ACN 074 971 109 (as trustee for the Argot Unit Trust) v The National Mutual Life Association of Australasia Limited (No 2)

ACN 074 971 109, as trustee for the Argot Unit Trust, brought proceedings against The National Mutual Life Association of Australasia Limited, concerning the interpretation of certain clauses in Prosperity Bonds. The dispute centred on whether policyholders were entitled to switch between investment portfolios and profit from arbitrage opportunities, as well as the insurer's right to change pricing methods. The court was tasked with determining the plain and ordinary meaning of specific clauses, the implications of short selling, the interpretation of buy/sell prices, and whether historical pricing could be changed to forward pricing. The court also had to consider whether there were any implied terms or deduced terms that conflicted with the express terms of the Prosperity Bonds. Furthermore, the case addressed whether the insurer was bound by representations made by insurance intermediaries regarding the continuation of historical pricing, and whether there was an implied term preventing the insurer from segregating investors' funds.

The court meticulously examined the express terms of the Prosperity Bonds, determining that the clause allowing policyholders to switch investments did not permit the insurer to complete the switch before the notice period expired. The court found that the clause regarding buy/sell prices referred to both buying and selling prices of units in the portfolios. It was held that the express terms allowed for a change from historical to forward pricing of units. The court rejected the notion that there were deduced or implied terms that would prevent such a change. It was also determined that there was no requirement for the insurer to publish unit prices daily, and that insurance intermediaries were not within the definition of agents under the Insurance (Agents and Brokers) Act 1984 (Cth). Representations made by these intermediaries regarding historical pricing were deemed inconsistent with the express terms of the Prosperity Bonds and thus not binding. The court concluded that there was no implied term that the insurer would add sufficient funds to enable continued profitable arbitrage, nor was there any term prohibiting the segregation of investors' funds.

The court further held that there was no jus quaesitum tertio allowing investors to complain about breaches of contract between the insurer and other policyholders. Equitable estoppel was discussed but found not to apply as the minimum equity did not exceed any detriment suffered. The appeal was allowed in part, with the court's reasoning and interpretation of the Prosperity Bonds' clauses providing clarity on the rights and obligations of both policyholders and the insurer. The court's decision highlighted the importance of the plain and ordinary meaning of contract terms and the limitations of implied terms in this context.