Independent Order of Odd Fellows v. Commissioner of Stamps (S.A.).

Judges: King CJ
Cox J

Olsson J

Court:
Supreme Court of South Australia (Full Court)

Judgment date: Judgment handed down 1 May 1985.

Olsson J.

This is an appeal by The Independent Order of Odd Fellows (``the IOOF'') against an assessment of stamp duty raised by the Commissioner of Stamps (``the Commissioner'') pursuant to the provisions of the Stamp Duties Act, 1923, as amended (``the Act''). By virtue of an order made by Millhouse J. the appeal was reserved for the consideration of the Full Court.

The relevant facts are set out in a case stated by the Commissioner. They may be summarized as follows:

1. The IOOF is a body corporate which established a scheme known as the ``Flexible Assurance Fund'' (``the Fund'') with effect from 30 July 1982.
2. The Fund was regulated by Rule 365 of the Constitution Rules and Regulations of the IOOF. That Rule authorised the creation of a fund separate and distinct from other funds managed by the IOOF and which was based upon the concept of what is described as a single contribution assurance.
3. For present purposes the essential features of the Fund were:

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- • A member could apply to contribute to it in the form of a single, specified lump sum, not being less than a minimum of $1,000.
- • The term of membership was to be 10 years, although this could be extended at the member's option.
- • The contribution was subject to an initial administration charge (not exceeding 5%). This could be paid separately or deducted from the contribution and was to be credited to the general Management Fund maintained by the IOOF.
- • The Fund was to be maintained by the various net contributions made after provision for the administration charge and ``by the accretion of interest on capital invested...'', subject to the right of the IOOF to deduct moneys from income (to be credited to the Management Fund) up to the maximum specified by Rule 365(2).
- • At least once every financial year the Board of the IOOF was to declare a bonus rate on the basis of an actuarial report obtained for the purpose. That bonus was to be allotted to each member at least once each 12 months.
- • Pro rata bonus allotments were to be made on expiry of the nominated term or in certain other specified events (e.g. the death of the member prior to such expiry).
- • At the expiry of the initial 10 year term the member had the option of receiving the net contribution made (after payment of the administration charge) plus bonuses to which he was entitled or of re-investing the whole or part of the total sum due to him for further term.
- • In the event that the member died prior to the expiry of the term of the investment the Rule provided that -

``... the benefit payable shall be a refund of contributions paid and remaining in the fund at date of death plus all bonuses allotted to the member to the date of death, provided that the benefit shall not be less than the contribution paid by the member and remaining in the fund plus the initial administration charge.''

Provision was also made for a member of the Fund to wholly or partially withdraw from it prior to the normal term, subject to certain conditions stipulated.

4. The written application required to be made by potential members of the Fund was such that, when completed, it clearly indicated the total sum paid, the quantum of administration charge debited (referred to in the form as a ``management fee'') and the amount of the so-called ``net investment'' of the member.
5. When an application was accepted the IOOF issued to the applicant a formal written certificate of membership of the Fund stapled to a printed cover so as to form a single composite document. Examples of these were supplied for the purposes of the appeal. No other relevant documents were issued by the IOOF to the member in respect of a contribution.
Omitting irrelevant material on the backsheet, the certificate and the printed cover were respectively couched in these terms:
a. The certificate:

``MEMBERSHIP NUMBER

CERTIFICATE NUMBER

I.O.O.F. FRIENDLY SOCIETY

47 GAWLER PLACE, ADELAIDE, S.A. 5000

Telephone 212 1422

FLEXIBLE ASSURANCE FUND

This is to Certify that Mr. John CITIZEN has been admitted to the Flexible Assurance Fund of Independent Order of Odd Fellows for Single Contribution Savings Assurance.

This Assurance is based on the signed Application for Membership dated 16th April 1984, the benefits and conditions of membership being in accordance with the current General Laws of Independent Order of Odd Fellows which govern the structure and operation of the Flexible Assurance Fund. The General Laws can be altered at a General Meeting of Independent Order of Odd Fellows.

