Firefighters Benefit Fund of WA Inc and Commissioner of Taxation (Taxation)
[2019] AATA 2775
•20 August 2019
Firefighters Benefit Fund of WA Inc and Commissioner of Taxation (Taxation) [2019] AATA 2775 (20 August 2019)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2018/6535
Re:Firefighters Benefit Fund of WA Inc.
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President Boyle
Date:20 August 2019
Place:Perth
The decision of the Respondent dated 11 September 2018 disallowing the Applicant’s objection to a private ruling dated 8 March 2018 issued by the Respondent is affirmed.
..............................[sgd]..........................................
Deputy President Boyle
CATCHWORDS
TAXATION AND COMMERCIAL DIVISION – s 121 Income Tax Assessment Act 1936 (Cth) – “carrying on the business of insurance” – deeming provision – “is taken…to be” – pre-contract representation – contract between association and members – incorporation of term – implied term – collateral contract – decision affirmed
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) – s 37
Associations Incorporation Act 1987 (WA) – ss 5(2), 13, 17, Sch 1 item 9
Associations Incorporation Act 2015 (WA) – ss 21, 30
Income Tax Assessment Act 1936 (Cth) – s 121
Income Tax Assessment Act 1997 (Cth)
Insurance Act 1973 (Cth) – s 3
Life Insurance Act 1995 (Cth)
Taxation Administration Act 1953 (Cth) – Part IVC, s 14ZL(1), s 14ZQ, s 14ZZ(1), Sch 1
359-60(1), Sch 1 359-60(2), Sch 1 359-60(3)CASES
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Bailey v NSW Medical Defence Union Ltd (1995) 184 CLR 399; [1995] HCA 28
Barclay MIS Group of Companies Pty Ltd v Australian Security and Investments Commission (2002) 125 FCR 374; [2002] FCA 1606
Bell Group v Westpac Banking Corporation (No 9) (2008) 39 WAR 1; [2009] WASC 239
Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24
Cronulla Sutherland Leagues Club Limited v Commissioner of Taxation (1990) 23 FCR 82
Metropolitan Fire and Emergency Services Board v Capricorn Mutual Ltd [2007] VSC 413
Rush v WA Amateur Football League (Inc) (2007) 35 WAR 101; [2007] WASCA 190
Secretary, Department of Family and Community Services v Chamberlain (2002) 116 FCR 348; [2002] FCA 67
Secured Income Real Estate (Australia) Ltd v St Martins Investment Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Tanioria v Commonwealth (No 3) [2018] FCA 1623SECONDARY MATERIALS
ATO ID 2005/98
John W Carter, Contract Law in Australia (LexisNexis, 7th ed, 2018)
Dennis C Pearce and Robert S Geddes, Statutory Interpretation in Australia (LexisNexis, 8th ed, 2014)
REASONS FOR DECISION
Deputy President Boyle
20 August 2019
THE APPLICATION
This is an application to review a decision of the Respondent dated 11 September 2018[1] disallowing the Applicant’s objection lodged 4 May 2018[2] to a private ruling dated 8 March 2018[3] issued by the Respondent.
[1] A1, T2.
[2] A1, T5.
[3] A1, T6.
JURISDICTION
The application for review is brought under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA).
Pursuant to s 359-60(1) of Schedule 1 to the TAA a party who is dissatisfied with a private ruling may object against the private ruling “in the manner set out in Part IVC” of the TAA. By operation of s 359-60(2) of the TAA “[t]he ruling is taken to be a taxation decision (within the meaning of that Part)”. The limitations on making an objection set out in
s 359-60(3) of the TAA do not apply in this case.
Pursuant to s 14ZL(1) of the TAA (which is in Part IVC), Part IVC applies “if a provision of an Act ... provides that a person who is dissatisfied with an assessment, determination, notice or decision, or with a failure to make a private ruling, may object against it in the manner set out in this Part.” Section 359-60(1) of Schedule 1 to the TAA is such a provision.
