AMP Life Ltd v Commissioner of State Taxation; ANZ Life Assurance Ltd v Commissioner of State Taxation; ING Life Limited v Commissioner of State Taxation; National Mutual Life Association of Australasia v...

[2013] HCATrans 74

[2013] HCATrans 074

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A25 of 2011

B e t w e e n -

AMP LIFE LTD (ACN 079 300 379)

Applicant

and

COMMISSIONER OF STATE TAXATION

Respondent

Office of the Registry
  Adelaide  No A26 of 2011

B e t w e e n -

ANZ LIFE ASSURANCE LTD (ACN 008 425 652)

Applicant

and

COMMISSIONER OF STATE TAXATION

Respondent

Office of the Registry
  Adelaide  No A27 of 2011

B e t w e e n -

ING LIFE LIMITED

Applicant

and

COMMISSIONER OF STATE TAXATION

Respondent

Office of the Registry
  Adelaide  No A28 of 2011

B e t w e e n -

NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LTD (ACN 004 020 437)

Applicant

and

COMMISSIONER OF STATE TAXATION

Respondent

Application for special leave to appeal

HAYNE J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO ADELAIDE

ON FRIDAY, 12 APRIL 2013, AT 10.12 AM

Copyright in the High Court of Australia

____________________

MR N.J. YOUNG, QC:   If the Court pleases, in each of the matters I appear with MS F.J. ALPINS, for the applicant.  (instructed by Herbert Smith Freehills)

MR M.G. EVANS, QC:   If the Court pleases, in each matter I appear with MR S.A. McDONALD, for the respondent.  (instructed by Crown Solicitor (SA))

HAYNE J:   Yes.  The matters are to be heard together and treated as a single application for special leave?

MR YOUNG:   Yes, they are, your Honour.

HAYNE J:   Yes, Mr Young.

MR YOUNG:   Your Honour, the application concerns an important point of construction of the Stamp Duties Act 1923 (SA).

HAYNE J:   Since repealed.

MR YOUNG:   Yes.  I will deal with the 2011 amendment.  Our short submission there is that the same issue of construction arises, even taking into account the 2011 amendments.  Can I identify the point, your Honour, by reference to the reasons for judgment of Justice Gray at page 81 of the application book?  The legislation, relevantly, is contained in Schedule 2.  It is set out in the bottom‑half of page 81.  It provides for the assessment of stamp duty on either an “ANNUAL LICENCE or MONTHLY RETURN” according to whether the premiums in question relate to life insurance in which event it falls in paragraph (a) or, alternatively, whether the premiums relate “to policies of any kind (other than life insurance policies)” in which event it falls under paragraph (ab).

Different rates of duty apply according to which category the insurance policy falls into.  The two categories are mutually exclusive and of the two categories paragraph (ab) has a residual operation.  That is clear because it only applies if the premiums relate to “policies of any kind (other than life insurance policies).”  It is therefore necessary first to determine whether the relevant premiums relate to life insurance policies within paragraph (a).  If they do, paragraph (ab) cannot apply.  Conversely, if they do not fall within paragraph (a) then it will fall within the residual category in paragraph (ab).

The two categories are mutually exclusive.  The relevant premiums and insurance will either fall within paragraph (a) or (ab).  Therefore, the central point of construction that arises is whether, in the circumstances of these policies, the premiums are premiums relating to life insurance policies.  If so, they fall within paragraph (a) and they attract the lower rate of duty.  Now, that question of construction was not addressed by the Full Court.  I never posed the issue in that fashion.  The circumstance in which the Full Court and indeed the trial judge came to address that question of construction involved undisputed facts and there was one key fact found at both levels which was that the relevant insurance riders concerning trauma benefit or total and permanent disablement involved the payment of what would otherwise be the death benefit. 