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FULL NAME OF MEMBER

Mr. John CITIZEN

ADDRESS

11 Main Road, ADELAIDE. S.A. 5000.
      AMOUNT OF       DATE OF       MATURITY

      CONTRIBUTION    ENTRY         DATE

      $9,600.00       16/4/84       16/4/94
          
SIGNED FOR AND ON BEHALF OF

INDEPENDENT ORDER OF

ODDFELLOWS FRIENDLY SOCIETY

................. DATE 16th April, 1984.''

b. The Cover:

``INDEPENDENT ORDER OF ODD FELLOWS OF SOUTH AUSTRALIA

FLEXIBLE ASSURANCE FUND

Certificate of Membership

The Person named in the Membership Certificate within as the `Member' has been admitted by the Independent Order of Odd Fellows of South Australia (herein called the Society) and/or any other contracting Friendly Society/ies, as determined by the Society, to the Flexible Assurance Fund, on the basis of the signed application and declaration.

1. In consideration of the payment to the Society of the Contribution, the Society will pay the benefit shown in the Membership Certificate to the Member, his/her Executors, Administrators or Assignees upon satisfactory proof to the Society of:

(a) the happening of the event set forth in the Benefits and Conditions Schedule;

(b) the title of the person or persons claiming payment.

2. All payments made in connection with this Benefit, whether by or to the Society shall be made in the legal currency of the Australian Government.

IMPORTANT NOTE ABOUT YOUR FLEXIBLE ASSURANCE FUND

The contribution is accepted by the Society for a period of ten years and will mature on the 10th anniversary of the commencement date shown on the Membership Certificate, together with accrued bonuses.

Withdrawal Value

After three months membership of the Fund the member may apply to the Society for early withdrawal in total or in part.

Death in the first year

A measure of Life Insurance cover is included to assure that in the event of death in the first year the benefit will not be less than the contribution paid and remaining in the Fund (including the initial Management Fee).

Benefits and Conditions Schedule

1. Investment Account

The amount of contribution will be credited in the Society's books for the benefit of the Member. The amount so credited, plus any bonus distributions declared in accordance with Clause 2, will constitute the Member's Investment Account in respect of this Benefit.

2. Bonus Distributions

The Society will declare a percentage bonus rate each year. This bonus will be calculated each year according to the continuing daily balance of the Investment Account during the year under review and allotted annually.

3. Benefit Payable

(a) On Maturity

The amount payable at maturity will be the balance in the Member's Investment Account, including final pro rata Bonus at the rate last declared up to Maturity Date.

(b) On death prior to Maturity

The amount payable on death of the Member will be the balance in the Member's Investment Account plus pro rata Bonus at the rate last declared to the date of death provided the Benefit so calculated is not less than the contribution paid and remaining in the fund (including Management Fee).

The amount payable on the death of the Member will be paid to the Member's Executors, Administrators or Assignees.

(c) On prior Withdrawal

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The amount available for withdrawal will be the balance in the Member's Investment Account including a final pro rata Bonus at the rate declared as at the previous bonus declaration date up to the date Withdrawal of the Benefit is required.''

6. The case stated indicates that, within the 12 months preceding the year 1983, the appellant received contributions in the gross amount of $2,429,612. Of that sum $90,664 was appropriated as initial administration charges and the balance paid to the Fund. As at 31 December 1982 the capital element of the Fund thus stood at $2,338,948, made up as under:

         Month              Contributions              Number of

                                  $                     Members

         July                 38,400.00                     6

        August               581,570.00                    98

       September             498,100.00                   116

        October              582,540.00                    93

       November              296,343.10                    67

       December              341,994.90                    71

                           ------------                   ---

                           2,338,948.00                   451

7. The concept of the Fund was based on an actuary's report obtained prior to its commencement. This assumed an earning rate of 16% for the financial year ended 30 June 1983 and recommended the following allocation of income:
- Bonus - 13.5%
- Provision for death cover - 0.25%
- Management Fund - 2.25%
The death cover allocation was intended to create what was tantamount to a contingency fund. This was to provide for cases where a member died very soon after initial contribution, at a time when such member's net contribution (after deduction of the 4% administration charge) plus bonus addition was less than the gross contribution originally paid - the minimum repayment which had to be made pursuant to the Rules. Assuming a bonus rate of 13.5% it would have taken 113 days for a member's contribution to have earned sufficient (by way of bonus accretions) to cover the 4% administration charge initially deducted from the single lump sum contribution.
8. On 2 March 1983 the IOOF made written application to the Commissioner for a licence pursuant to sec. 33 of the Act, which provided that -

``33(1) Every company, person or firm of persons which carries on or desires to carry on in South Australia any life, personal accident, fire, fidelity, guarantee, livestock, plate glass, marine or other assurance or insurance business, and whether the head office or principal place of business of that company, person or firm of persons is in South Australia or elsewhere, shall take out an annual licence every year in the form in the third schedule.