On 22 September 2017 the Applicant applied to the Respondent for a private ruling, among other things, to ascertain whether the contributions of members were exempt from income tax.[4]
[4] A1, T8.
On about 8 March 2018, and after some further communications with the Applicant, the Respondent informed the Applicant of its ruling.[5] The Respondent ruled that the Applicant was an association formed for the purpose of insuring its members against loss and damage and is taken for the purposes of s 121 of the Income Tax Assessment Act 1936 (Cth) (ITAA) to be a company carrying on the business of insurance such that the member contributions are assessable income.
[5] A1, T6.
The Applicant lodged with the Respondent an objection to the private ruling on
4 May 2018[6] (the objection form was dated 3 May 2018). The objection was limited to the decision on Question 2 in the private ruling, namely, the affirmative “Answer to Question 2: Are membership contributions received by [the Applicant] assessable income?”
[6] A1, T5.
On 11 September 2018 the Respondent made the decision on the objection to the ruling. The Respondent decided to uphold the original private ruling decision.[7]
[7] A1, T2.
The Respondent’s decision on the objection is a “reviewable objection decision” as that term is defined in s 14ZQ of the TAA.
Section 14ZZ(1) of the TAA provides that if a person is dissatisfied with an objection decision, the person may, if the decision is a reviewable objection decision, apply to the Tribunal to review the decision.
I am therefore satisfied that the Tribunal has jurisdiction to hear the Applicant’s application which seeks review of the Respondent’s reviewable objection decision.
BACKGROUND
The Applicant in its statement of facts, issues and contentions (Applicant’s SFIC) identifies the following matters and facts as being relevant for the purposes of this application:
4.The “Firefighter’s Benefit Fund of WA Inc Rules For The Proper Management And Guidance Of The Above Fund” is dated 31 December 2008 (“Rules for Management of the Fund”): T-10.
Neither the Rules for Management of the Fund nor amendments made to the Rules for Management of the Fund since 31 December 2008
(i.e. amendments made at the Fund’s Annual General Meetings on 11 June 2009 and 13 August 2013), have been lodged with the Commissioner identified by the 1987 Act or the 2015 Act.
5. The Fund’s activities are:
a)collecting members’ contributions;
b)paying members’ benefits;
c)advancing and recovering loans to members.
The Fund lends members in financial difficulty up to $5,000 for up to
54 weeks at 8% interest per annum.
d)administering the Fund.
6.The Fund’s:
a)revenue consists of:
(i) members’ contributions, paid weekly.
Since the Fund’s Annual General Meeting on 30 March 2017,
a member’s contribution is 0.6% of a Third Class Firefighter’s wages.
Pay week ending 14 June 2018, a Third Class Firefighter earned $1,612.04 a week, so a member’s contribution at that time was $9.67 a week.
(ii) interest earned on the Fund’s money held on deposit;
(iii) interest earned on loans to members;
b)expenses consist of:
(i) paying members’ benefits;
(ii) advancing loans to members;
(iii) staff salaries;
(iv) costs incurred in administering the Fund.
…
8.The Fund:
a)had 1,117 members as at 31 December 2016;
b) currently has 1,059 members.
9. Members apply to join the Fund by completing a ‘New Membership Application Form’, substantially in the form attached to this Statement of Facts, Issues and Contentions (“SFIC”) and marked with the letter ‘A’.
10. Before completing a ‘New Membership Application Form’ a prospective member will have read or been given a Fund generated information sheet.