The key finding was that if the rider was triggered by reason of trauma or total and permanent disablement, then the payment of a benefit on those events would either reduce or eliminate the death benefit.  The question is whether that connection with the reduction or elimination of the death benefit had the consequence that these premiums were premiums relating to life insurance or life insurance policies.  That was the key question of fact that needed to be addressed.  As to that factual matter, can I turn to the Full Court’s conclusion which commences at page 121 of the application book and it runs on for about four pages.  Within that analysis Justice Gray, effectively speaking for the Full Court, accepts that key factual element to which I have referred.  In paragraph 148 at about line 35:

The payment of trauma benefits and total and permanent disablement benefits had the consequence that life benefits were either reduced or the relevant plan ceased so that no life benefit would be payable. 

The same point is made in respect of the other life companies.  In paragraph 149, it appears at the top of the next page 124 of the application book where the same reduction or extinguishment follows.  So the key question that needed to be addressed was whether that nexus, the payment of benefit in these circumstances under the relevant riders would eliminate or extinguish the death benefit, whether that fell within the words relating to life insurance or life insurance policies.

GAGELER J:   Now, are you saying that the Full Court failed to address an argument put to them?

MR YOUNG:   Yes, that was the central argument, or a central argument.  It is the key question of statutory interpretation and it is not addressed in the analysis that appears in the Full Court’s decision.  In particular, it is not addressed in these decisive conclusionary paragraphs.  The key reasoning is at paragraph 145 at page 123.  Just in answer to your Honour Justice Gageler, could I go back to paragraph 138.  The issue is there stated.  It is not fully stated, but it comes close to the issue of construction.  There the issue is stated in terms of paragraph (ab).  That is, whether the premiums were “premiums relating to policies of any kind (other than life insurance policies)” which the judge captioned as general insurance, but that is the residual category.

HAYNE J:   Now, is the first step in applying the distinction drawn between (a) and (ab), the identification of the premium?

MR YOUNG:   Yes.  Well, it is ‑ ‑ ‑

HAYNE J:   And were separate premiums fixed in respect of separate aspects of the policies?

MR YOUNG:   There were separate premiums in the sense that a separate amount was payable yes, your Honour.  That is one of the particular matters noticed by the Full Court in paragraph 145.

HAYNE J:   Yes and it is the position, is it not, that an aspect of the premium related to an insurer’s undertaking to pay an amount on a contingency which may have been a composite contingency, but one element of which was death.

MR YOUNG:   Yes, your Honour.

HAYNE J:   The reason for the reference to “composite contingency” being that it may be that the contingency ought better to be understood as death or not having earlier paid out TPD, or trauma.

MR YOUNG:   The way it works, your Honour is – and we accept that a relevant element in the contingency that triggered the payment, was the incurrence of a trauma, as defined or disablement as defined, but the other part of the nexus that is not addressed is that if any such payment were to be made it either exhausted or reduced, the death benefit that was payable and it was that nexus that relationship with life insurance and the payments that were promised on death that was not addressed by the Full Court.

HAYNE J:   That is the point I am asking you to grapple with, whether payment on death is a complete description of the effect of the contract.  Is it not better understood as payment on death unless earlier trauma or TPD has supervened?

MR YOUNG:   It could be characterised that way, yes Honour.

HAYNE J:   And if that were so, how is the premium payable on trauma or TPD in any way connected with the contingency of the life of the person insured?

MR YOUNG:   Because for the two reasons that have been exposed in this discussion, your Honour.  Firstly, it is payable on circumstances that link death with the concept of not having earlier suffered trauma or total and permanent disablement, but that only ‑ ‑ ‑

HAYNE J:   That is the life policy.  I am now focusing on the trauma or TPD aspect.

MR YOUNG:   Yes, your Honour, but, it relates to life insurance for the life insurance policy because it exhausts, wholly or partly, the life insurance.  That was the relationship, the nexus that needed to be addressed, your Honour, in the reasons to determine the statutory question.  It is, effectively, not addressed because in paragraph 145, a number of factors are mentioned in support of the proposition that this is a combined policy. 

