origin in the Australian Mutual Provident Society Act 1857, a private Act of the New South Wales colonial legislature which incorporated the AMP Society and provided by s 14, in respect of policies issued by that Society, that the property and interest of every member or his personal representative in any policy of assurance or endowment was to be exempt from liability under laws dealing with bankruptcy or insolvency or to be seized or levied upon by a court.  This protection was subject to the proviso that the policy had enured for at least two years when the protection afforded was limited to the extent of pounds 200, after five years to the extent of pounds 500, after seven years to the extent of pound 1,000 and after ten years to the extent of pounds 2,000.  Limited protection was also extended to annuity policies.  According to a summary of the history of the Society included in its 1899 Annual Report, the provisions of s 14 were unique in the world.  By the time s 91(b) of the Bankruptcy Act 1924 (Cth) was enacted, which section also conferred protection upon policies of insurance or endowment, other States had enacted legislation providing for the protection of such policies against creditors.  Legislation extant in 1924 included: Life, Fire, and Marine Insurance Act 1902 (NSW) ss 4-7; The Life Assurance Companies Acts 1901-1934 (Qld) s 18; The Policies Protection Act 1887 (SA) ss 3-5 and the Life Assurance Companies Act 1889 (WA) s 33.

The present section, whilst substantially re-enacting s 91(b), embodied certain changes recommended by the committee chaired by Sir Thomas Clyne in paras.155-157 of that committee's report (The Clyne Report).

A similar policy of encouraging insurance by protecting certain life assurance policies, may be found in ss 92 and 94 of the Life Insurance Act 1945. The protection given by those sections is, however, expressed to be subject to the provisions of the Bankruptcy Act.  Save that the sections in the Life Insurance Act embody a similar policy, little assistance can be derived from the Life Insurance Act 1945 which clearly enough was enacted years later than the Bankruptcy Act 1924, the precursor of the present Act: cf per Gibbs J in Re Carter (1962) 19 ABC 144 at 150.

What this brief historical survey makes clear is that there has existed in Australia for in excess of 100 years a policy of encouraging the investment in life assurance by affording to policies of life insurance and endowment a limited protection in the event of bankruptcy.

In Re Lin (1960) 18 ABC 142 , Clyne J referred to the legislative policy as one "designed to encourage thrift and to enable persons to make provision for their dependents".  The policy to afford absolute protection against creditors for policies of life assurance and endowment assurance, or the proceeds of those policies, was modified to a minor extent following the recommendations of the Clyne Committee by the exclusion from s 116(2)(d) of policies of pure endowment and the giving of limited protection to such policies by s 116(2)(e).  Subject to that, the policy underpinning s 116(2)(d) remains the same today as it always has been, namely, an encouragement to persons effecting policies of life assurance and endowment by preventing the proceeds of those policies from being taken in the event of bankruptcy for distribution among creditors.

There are no definitions of "policies of life assurance or endowment assurance" contained in the Act and accordingly regard may be had to the ordinary meaning of these expressions as found in the cases.

The classic Australian authority is the decision of the High Court in National Mutual Life Association of Australasia v Federal Commissioner of Taxation (1959) 102 CLR 29 in the judgment of Windeyer J with whom Dixon C.J. and Kitto J agreed.  The question at issue in that case was whether moneys received as part of the premiums for certain policies issued were "premiums received in respect of policies of life assurance" within the meaning of the then s 111 of the Income Tax and Social Services Contribution Assessment Act 1936.  The policies in question contained, in addition to benefits ordinarily to be found in policies of life insurance, additional benefits covering the assured in the event of death by accident or disablement.

The starting point of Windeyer J's discussion was the well-known quotation from Bunyan on Life Insurance, namely: 

"The contract of life insurance may be further defined to be that in which one party agrees to pay a given sum upon the happening of a particular event contingent upon the duration of human life in consideration of the immediate payment of a smaller sum or certain equivalent periodical payments by another."

The judgment points out that there are three forms of insurance which, either alone or in combination, are the essence of life insurance: term insurance, whole of life insurance and endowment insurance.  A term policy is (at 43-4):

"an insurance limited for a specified period, the sum insured being payable if the life insured dies within the period, but nothing being payable if he survives."