…
12. The Fund’s Audited Financial Report for the year ended 31 December 2016 (T-9) records that:
a) in the years 2015 and 2016, the Fund paid $5,849 by way of premium for a Group Personal Accident insurance policy covering the Fund if five or more members died in any one incident, up to a maximum of $1.5 million, deductible $100,000: p 72.
b) as at 31 December 2015, the Fund had:
(i) retained earnings of $1,569,491 and a member benefit reserve of $2,177,812: p 74;
(ii) $3,376,688 cash in bank: p 75;
c)as at 31 December 2016, the Fund had:
(i) retained earnings of $1,705,548 and a member benefit reserve of $2,548,672: p 74;
(ii) $3,832,972 cash in bank: p 75;
d) in the year 2015, the Fund loaned $44,510 to members: p 75;
e)as at 31 December 2015, the Fund was owed $381,599 in member loans: p 79;
f) in the year 2016, the Fund loaned $49,300 to members: p 75;
g) as at 31 December 2016, the Fund was owed $430,899 in member loans: p 79.
When the Committee of Management met on 18 August 2016, the Fund had 154 outstanding members’ loans.
(Original emphasis.)
The facts and matters set out in [12] are largely not disputed by the Respondent. In his statement of facts, issues and contentions (Respondent’s SFIC) the Respondent says:
10. The applicant is an association which was incorporated on 8 September 2000 under the Associations Incorporation Act 1987 (WA) (“1987 Act”), consistent with paragraph 1 of the ASFIC [the Applicant’s statement of facts, issues and contentions].
11. The constitution of the applicant is entitled “Rules for Incorporated Associations” [T 11 p 94 – 107] (the “Constitution”). The Constitution was registered in accordance with the 1987 Act and the Associations Incorporation Act 2015 (WA) (“2015 Act”) consistent with paragraphs 2 and 3 of the ASFIC. The Constitution sets out the objects of the applicant being
“to provide financial assistance to members in the case of hardship” (T11 p 95). The Constitution identifies three such types of assistance being:
a weekly allowance in the case of sickness or accident; a sum in the case of death of a member, spouse or dependent; and, a retirement allowance.
12. The applicant has adopted the “Rules for the Proper Management and Guidance of the above Fund” dated 31 December 2008 [T10 p 82]
(the “Rules”). The Rules are not registered in accordance with the 1987 Act and the 2015 Act consistent with paragraph 4 of the ASFIC. The respondent says that the Rules are capable of being changed at an annual general meeting or special meeting called for that purpose pursuant to rule 26 of the Rules [T10 p 91] and, in that sense, the Rules authorise the management of the applicant while pursuing the objects of the applicant to use the property and income of the applicant to contract with the members.
13.The applicant attracts new members from among recruits and does so by providing an explanation of the fund in the form of an “Information Sheet”
[T3 p 12]. The form of the information sheet has varied from time to time. One version was provided by an email from the applicant dated 27 August 2019 [T3 p 14]. A similar version was attached to the ASFIC and marked “B”. Each version sets out the “Objectives of the Fund” in the same terms as the Constitution. Under the heading “Why join the Fund?” each Information Sheet states:
“You will be provided with financial assistance in the event that you utilize all your paid sick leave and still require leave from work. If you,
a spouse or a dependent die there is a death benefit payable. If you don’t use the Fund for the first two (2) reasons you will receive 75% of your contributions back when you retire.”
14.The information sheets refer to the “Rules” and in words consistent with rule 20 of the Rules sets out when “Benefits will be payable to members” [comparing the information sheets with the ASFIC marked “B” and at T3 p 14 to rule 20 of the Rules at T10 p 88].
15.Whether the actual Rules are provided to prospective members of the applicant or not they are expressly mentioned in the information sheet given to prospective members (annexure “B” to the ASFIC) and for that reason relevant to discerning the terms on which the applicant creates a relationship with the members.
16.The applicant conducts the activities summarised in paragraph 5 of the ASFIC. The respondent says within “administering the fund” the applicant also procured and complied with an insurance policy for a group personal accident event as mentioned in paragraph 12 (a) of the ASFIC.
17.The applicant's revenue and expenses are broadly consistent with those matters the subject of paragraph 6 of the ASFIC.
18.The applicant has the membership numbers and is managed by a committee created consistent with paragraphs 7 and 8 of the ASFIC.