The first is that it separately provided trauma and TPD benefits.  That is not accurate.  Those benefits were not separate, they were not additional.  They went in reduction or extinguishment of the life benefit.  The second proposition is that separate premiums were identified and charged – yes, that is so, but they were not for differing benefits.  They were for related benefits.  The third proposition is that there were separate and distinct contractual terms. Well, that is not accurate either.  The contractual terms were not separate and distinct.  Payment of these benefits, pursuant to the riders, went in total or partial exhaustion of the death benefit so they were not separate and distinct.  That is recognised in the analysis by the Full Court that follows.

With all respect to the Full Court, they allowed themselves to be distracted by two things.  One was the reference to authorities, including at paragraph 141, the income tax case of National Mutual Life Association, which had to consider whether premiums constituted income under the Income Tax Assessment Act.  There was different statutory language, different policies and a different statutory context so that, in our respectful submission, is a distraction from Schedule 2.  The second distraction was the Re Carter decision where, quite clearly, the general insurance benefits in that case were additional and separate as disclosed by paragraph 146 of the reasoning.

Then as to the link we point to between the payment of these rider benefits and life insurance that there is a partial or total reduction, with due respect to their Honours, they are being distracted into a semantic point.  Would the Court look at the last sentence of paragraph 148:

I have not found a relevant reference in the policies to an “acceleration” of life benefits.  I do not consider there to be any acceleration.

The same point is made at the last sentence of 149 and the similar point was made earlier in addressing this nexus to which my client’s pointed.  For instance, at page 97 paragraph 61, the link that we point to is identified at about the fourth line on the page.  The link is further referred to in the last sentence of paragraph 63, but the response that follows is to search for a word rider in the relevant policies, rather than looking at the substance of the matter.  The same irrelevant search for a reference to accelerated death benefit or rider, as if that is addressing the substance of the matter, appears in paragraph 80 at page 103.  So with respect, the Court has not focused on the key issue of construction that arises.

GAGELER J:   Could you just identify what you say the key issue of construction is putting it as a point of statutory construction.

MR YOUNG:   Yes, it resides in the words “premiums relating to life insurance”.

GAGELER J:   But the way you seem to put it you focus particularly on the evaluative exercise required by the words “relating to”, is that right?

MR YOUNG:   Well, “relating to” requires the nexus or relationship or connection.  It is clear on all the authorities. 

GAGELER J:   It is those words that are the focus of your submission.

MR YOUNG:   Yes, your Honour.

HAYNE J:   And the argument proceeds, does it, from a premise that a – I use the term loosely - “mixed policy” of the kind with which we are concerned, is one capable of division?

MR YOUNG:   Well, the dividing line is drawn by the words “relating to life insurance” or the flipside of that in paragraph (ab) the other side of the equation:

Premiums relating to policies of any kind (other than life insurance policies) –

that is the dividing line.

HAYNE J:   I understand that, but it is the capacity for division which is accepted and, you say, a different division should be made from that made by the Full Court.  You do not say that the moment you have the continuancy of death in a policy that characterises the whole policy, whatever its terms as a policy relating to life.

MR YOUNG:   No, your Honour, it is possible to have a separate category of insurance which has no nexus with a life insurance, it is simply a separate and additional benefit embraced in the one contract of insurance, but here, on the findings at all levels, there was a clear nexus and, moreover, the dividing line separates two mutually exclusive categories and the primary one is whether it relates to life insurance or a policy of life insurance.  That requires attention to be focused on what is the relationship, what is the connection required by the words “relating to” and the Court will be familiar with the many authorities in this Court that said they are words of wide connection.  The precise connection required depends on the scope and purposes of the particular piece of legislation.

GAGELER J:   You have not taken us to that.

MR YOUNG:   Yes.  Well, there is not a lot that sheds light on it, other than the fact that the legislation divides insurers into two categories; life insurers and general insurers and it requires two kinds of returns.  If a company only conducts a life insurance business, it only files an annual return and then the only rate of duty that could be assessed would be under paragraph (a).  If as well it carries on a general insurance business, it is required to file a monthly return, and a monthly return, depending on this issue of nexus that I have been fastening on, might result in an assessment under (ab). 