A whole of life policy, as its name suggests, is a policy in which the sum insured is payable at death.  A policy of endowment insurance was described in the judgment (at 44-45) as follows: 

"Endowment policies, in their original form of 'pure endowments', are the exact opposite of term policies.  In a term contract no payment is made unless death occurs within the stipulated term; in a pure endowment no payment is made unless the person whose life is insured survives the date when the policy matures.  Endowment policies of this kind seem to have originated in the eighteenth century in schemes of insurance for the advancement in life of children...  As a rule an endowment policy at the present day provides for payment of the sum insured at some future date (either a particular date or the attainment of some selected age) called the maturity date, or earlier death.  That is now the usual meaning of the expression..."

The judgment distinguishes policies of life insurance on the one hand and marine, fire, burglary, personal accident, motor vehicle and other miscellaneous insurances, on the other.  The latter class of policies indemnify the insured against loss from events which may or may not occur. Death, on the other hand, is a contingency which must occur. It is not a risk but a certainty.  As Windeyer J points out, the only uncertainty about a policy of life insurance is when death will occur.

According to the judgment, it is now appropriate to refer to endowment policies as a form of life policy.  The difference was pithily stated (at 45) as follows: 

" ... it has been said that a whole life policy is an insurance against dying too soon, an endowment policy an insurance against living too long."

These various kinds of policies may, of course, be found in combination. Thus, policies, often referred to as "double endowment policies" may be a combination of term insurance and endowment insurance.  The policy in Gould v Curtis [1912] 1 KB 635 ; [1913] 3 KB 84 ; is illustrated by Windeyer J as such a policy.

Although a policy of insurance against death by accident may be said to be a policy relating to the life of the person insured, such a policy has never been seen as being a policy of life insurance: see Re Farley (1933) VLR 271; Re Kerr (1943) SASR 8; Re Packer (1958) 18 ABC 97 .

The starting point of the analysis undertaken by the learned Trial Judge below was the decision of Channell J in Prudential Insurance Company v Commissioners of Inland Revenue [1904] 2 KB 658 at 662.  The Prudential Insurance Company case was, again, a stamp duty case.  The policy in question provided for the payment of a benefit to the insured on his attaining the age of 65 years, or a smaller sum in the event of his dying under that age.  The question was whether the policy was properly to be characterised as a policy of insurance upon a contingency depending upon a life within the meaning of the then s 98 of the Stamp Act 1891.  The argument of the Inland Revenue Commissioners was not that the policy was not a policy of life insurance, but rather that it was not a policy of insurance at all.  Channell J agreed (at 662) that the only question in the case was whether the policy was a policy of insurance.  If it were, his Lordship was of the view that it was free from doubt that it was a policy upon an event relating to or dependent upon a life. His Lordship continued (at 662-4):

"The Attorney-General says that to constitute a contract of insurance it must be provision against something - against some loss or disadvantageous event.  Mr Danckwerts says that may be true as regards marine and fire policies which are indemnities against loss, but it is not true as regards life policies, for a policy of life insurance is not a contract of indemnity.  But the question is whether that makes any real difference, and it seems to me that we must inquire a little further into the nature of a contract of insurance.  Where you insure a ship or a house you cannot insure that the ship shall not be lost or the house burnt, but what you do insure is that a sum of money shall be paid upon the happening of a certain event.  That I think is the first requirement in a contract of insurance.  It must be a contract whereby for some consideration, usually but not necessarily for periodical payments called premiums, you secure to yourself some benefit, usually but not necessarily the payment of a sum of money, upon the happening of some event.  Then the next thing that is necessary is that the event should be one which involves some amount of uncertainty. There must be either uncertainty whether the event will ever happen or not, or if the event is one which must happen at some time there must be uncertainty as to the time at which it will happen.  The remaining essential is that which was referred to by the Attorney-General when he said that the insurance must be against something.  A contract which would otherwise be a mere wager may become an insurance by reason of the assured having an interest in the subject-matter - that is to say, the uncertain event which is necessary to make the contract amount to an insurance must be an event which is prima facie adverse to the interest of the assured. The insurance is to provide for the payment of a sum of money to meet a loss or detriment which will or may be suffered upon the happening of the event...  Still, the necessity of there being an insurable interest at the time of the making of the contract shews that it is essential to the idea of a contract of insurance that the event upon which the money is to be paid shall prima facie be an adverse event...  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."