19.A person who is considering joining the applicant as a member will have read or been given an information sheet prepared by the applicant and will complete a “new membership application form” consistent with paragraphs
9 and 10 of the ASFIC and documents attached to the ASFIC and marked with the letter "A" and "B". As mentioned, the information sheet incorporates a reference to the Rules.
20.The applicant's financial circumstances for the years ended 31 December 2013, 2014, 2015, 2016 and 2017 were broadly consistent with the financial circumstances disclosed in the accounts attached to the ASFIC and as described in paragraph 12 of the ASFIC. The respondent notes that not all of those financial statements were signed and not all were audited.
21.On 22 September 2017 the applicant applied to the respondent for a private ruling, among other things, to ascertain whether the contributions of members were exempt from income tax [T8 p 63] consistent with paragraph 13 of the ASFIC.
The balance of the Respondent’s SFIC covers the events leading up to the making of the reviewable objection decision as set out in [5] to [8] above.
The facts as asserted by the Respondent are not substantially contested by the Applicant.
THE ISSUES FOR DETERMINATION
The Applicant identifies two issues for determination being:[8]
a)Was the Fund “formed for the purpose of insuring [Fund members] against loss, damage or risk of any kind” for the purpose of s 121?
b)If the answer to a) is ‘yes’, does s 121 deem the Fund to be carrying on insurance business?
If the answers to a) and b) are ‘yes’, membership contributions are assessable income to the Fund.
[8] Paragraph 18 of Applicant’s SFIC.
The Respondent’s SFIC identifies the issues as follows:[9]
26.The respondent contends there is one issue namely:
a).Whether the applicant was "formed for the purpose of insuring” its members “against loss, damage or risk of any kind".
27.If the applicant meets the test in section 121 of the ITAA 1936 then the applicant is "taken, for the purpose of this act, to be a company carrying on the business of insurance” and the “assessable income includes all premiums derived by it, whether from its members or not”. For the present application the only issue is whether the applicant meets the test in section 121 of the ITAA 1936. The tribunal need not determine the amount of assessable income from time to time nor the deductions permitted. The respondent disagrees with the formulation of the issues by the applicant in paragraph 18 of the ASFIC.
[9] Paragraphs 26-27 of Respondent’s SFIC.
Although it is not stated, I assume that the reason that the Respondent disagrees with the Applicant’s formulation of the issues is that the Respondent’s position is that there is only one question, in effect the question identified in both parties’ paragraph a), and that the two other issues that the Applicant identifies automatically follow if issue a) is answered in the affirmative.
At paragraph 19 of the Applicant’s SFIC the Applicant asserts that even if it was formed for the purpose of insuring its members, s 121 of the ITAA does not deem it to be carrying on insurance business. I understand the basis of the Applicant’s argument to be set out in paragraph 33 of the Applicant’s SFIC which argues that “insurance business” in the ITAA has the same meaning as in the Insurance Act 1973 (Cth) and that the Applicant would not fall within the definition contained in s 3 of that act.
Accordingly, the issues for determination are as identified in a) and b) by the Applicant which, by a), also covers the issue identified by the Respondent. They are:
(a)Was the Applicant “formed for the purpose of insuring … [members] against loss, damage or risk of any kind” for the purpose of s 121 of the ITAA?; and
(b)If the answer to (a) is ‘yes’, does s 121 of the ITAA deem the Applicant to be carrying on the business of insurance?
THE HEARING AND THE EVIDENCE
The matter was heard on 22 July 2019. The Applicant was represented by Mr G Pynt and the Respondent was represented by Mr C Slater.
The following materials were tendered:
·documents filed pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) excluding T-4 and T-7 (Exhibit A1);
·Applicant’s statement of facts, issues and contentions received on 28 March 2019 and attachments received on 1 April 2019 (Exhibit A2);
·Western Australian Incorporated Association Extract and Certificate of Incorporation (Firefighters Benefit Fund of WA Incorporated) (Exhibit A3); and
·Respondent’s statement of facts, issues and contentions dated 13 May 2019 (Exhibit R1).