(2) The Commissioner is hereby authorized to issue such a licence on the payment to him of the duty specified in the second schedule.

(3) The duty payable in respect of any annual licence shall be denoted by impressed stamps.''

That licence was duly granted.

9. On 7 September 1983 the Commissioner determined that the duty payable on the annual licence was the amount of $35,085. This was calculated at the rate of $1.50 for every $100 or fractional part of $100 of the gross contributions received by the IOOF, i.e. $2,338,948 as above recited. In so doing the Commissioner rejected the contention of the IOOF that the so-called net contributions of members fell within Exemption 3 of the Annual Licence provisions contained in the Second Schedule to the Act.

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The lastmentioned rejection led to the present appeal. The case stated raises the following issues for the opinion of this Court:

(1) Whether the amount of duty payable on the licence is the amount determined by the Commissioner.
(2) If not, what amount of duty is payable on the relevant annual licence.

In addressing those questions it is convenient, at the outset, to clear away certain threshold aspects.

It was common ground as between counsel that, in promoting and managing the Flexible Assurance Fund, the IOOF fell within the purview of sec. 33 of the Act as being a company or person carrying on in this State a life or other assurance or insurance business. For myself I see no problem in accepting that proposition, which is lent substantial support by the dicta of Windeyer J. in
The National Mutual Life Association of Australasia Ltd. v. F.C. of T. (1959-1960) 102 C.L.R. 29 at pp. 42-46 .

In the instant case the only aspect of the section, as applied to the facts, which does require consideration is as to what constitutes the relevant ``policy''. That word was relevantly defined by the Act in its pre-1984 form as meaning and including ``as well any policy as any instrument in the nature of a policy, an open policy, an insurance cover, or any instrument in any manner covering any assurance or insurance''.

In my view the inescapable conclusion must be that the composite document comprising the certificate of membership and its internal cover (as already described) constituted the ``policy'' to which sec. 33 attached. In terms this also incorporated the relevant provisions of the constitution, rules and regulations of the IOOF.

That being so it becomes necessary to determine the manner in which the provisions of the Second Schedule to the Act attach to such a policy.

Inter alia, the Second Schedule declares rates of duty as under:

``ANNUAL LICENCE to be taken out by any company, person or firm of persons, whether corporate or unincorporate, which carries on or proposes to carry on in South Australia any life, personal accident, fire, fidelity, guarantee, livestock, plate glass, marine or other assurance or insurance business and whether the head office or principal place of business of that company, person or firm is in South Australia or elsewhere -

(a) Where the company, person or firm has received, or in any manner charged in account, premiums of any kind, whether directly or by agents, within the period of 12 months preceding the year for which the annual licence is to be taken out -

(i) for every $100 or fractional part of $100 of such of those premiums as relate to life insurance policies........................$1.50

(ii)...

(iii)...

(b)...

For the purposes of this item, subject to the exemptions mentioned hereunder -

(1) a reference to life insurance policies shall be deemed not to include policies covering personal accident or workers compensation;

(2) The premiums referred to in paragraph (a) are net premiums and shall be counted so as to exclude any commission or discount and any portion of those premiums actually paid by way of reinsurance effected in South Australia with any other such company, person or firm;

(3) no premiums received by any such company, person or firm for insurance risks outside South Australia, except life and personal accident insurance risks outside South Australia, shall be counted; and

(4) the duty in respect of any one licence under paragraph (a) shall not in any case be less than $100.

Exemptions -

1....

2....

3. Any portion of a premium received or charged under any life insurance policy, being an amount that is specified in, or directly ascertainable from, the

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policy and declared therein to be for investment purposes only and is not for, or in respect of, any insurance risk.

4....''

The key question which has arisen for decision is as to whether the net contribution of a member, exclusive of any sum paid or retained by way of initial administration charge, falls within the ambit of Exemption 3 above.

If it is to be characterised as a premium so exempted it must possess all of these indicia.

It must be:

a. portion of a premium received or charged...
b. under any life assurance policy...
c. being an amount that is specified in, or directly ascertainable from, the policy...
d. and declared therein to be for investment purposes only
e. and is not for, or in respect of, an insurance risk.

As I understood the submissions of counsel it was expressly or tacitly conceded that the net contribution adverted to in the certificate satisfied the first three indicia. However substantial contentions arose as to whether it could fairly be said that the net contribution was declared in the policy to be for investment purposes only and was not for, or in respect of, an insurance risk.