Here we have the happenstance that these major life companies conducted both forms of business, but if you had a life insurance company that only conducted life insurance business, but issued policies with these trauma riders, it would only be capable of being assessed under paragraph (a) because it would only file an annual return.  So insofar as the legislation points, it points to a dichotomy between life insurance business and general insurance business.  Where is the dividing line?  It is found in these paragraphs of Schedule 2.  As to the nature of the line, all one has to go on is the matter I have just referred to, plus the words “relating to”, but that matter is not properly addressed; is not addressed at all, in our respectful submission, in the reasoning process that has been adopted.

GAGELER J:   Why is this a question of general principle?

MR YOUNG:   Yes, I will come to that, your Honour.  Firstly, can I deal with the 2011 amendments?  They are set out – the 2011 amendments are in the applicant’s authorities.  It is under tab 5.  The short point is that the distinction remains live and it is drawn in the same language.  Would the Court look at section 34 and then section 35, subsection (1) in each case?

HAYNE J:   That is the distinction between general and life insurers?

MR YOUNG:   Yes, your Honour, and the dividing line is whether the premium relates to an insurance of any kind other than life insurance in the section 34 case, and the converse of that is 35(1).  Again, the primary category is 35(1), because the residual category is drawn by reference to the boundaries of the life insurance category.

GAGELER J:   Sections 34(6) and 35(6) are new, are they not, and would have a bearing upon the resolution of this issue?

MR YOUNG:   No they do not, your Honour.  That does not address the question of needing to identify where this boundary falls.  For completeness, I should draw the Court’s attention to the definitions in section 32 at page 3 of this print.  These are new.  There is a definition of “life insurance”; there is a definition of “personal accident insurance” which includes paragraph (c).  All that does is to make clear what was always the case, that is, that trauma insurance is different, payable on a different contingency than life insurance, but these provisions do not address the need to answer the question whether the premiums, having regard to the particular terms of the policy, relate to life insurance or not.

GAGELER J:   Well, the hierarchy is flipped around, is it not, the AAB hierarchy to which you refer?

MR YOUNG:   No, your Honour.  In order of sections it is, but if one looks at the content, because of the way in which the definitions work, 35(1) is the primary category relating to life insurance because the section 34 category is defined by reference to that first category relating to insurance of any kind other than life insurance.  So if it relates to life insurance it cannot be within section 34(1).  Can I just finish my answer to Justice Gageler about why special leave?  We point to these factors.  This kind of life policy with a rider of this kind is a very common kind of

insurance policy.  The issue remains live in South Australia.  It does have significant consequences for life insurance businesses and for the revenue in South Australia.

There are authorities in other States that provided guidance on this question by approaching it in a way in which I have suggested it should be approached;  Chief Justice Malcolm in Western Australia and Justice Hansen in Victoria.  That guidance has been cast in doubt by this decision of the Full Court.  Now, in relation to other States, the legislation has taken a different form, but in at least three States, Victoria, Tasmania and Queensland, the legislation draws a distinction between general insurance and life insurance that still needs to be pursued.  For those reasons, in our respectful submission, it is an appropriate case for the grant of special leave to appeal.  There are serious doubts about the decision in the Full Court.  If the Court pleases.

HAYNE J:   Thank you, Mr Young.  We will not trouble you, Mr Evans.

No question of principle of sufficiently wide or general application would fall for consideration if special leave to appeal were to be granted.  The actual conclusions reached by the Full Court of South Australia about the application of the then applicable provisions of the Stamp Duties Act 1923 (SA), since repealed, are not attended by sufficient doubt to warrant a grant of special leave. Special leave is refused and must be refused with costs.

AT 10.36 AM THE MATTER WAS CONCLUDED