The Tribunal also received written submissions from the parties at the conclusion of the hearing on 23 July 2019 (Applicant’s closing submissions and Respondent’s
jurisdiction submissions).THE LEGISLATIVE FRAMEWORK
I have set out in [2] to [10] above the sections of the TAA which are relevant to the issue of the Tribunal’s jurisdiction.
Section 121 of the ITAA is as follows:
Mutual insurance associations
(1)An association of persons formed for the purpose of insuring those persons against loss, damage or risk of any kind is taken, for the purposes of this Act, to be a company carrying on the business of insurance.
(2)The assessable income of such a company includes all premiums derived by it, whether from its members or not.
Sections of other legislation, particularly the Associations Incorporation Act 1987 (WA) (the 1987 Act) and the Associations Incorporation Act 2015 (WA) (the 2015 Act) as relevant are extracted below.
THE PARTIES’ SUBMISSIONS
The “mutuality exception”
Paragraphs 15-17 of the Applicant’s SFIC refer to the “mutuality exception” and cite the Ralph “Review of Business Taxation Report (1999)” as stating the effect of the exception. The Respondent agrees with the Applicant’s statement of the operation of the mutuality exception and summarises the effect as being “that unless a specific statutory provision makes income of the applicant assessable income, the contributions of members of an association such as the applicant would not be assessable income”.[10] The Respondent notes that this contention was set out in the objection decision.
[10] Paragraph 33 of Respondent’s SFIC.
The Applicant states its position to be that the effect of the application of the “mutuality exception” to the Applicant is that members’ contributions are not assessable income unless the Applicant was “formed for the purpose of insuring … [members] against loss, damage or risk of any kind” citing s 121 of the ITAA.[11]
[11] Paragraph 17 of Applicant’s SFIC.
The Respondent contends that s 121 of the ITAA legislates an exception to the mutuality exception for an association of persons formed for the purpose of insuring the members creating a statutory income that would otherwise be not assessable. The Applicant does not dispute that s 121 of the ITAA creates such an exception. Its case is that the exception under s 121 of the ITAA does not apply because the Applicant was not formed for the purpose of insuring its members against loss, damage or risk of any kind for the purposes of s 121 of the ITAA.[12]
[12] Paragraph 34 of Respondent’s SFIC.
Applicant’s submission
The Applicant submits that it is not an “association of persons formed for the purpose of insuring [its members]” [13] because::
(a)the constitution (the Constitution) (A1, T11) does not give members a statutory or contractual right to benefits in the case of death, accident or illness as there are no operative provisions in the Constitution as to how much, in what circumstances, when or to whom benefits are to be paid or who is to make those decisions and how they ought to go about them;
(b)the fact that there is nothing in the Constitution, the application for membership of the Applicant or the Information sheets about the Applicant having a discretion to grant a benefit does not mean that the members have a right to a benefit;
(c)the rules for the management of the Applicant (the Rules)[14] do not give Applicant members a statutory or contractual right to benefits in the case of death, accident or illness because:
(i)the Rules have not been lodged under the 1987 Act or the 2015 Act;
(ii)the Rules are not mentioned in the Applicant’s application for membership; and
(iii)although the Rules are mentioned in the information sheets, the sheets do not attach, refer to, or seek to incorporate, the Rules for the management of the Applicant as a term of any application for or acceptance of membership of the Applicant.
[13] Paragraph 45 of Applicant’s closing submissions.
[14] A1, T10.
The Applicant submits that, while it may be a mutual association, it is not a “mutual insurance association” because it is not legally bound to pay a claim. It cites Barclay MIS Group of Companies Pty Ltd v Australian Security and Investments Commission[15] and Metropolitan Fire and Emergency Services Board v Capricorn Mutual Ltd.[16]
[15] (2002) 125 FCR 374; [2002] FCA 1606.