The word ``declare'' is capable of bearing several shades of meaning. It is said in the Shorter Oxford Dictionary relevantly to mean - ``To make clear or plain'', ``To make known; to state in detail; to recount, relate'', ``To manifest, prove'', ``To make known or state publicly, formally or in explicit terms'', ``To state emphatically, to own''.

Its primary and most common meanings are, in my opinion, to make clear, state in detail, manifest, or make known and I consider that it is employed in that sense in the Second Schedule.

The exception clause does not stipulate that this must be done according to any particular formula. All that is required is that it be made clear upon a reading of the policy documentation that the relevant portion of the member's contribution is set aside for investment purposes only.

I entertain no doubt that, read as a totality, the policy documentation does achieve that end result. The ``Benefits and Conditions Schedule'' printed on it unequivocally indicates both how the contribution is to be dealt with and what benefits it will attract. It specifically states that the net contribution ``will constitute the Member's Investment Account'' to which bonus additions will be added in manner described. It accurately summarizes the basis of benefits payable in the various circumstances described, as provided by the IOOF rules. It is plain that, once credited, the contribution is, indeed, for investment purposes only; and is not to be applied for other purposes.

The question remains as to whether it may properly be asserted that the net contribution ``is not for, or in respect of, any insurance risk''. It is at once to be noted that this phrase is thrust towards the purpose for which the contribution is made. It raises the issue as to whether there is a direct connection or relationship between the contribution itself and the insurance risk under consideration (
The Trustees Executors & Agency Co. Ltd. v. Reilly (1941) V.L.R. 110 at p. 111 ). It is, in my view, not to the point to pose the question, as counsel for the Commissioner in effect did, as to what might happen in the administration of the Fund, if certain contingencies crystallised.

It is true that the Fund promoter faced the need to cover a small insurance risk which arose in the event of a contributor dying within the first 113 days after joining the Fund. It made provision for that event by establishing an appropriate allocation of income based on actuarial advice out of income earned by the invested fund. As a matter of logic and plain common sense there was little or no practical likelihood that this would be inadequate to meet any actual liability which, in relative money terms, would obviously be minimal. If it did then, patently, resort could be had to other unallocated income. It is difficult, if not impossible, to envisage a likely situation in which the fund promoter would not be able to cover the risk in question without resort to other moneys.

Moreover it seems to me that, in the course of debate, some conceptual confusion has arisen. The exemption provision clearly

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contemplates a situation in which the promoter charges or receives a premium to cover the relevant risk. Here no such premium was ever sought. Each contributor, having paid the initial administration charge, made a single net capital contribution. Leaving aside income bonuses, there was (and at all times continued to be) an absolute right, in all circumstances, to repayment both of that sum and the amount of the initial administration charge. The contributor was thus never concerned with any risk. Such theoretical risk as existed was wholly borne by the fund promoter, by virtue of the manner in which it set up the scheme.

In the extremely remote, if not practically non-existent, situation in which income proved inadequate it appears to me that, having regard to its contractual liability to all fund contributors, the IOOF, as promoter, was not entitled to have resort to any portion of the Fund capital, but would itself be liable to meet the shortfall. In any event, in practice, it is clear that the only real impact which a crystallisation of this risk would have would be on the rate of bonus accretion which could be declared from income each year.

The fact that the relevant income is earned from invested capital is beside the point because, as the Chief Justice pointed out in the course of argument, the question arising under the exemption provision is not what part of the fund, if any, is used for investment purposes or insurance risk, but rather what portion of the premium received or charged (if any) is for or in respect of an insurance risk.

In so concluding I do not ignore the point made by counsel for the Commissioner concerning problems arising from the form of application for annual licence. Such aspect may simply be disposed of by pointing out that this is merely an administrative element which, logically, can have no bearing upon the construction and proper application of the Act to the factual circumstances.

For those reasons I am of opinion that the IOOF has demonstrated that the net contributions of members for which membership certificates were issued fall within the exemptions specified in the Second Schedule to the Act. It follows that the Commissioner was incorrect in the basis upon which he assessed duty.

I would accordingly answer the questions posed in the amended case stated:

(1) No.
(2) Duty is assessable at the rate prescribed in the Second Schedule to the Stamp Duties Act, 1923, as amended, only in respect of that portion of each gross contribution made by members of the relevant Fund which is allocated and appropriated by the IOOF as an initial administration charge.

I would hear counsel as to the question of costs.

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