His Lordship then found the contract in question to be a contract of insurance, whether the benefits payable under it were looked at separately or together.  Thus, a contract to pay a sum of money at a particular age was, in the relevant sense, "uncertain" for it was uncertain whether the assured would live to that age.  Clearly enough the contract to pay an amount on death would be insurance because, although death was certain, the time of it happening was uncertain.  The fact that a larger sum was payable in the event of reaching the prescribed age rather than death, was a matter which his Lordship regarded as immaterial.

The requirement of uncertainty, which was referred to by Channell J, was said by the learned trial judge to be uncertainty "as to both profit and loss to the insurer".  This was said to be a distinguishing characteristic of a contract of insurance.  There is nothing in the comments of Channell J which leads to this conclusion. Indeed, in the present case, the element of uncertainty, in the sense that that word is used by Channell J, is clearly there.  The retirement benefit, payable under cl.11, is uncertain because the member may die before reaching the retirement date and thus receive no benefit under that clause.  The death benefit, payable under cl.13, is equally uncertain, not in the sense that death is uncertain, but because the time of death is uncertain and that benefit will not be payable if the member retires before the event of death occurs. Equally, the benefit payable under cl.17 is uncertain because it will only be payable if death has not intervened.  The fact that the quantum of the benefits is the same does not affect, in my view, the outcome.

His Honour expressed the view that in addition to the element of uncertainty which his Honour saw as a necessary prerequisite to a policy of insurance, it was necessary that the insurance contract be one "upon speculation".  Referring, inter alia, to Commonwealth Homes and Investment Co Ltd (1943) SASR 211 at 231, his Honour said:

"It is a characteristic of a contract of insurance that the amount of the premium is not intended to be equivalent to the present value of insurer's actual performance; MacGillivray and Parkington on Insurance Law 7th Ed at 3. And conversely the insurer's actual performance, the payment of the sum insured on the happening of the contingency, is not intended to be equivalent to the value of the moneys paid to the insurer by way of premium."

With respect to his Honour, I have some difficulty in understanding this passage.  The case of Re Commonwealth Homes and Investment Co Ltd concerned, inter alia, an issue whether certain bonds, issued by Commonwealth Homes and Investment Co, constituted life policies such that that company was carrying on a life insurance business contrary to the provisions of the Insurance Acts 1932 (Cth). The terms of the bonds were somewhat complex.  However, the bonds provided for payment of a fixed sum to the holder at the date of maturity and for payment or refund of premiums paid if death previously occurred. Commenting upon the bonds (which contained as well other clauses to which I will shortly make reference), Mayo J said (at 231):

"In so far as the bond contracts so provide they are not, I think, policies within the meaning of the statute.  Doubtless the refund of premiums is 'payment of money on death,' but an undertaking to make that payment, if death occur, does not constitute a policy, or contract, 'insuring' such payment, any more than a condition in a mortgage requiring the mortgagor to repay the principal sum on death of the mortgagee could be so described.  To be a 'policy insuring' payment of a sum of money there must be something more. To 'insure' suggests an indemnity, or payment of an amount to cover loss or injury, where an element of risk, or what might be called of speculation, is present, which is insured against in consideration of a premium...  A life policy as ordinarily understood is the purchase of a reversionary sum payable at death in consideration of a present payment of money, or as is generally the case, on the payment of an annuity to the insurer during the life of the person insured...  The word 'insure' is inept to describe an undertaking to refund, or acceleration of the repayment of a loan."

As I have already indicated, the bonds issued by Commonwealth Homes and Investment Co provided additionally for the payment, to the bond holder at maturity, of certain amounts with bonus additions as declared by the company. It was also provided that in the event that the holder were to die before maturity, all premiums were payable with bonus additions at their full reversionary value.  These additional benefits had the result, in his Honour's view, of ensuring that the policy was a policy of insurance.