[16] [2007] VSC 413 at [65] per Williams J.
The Applicant submits that it is a discretionary mutual fund (DMF) and claims that as it is not bound to pay a claim, it does not carry on “an insurance business” for the purposes of s 3 of the Insurance Act 1973 (Cth) or a “life insurance business” for the purposes of the Life Insurance Act 1995 (Cth) and is not subject to regulation or supervision of the Australian Prudential Regulation Authority.
The Applicant argues that as the Rules have no legal effect and, in particular, do not confer any statutory or contractual rights on members, the Respondent, and presumably the Tribunal, should not have regard to them when considering whether the Applicant was “formed for the purpose of insuring [its members]”. On the basis of the Constitution alone, which does have statutory and contractual effect, members have no legal right to be paid benefits in certain circumstances as it is only in the Applicant’s objects that anything is said about members’ benefits. In particular, there is nothing in the Constitution about how much, in what circumstances, when or to whom benefits are to be paid or who is to make those decisions and how they ought to go about them. In the absence of members having any right to benefits, it follows that the Applicant is not an “insurer” and was not “formed for the purpose of insuring [its members]”.
Accordingly, the Applicant argues that for the purpose of the first limb of s 121,
the Applicant is not an association of persons formed for the purpose of insuring those persons against loss, damage or risk of any kind and that it follows that members’ subscriptions are not “premiums” and therefore not taxable.[17]
[17] Paragraph 43 of Applicant’s SFIC.
In arguing the above the Applicant relies on the effect of the 1987 Act and 2015 Act.
The Applicant says that pursuant to s 5(2) of the 1987 Act an application for incorporation must be accompanied by:
(a)“a copy of the rules of the association conforming to the requirements of this Act”; and
(b)“a certificate the copy of the rules of the association accompanying the application is a true copy and that the rules include provisions as to the matters set out in Schedule 1”.
In the present case the Constitution, which is entitled “Rules for Incorporated Associations” dated 16 October 2003[18] is the document that was lodged with the application for incorporation under the 1987 Act. The Rules, dated 31 December 2008[19] were not lodged at the time of the application for incorporation, or at any time thereafter, and have no legal effect and, in particular, do not confer any statutory or contractual rights on members. As a result, according to the Applicant, on review the Tribunal should not have regard to the Rules when considering whether the Applicant was insuring its members or formed for the purpose of insuring its members.[20]
[18] A1, T11.
[19] A1, T10.
[20] Transcript at 8-9.
The Applicant does concede[21] that on their face, the Rules purport to create members’ rights to benefits consistent with the Applicant’s objects but says that those rights to benefits are not mentioned in the Constitution (see for example, Rules 20, 23, 23a and 25). The Applicant argues[22] that:
[21] Paragraph 38 of Applicant’s SFIC.
[22] Paragraph 40 of Applicant’s SFIC.
As the Rules for Management of the Fund:
a)are not lodged with the Commissioner for the purpose of the 2015 Act;
b)have not been altered in accordance with the 1987 Act or the 2015 Act;
c)are not mentioned in the Constitution or in s 13 of the 1987 Act (referred to in the Constitution, [4]), for example, empowering the Fund to make rules or by-laws;
d)do not expressly provide that they bind the Fund and its members as if they contained an agreement on the part of the Fund and each member to be bound by and observe all the provisions of the Rules for Management of the Fund and that agreement was entered into by each member;
e)cannot create rights or powers not mentioned in the Constitution,
they:
(i)are not effective as ‘rules’ as described in the 1987 Act or the 2015 Acts;
(ii)are not deemed to be part of the contractual relationship made between the Fund and its members;
(iii)represent a “consensual compact”, that is, “the expression of shared purposes rather than the expression of contractually binding rights and duties enforceable in a court of law”;
(iv)do not give rise to legally enforceable contractual relations as between the Fund and its members.