Whether or not an engagement merely to repay the premiums on death would be a policy of insurance, it does not follow that an agreement by an insurer to pay a sum calculated by reference to the premiums together with an agreed interest component would not be a policy of insurance.  If risk to the insurer is a necessary requirement of an insurance policy, such risk exists in that the insurer may not be, in fact, able to obtain that interest rate, but will nevertheless remain liable to pay the sum on the happening of the risk.  It is not correct to say, as his Honour says in the judgment, that in no relevant sense was National Mutual exposed to a risk that it might suffer a loss.  His Honour's exposition of this matter was as follows:

"The contract did not contemplate that at any time would there be a chance that National Mutual would benefit or lose according to when the death of the bankrupt occurred.  The contract contemplated that money would be received by National Mutual in respect of the bankrupt's interest in the fund, that the money would be invested by it, and that whenever the time for payment of a benefit arose the moneys received together with accrued interest would be repaid. This situation may be contrasted with that considered in Re Commonwealth Homes and Investment Co, supra, where the company agreed not only to refund premiums paid on a bond in the event of death before maturity (an obligation which was held not to involve an element of life insurance), but to pay as well, in the event of death, the full reversionary value of bonuses which otherwise would have been paid at the maturity of the bond...  The obligation to pay the full reversionary value of bonuses on death introduced the element of speculation, and the chance of loss to the company, necessary to constitute the obligation as one of insurance."

With respect to his Honour, I do not find in any case authority for his Honour's views.  At the heart of the problem is what is said to be the difficulty of distinguishing between a loan to an insurance company at interest and a policy of insurance.  Thus, it was submitted, that a loan could be imagined on the following terms:

(1)

Interest will be payable at a rate to be nominated from time to time and will be capitalised.

(2)

In the event of the death of the lender, the principal and accumulated interest will be immediately repayable.

(3)

The principal and interest will be immediately repayable when the lender attains the age of 65, if he has not died first.

(4)

The principal and accumulated interest will be payable if the member shall demand repayment before attaining the age of 65.

It was said that such a loan would achieve in substance the same result as the present so-called policy of insurance.  The submission continued by warning against the use of the label attached to the arrangement, namely loan or policy of insurance, to determine the true legal character of the contractual engagement.  Reference was made to cases such as Trade Indemnity Co Ltd v Workington Harbour and Dock Board [1937] AC 1 at 16-17; Re Australian and Overseas Insurance Co Ltd (1963) 8 FLR 403 at 414.

While it is undoubtedly true that the label used by the parties will not be determinative of the true legal character of their contractual arrangements, it does not follow that the label used between the parties will be totally irrelevant.  There are cases in many areas of the law where the label used between the parties has been of some assistance in determining the true legal character of the arrangement. Thus, the use of the term "debenture" in British India Steam Navigation Co v Commissioners of Inland Revenue (1881) 7 QBD 165 assisted the Court in concluding that the instrument in question in that case was, in truth, a debenture for the purposes of the Stamp Act of 1870 (UK). Another example which may be given arises in the context of determining whether a person is, or is not, an employee.  It is now clear that an express provision in a contract between parties purporting to define their status as employer/employee will be given effect to unless there is reason to believe that the clause is a sham.  Thus, in Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385 , Lord Fraser of Tullybelton said, of a clause of that kind (at 389-90): 

"Clearly cl.3, which, if it stood alone, would be conclusive in favour of the Society, cannot receive effect according to its terms if they contradict the effect of the agreement as a whole. Nevertheless, their Lordships attach importance to cl.3, they consider that the following statement by Lord Denning MR in Massey v Crown Life Insurance Co [1978] 1 WLR 676 correctly states the way in which it can properly be used:

'The law, as I see it is this: if the true relationship of the parties is that of master and servant under a contract of service, the parties cannot alter the truth of that relationship by putting a different label upon it... On the other hand, if their relationship is ambiguous and is capable of being one or the other (i.e. either service or agency), then the parties can remove that ambiguity by the very agreement itself which they make with one another.  The agreement itself then becomes the best material from which to gather the true legal relationship between them.'

In the present case, where there is no reason to think that the clause is a sham, or that it is not a genuine statement of the parties' intentions, it must be given its proper weight in relation to other clauses in the agreement."

See too the judgment of the Privy Council delivered by Lord Brandon of Oakbrook in Narich Pty Ltd v Commissioner of Payroll Tax (NSW) (1984) 84 ATC 4035 .

There is no suggestion in the present case that the label used, namely, "policy of insurance" was intended, by the parties, to be a sham.  The "policy" was issued by a company carrying on life insurance business to a subsidiary company.  It was not a disguise for some other and different legal relationship between the parties, encompassed by a contract of loan.

The decision of the Court of Appeal in New Zealand in Marac Life Assurance Ltd v Commissioner of Inland Revenue (1986) 1 NZLR 694 is, in this context, instructive.  That case concerned what would be called in Australia "single premium insurance bonds." The policy holder paid a single premium and received, on a specified date at maturity, or prior death, the return of the premium together with specified bonuses. The bonds were available for one to five years and ten years and could be renewed on maturity.  The so-called "bonuses" were calculated at percentage rates per annum, although if the assured died at any time during the currency of the policy the appropriate annual rate became immediately payable in full.  Only in the ten year bonds was there a provision that the policy would also participate in the distribution of surplus, by way of reversionary bonuses.

The Commissioner of Inland Revenue of New Zealand took the view that the bonds were not policies of life insurance but were in the nature of a term investment and sought to tax the policy holders, on the bonds issued for terms of one to five years, on the basis that the bonuses were interest.  It was held by all five members of the Court of Appeal, Cooke, Richardson, McMullin, Somers and Casey JJ., that the policies were policies of life insurance.

Richardson J, after citing with approval a number of the decisions previously mentioned, including the National Mutual case, discussed the submissions of the Commissioner of Inland Revenue, submissions which were echoed before us, in the following terms (at 705-6:)

"Mr Jenkin accepted that they all contained some elements of life or endowment assurance and that they were not shams.  His submission was that they should nevertheless be regarded as essentially a contract for the investment of moneys with the added life insurance component being insufficient to justify labelling the contract as a policy of life insurance.

It is not sufficient for Mr Jenkin's argument to say that the Marac Life bonds involve the investment of moneys.  It may readily be accepted that each bond was entered into as an investment.  But in one sense that is true of all life insurance.  Indeed whole of life and endowment insurance with participation in bonuses is not readily explicable except as being designed partly as securing an ordinary investment return - fixed death cover alone may be provided by simple term insurance.  The principle question must be whether the transaction is properly characterised as a contract of life insurance (or endowment insurance), not whether the expected or guaranteed return makes it a good investment if the investor survives to maturity when the return is compared with straight lending transactions.  Investors are free to enter into whatever lawful financial arrangements will suit their purposes.  They cannot be treated as having entered into a different arrangement which would or might have achieved somewhat similar economic advantages and whether or not they ever had that alternative in contemplation.  If Marac Life bonds are policies of life insurance that is the end of the inquiry.

The true nature of a transaction can only be ascertained by careful consideration of the legal arrangements actually entered into and carried out: not on an assessment of the broad substance of the transaction measured by the results intended and achieved or of the overall economic consequences.  The nomenclature used by the parties is not decisive and what is crucial is the ascertainment of the legal rights and duties which are actually created by the transaction into which the parties entered.  The surrounding circumstances may be taken into account in characterising the transaction.  Not to deny or contradict the written agreement but in order to understand the setting in which it was made and to construe it against that factual background having regard to the genesis and objectively the aim of the transaction...  But at common law there is no half-way house between sham and characterisation of the transaction according to the true nature of the legal arrangements actually entered into and carried out...

On its face, and leaving aside the use of the description 'bond' which in traditional usage ordinarily refers to a debt contract evidencing an obligation to pay principal and interest but is descriptive nomenclature only, each type of bond is in form a classic contract of endowment assurance.  Each contains the essential distinguishing features of a policy of life insurance. Marac guarantees to pay from day one a sum in excess of the premium if the life assured dies prior to the maturity date.  That guarantee provides a significant and measurable level of death cover capable of arithmetical measurement.  For its part Marac bears from day one an insurance risk that is dependent upon human life inasmuch as it has contracted to pay both the sum guaranteed on death and the sum guaranteed on survival to the maturity date. The risk is readily capable of actuarial calculation and such calculations were made and taken into account in deciding on the premiums to be charged in return for the consideration to be provided by Marac."