(Footnotes omitted.)
As a result, the Applicant submits, even if the Rules bind the Applicant, they do not give rise to enforceable contractual rights on the part of its members insofar as those rights are not mentioned in the Constitution. The Constitution does not grant members the right to benefits. By the Constitution, the Applicant has a discretion whether or not to grant a benefit to a member in any particular circumstances.[23]
[23] Paragraph 41 of Applicant’s SFIC at 41.
The Applicant submits that the “information sheet” (five versions of which were attached to the Applicant’s SFIC as attachment B) that prospective members are given prior to them joining:
(a)mentions the Applicant’s objects as they appear in the Constitution;
(b)under the heading “What will it cost me?” describes what it will cost to be a member; and
(c)identifies the benefits available to a member under the heading “What do I get in return?” by reference to Rule 20 and separately does not attach, refer to or seek to incorporate the Constitution or the Rules as a term of the application for or acceptance of membership.
The Applicant argues that the “information sheet” is just that, information and is not intended to frame or contain an offer to contract, a contract or a contractual term.
The Applicant argues that the effective document is and was the Constitution which says nothing about the benefits referred to in the Rules. The only contractual intention attributable to the Applicant is the intention to create contractual relations between it and its members as specifically provided by the Constitution. The Applicant cites Rush v WA Amateur Football League (Inc)[24](Rush). The Applicant argues that in light of the contract between the Applicant and its members being “as per the Constitution, Rule 21 and the 2015 Act, s 21, there is no room for a second contract consisting of the Rules… in circumstances in which, by reason of the following, there is, objectively, no intention on the part of the [Applicant] or the prospective member that they enter into a second contract at the same time as entering into the first contract…”[25]
[24] (2007) 35 WAR 101; [2007] WASCA 190.
[25] Paragraph 39 of Applicant’s closing submissions.
The Applicant further argues, in effect, that there is no basis for implying a term to the effect of the Rules, or parts of the Rules, into the contract between someone becoming a member and the Applicant because the legal requirements for implying a term (by fact) are not met. The Applicant identifies those requirements as being:[26]
(a)it must be reasonable and equitable;
(b)it must be necessary to give the contract business efficacy;
(c)it must be so obvious that “it goes without saying”;
(d)it must be capable of clear expression; and
(e)it must not contradict an express term of the contract.
citing BP Refinery (Westernport) Pty Ltd v Hastings Shire Council[27] (BP Refinery v Hastings) and Secured Income Real Estate (Australia) Ltd v St Martins Investment Pty Ltd.[28]
[26] Paragraph 40 of Applicant’s closing submissions.
[27](1977) 180 CLR 266, 283.
[28] [1979] HCA 51; (1979) 144 CLR 596, 606 per Mason J
The Applicant argues that as a result of the above matters, the Rules have no legal effect and, in particular do not confer any statutory or contractual right on members making claims and should therefore be ignored in considering whether the Applicant was formed for the purpose of insuring its members. The Constitution is the only document that has statutory or contractual effect and under the terms of the Constitution the members have no legal right to be paid benefits in certain circumstances as it is only in the Applicant’s objects that anything is said about members’ benefits. In particular, there is nothing in the Constitution about how much, in what circumstances, when or to whom benefits are to be paid or who is to make those decisions and how they ought to go about them. Accordingly, for the purpose of the first limb of s 121 of the ITAA, the Applicant is not
“[an] association of persons formed for the purpose of insuring those persons against loss, damage or risk of any kind”.
Respondent’s submissions
The Respondent argues that the Applicant was formed for the requisite purpose identified in s 121 of the ITAA. When viewed objectively the Applicant and members intended contractual relations as they are addressing property and income. The contract is one of insurance as it addresses an uncertain risk of the member in the form of sickness, accident, death or retirement and provides, in the event of that risk, a benefit being a weekly allowance for sickness or accident, a sum in the event of death and a retirement allowance.