With respect, I agree with what his Honour there said.

It is true, in the present case, that there is no evidence that the premiums in question were actuarially calculated.  Nor, indeed, would it be expected there would be.  But like the bonds in Marac, the present policy ensures to the person insured a benefit greater than the premium paid in the event of the death of the life insured, or his survival to a certain age without having died.  The fact that it contains as well the benefits in cl.17, in my opinion, does not detract from its status as a life policy.  Clause 17 is no different in its operation from a provision that permits cancellation of the policy at any time, or in limited circumstances, with an amount becoming thereby payable to the person insured.

Some assistance may also be derived from the decision of the High Court in Commissioner of Stamp Duties (NSW) v Jones (1971) 125 CLR 511 .  An issue in that case was whether a group policy providing benefits under a superannuation plan was a policy of assurance on the life of a deceased person within the meaning of s 102(2)(h) of the Stamp Duties Act (NSW) 1920.  It was argued that a policy which provided benefits otherwise than on death, that is to say, on reaching a certain age or ceasing to be an employee after a certain date (presumably including by resignation), was not such a policy.  The argument was rejected both in the Court of Appeal (Lloyd-Jones v Commissioner of Stamp Duties (1971) 1 NSWLR 106) and in the High Court.  There is little discussion on the matter in the Court of Appeal.  Jacobs J.A. said merely (at 114): 

"Contributions were made under the scheme so that trustees could pay what are described as premiums and the purpose was so that on a number of events, including the death of the deceased, a sum of money representing at least the accumulated premiums should be paid to the trustees.  In my view the policy of the trustees was in this way a policy of assurance on the life of the deceased."

The judgment of Moffitt J.A., with whom Holmes J.A. agreed, contains no discussion of the question.

In the High Court, Owen J, with whose judgment Barwick C.J. and McTiernan J agreed, doubted whether, having regard to the language of s 102(2)(h), the policy should properly be called a policy of assurance on the life of the deceased, or whether it was not more properly to be described as an endowment policy.  While an endowment policy might not fall within the wording of s 102(2)(h), the distinction between a policy of life insurance and a policy of endowment has no relevance to the present case, particularly as s 116(2)(d) specifically extends the protection granted in case of bankruptcy to endowment policies.

Menzies J specifically rejected the argument that the fact that the death benefit was only payable if the deceased was in the employ of the employer at the time of death required the conclusion that the policy was not a policy of insurance on the life of the deceased. As his Honour said (at 515): 

"Term policies are well recognised policies of insurance on life and many life policies are issued according to which the death benefit ceases after a specified age.  An insurance upon the life of an employee, while he is an employee, is a typical instance of 'key man insurance' which is commonly regarded as an insurance upon the life of the employee...  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."

His Honour found it unnecessary to consider a further argument that because the policy provided benefits both upon death and benefits other than death benefits it was necessary to compare the various benefits and characterise the policy according to what was the principal benefit provided. Nevertheless, his Honour expressed the view that the distinction sought to be made was unreal.  As his Honour said, the very terms of the policy demonstrated that it was a policy upon the lives of members.

Windeyer J, who expressed the view that the policy would conventionally be described as an employee's superannuation policy, said (at 525): 

"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)."

I am accordingly of the view that the policy is properly to be characterised as a policy of life insurance.

Should there be an apportionment of the benefits payable under the present policy?

Where policies containing benefits appropriate to policies of life insurance contain as well accidental death or disability benefits, a question has arisen whether it is appropriate for such policies to be characterised as policies of life insurance, on the one hand, or whether the respective benefits may be severed, on the other. Much may depend on the purpose for which the characterisation is required and whether separate premiums are payable for the separate kinds of cover provided.

In General Accident Assurance Corporation Ltd v Inland Revenue Commissioners (1906) 8 SC 477, for example, the question arose, for the purposes of stamp duty, whether a policy was properly to be characterised as a policy of life insurance where the policy was substantially an accident policy but provided for the return to the insured, or his legal personal representative, of a percentage of the premiums paid upon the insured reaching a certain age or dying before that time, so long as no claim had been made otherwise on the policy. There was no divisible premium and it was held, in the circumstances, that the policy should be characterised only as an accident policy and not chargeable as well as a policy of life insurance.

In National Mutual, in contrast, it was held that a policy which contained both life benefits and accident benefits, where the premium payable was severable and apportionable, should be treated, for the purposes of s 111 of the Income Tax Assessment Act 1936, as both a policy of life insurance and a policy of accident insurance, so that the apportioned part of the premium relevant to the life insurance component was excluded from assessable income under s 111. Windeyer J said, however ((1959) 102 CLR 29 at 50): 

"If the premium paid in consideration of a combined policy were not severable and apportionable, then in my view, the result of s 111 might well be, not that no part of the total premium should be included in the assessable income, but that all of it should be."

This view may be contrasted with that taken by Gibbs J in Re Carter (1962) 19 ABC 144 .  That case arose under s 91B of the Bankruptcy Act 1924. The policies in question included, in addition to policies providing benefits in the event of accident, composite policies providing both accident and life insurance benefits.  His Honour defined the distinction between life insurance on the one hand and accident insurance on the other, as follows (at 150-1): 

"Life assurance (or life insurance - there is no fixed usage...) is insurance against a contingency that must occur; the event insured against by accident insurance need never occur.  A life policy may not be terminated by the insurer provided that the premiums are duly paid, whereas an accident insurance ordinarily lasts only for one year, and the insurer is not bound to renew it; in the exceptional case in which there is a right of renewal of an accident insurance, the policy, unlike a life policy, has no surrender value.  The premiums payable under a policy of life assurance, which normally are calculated actuarially having regard to the age and other circumstances of the insured, are fixed at the inception of the policy and may not be varied; on the renewal of an accident policy the insurer may demand an increase in the premium."

After considering the National Mutual case and its application to combined policies, Gibbs J said (at 152): 

"There are three possibilities in the present case.  The policies may be regarded as basically policies of life assurance and as maintaining this character notwithstanding the presence of provisions for accident insurance.  If this is the correct view, s 91(b) would protect not only the benefits payable on death, but also those payable in the event of disablement.  Secondly, it may be said that the accident insurance element of the policies prevents them from being properly described as policies of life assurance; if this is so, the protection of s 91(b) does not extend to any part of the policies.  The third possibility is that the protection of the section extends only to the life assurance elements of the policies.  This is the trustee's contention, and in my view it is correct."

It must, however, be said that the reference in that case to the correctness of the third possibility must be seen against the circumstance that in all of the policies concerned, the premium relative to the accident benefits was fixed by the policy or apportionable.  It does not follow that his Honour would have reached the same conclusion had this not been the case.

Notwithstanding the decision of Gibbs J in Re Carter, I do not think that in the present case, where the premium cannot be dissected, the benefit payable under cl.17 can be dissected out and looked at on its own to be tested as to whether or not it is a benefit appropriate to a policy of insurance. Where, as in a case such as the present, the whole of the policy is properly to be characterised as a policy of life insurance, then I do not think that the apportionment adopted by Gibbs J in Re Carter is either necessary or appropriate. Rather, in my view, provided the whole of the policy is properly to be characterised as a policy of insurance, as, in my opinion, it is, the benefit payable under it is properly to be described as a benefit payable under a policy of insurance and the proceeds are accordingly proceeds of a policy within the meaning of s 116(2)(d).

Was the policy a "policy of pure endowment"?

Although the First Respondent submitted that the policy in the present case fell to be characterised as a policy for pure endowment, this submission was not developed in any detail and rightly so.  No benefit payable under it was payable at a specified date, that is to say, a date nominated in the policy itself. Reference was made to the retirement benefit, but even if a benefit payable upon the insured attaining a specified age is a benefit payable at a specified date (a matter upon which I express no view), the retirement benefit here is payable only upon the occurrence of a further condition, namely actual retirement.  In no way can a benefit payable only on retirement after a nominated age be a benefit payable at a specified date.

Accordingly, the present policy is not a policy for pure endowment.

Accordingly, I would allow the appeal and order the trustee in bankruptcy, the first respondent, to pay the appellant's costs of it. The bankrupt, who was joined as a party by order of the Court, submitted to any order which the Court should make save as to costs.  Accordingly, there should be no order in respect of the costs of the bankrupt.