The Respondent contends that considering the facts objectively, the Applicant and the members intended certainty for the members and not a discretion for the Applicant in the event of the risk materialising by reason of:[29]
a.The absence of a reference to a discretion in the documents exchanged between the Applicant and prospective members at the time the application for membership.
b.The seriousness of the risks for a member.
c.The scale of member contributions relative to the operational costs of the Applicant and its activities other than paying benefits.
d.The membership contribution being neither nominal nor fixed and instead scaled by reference to the income of the members.
[29] Paragraph 31 of Respondent’s SFIC.
In response to the Applicant’s argument that it is a DMF (see [32] and [33] above),
the Respondent says that the Applicant is not a DMF because the Constitution and the Rules do not provide for members to be entitled merely to a consideration of a claim for a benefit with a discretion retained by the Applicant whether the benefit is paid.[30] The Respondent refers to page 4 of 9 of the reviewable decision[31] which in turn refers to ATO ID 2005/98 which is an interpretative decision issued by the Respondent dealing with the tax status of contributions paid by members of DMFs. That interpretative decision decides that:
Contributions received by a mutual discretionary fund from its members will not be included in its assessable income under section 121 of the ITAA 1936.
[30] Paragraph 35 of Respondent’s SFIC.
[31] A1, T2 at 6.
In relation to the Applicant’s arguments that it does not fall within definitions of carrying on “an insurance business” for the purposes of s 3 of the Insurance Act 1973 or a
“life insurance business” for the purposes of the Life Insurance Act 1995 (see [32] above), the Respondent submits that the test to be applied is identified by the words in s 121 of the ITAA, namely, whether the Applicant was “formed for the purpose of insuring those persons against loss, damage or risk of any kind”. If that test is met, then the Applicant will be taken to be carrying on the business of insurance. The test is not whether the Applicant is a company actually carrying on a “business of insurance” nor is the test whether the Applicant is a company carrying on an “insurance business” within the meaning of s 3 of the Insurance Act 1973.
The Respondent agrees with the Applicant’s contention that it is necessary to consider the proper meaning of the word “insuring” in s 121 of the ITAA and that neither the ITAA nor the Income Tax Assessment Act 1997 (Cth) defines the term “insurance” or “insuring”.[32] The Respondent states that the appropriate definition is that used in the reviewable decision,[33] the private ruling[34] which adopted the definition in ATO ID 2005/98 which is assisted by the following words taken from the general part of the definition in the Insurance Act 1973 (before the exceptions for the purposes of the Insurance Act 1973 are identified) of “insurance business”:
means the business of undertaking liability, by way of insurance (including reinsurance), in respect of any loss or damage, including liability to pay damages or compensation, contingent upon the happening of a specified event, and includes any business incidental to insurance business.
[32] Paragraph 40 of Respondent’s SFIC.
[33] A1, T2 at 6.
[34] A1, T6 at 34.
The Respondent disagrees with the Applicant’s argument to the extent that it suggests that the exceptions contained in subparagraphs (d), (e) and/or (f) of the definition of “insurance business” as used in the Insurance Act 1973 are, or could be, relevant to discerning the proper meaning of the expression “insuring” as used in s 121 of the ITAA. The Respondent states that s 121 of the ITAA expressly states if the test is met,
the deeming effect is for the purposes of the ITAA. It is that context which is relevant to interpreting s 121 of the ITAA rather than exceptions for and the possibly different purposes of the Insurance Act 1973.[35]
[35] Paragraph 43 of Respondent’s SFIC.
In relation to the Applicant’s argument that there is nothing in the Constitution to guide or direct the committee of the Applicant as:
(a)to when, how or in what circumstances the Applicant’s objects should be implemented with respect to its members;
(b)to how to go about considering a member’s claim for benefits; and
(c)to in what circumstances benefits should be paid to a member;
the Respondent argues that pursuant to the express or implied or alternatively statutory contract between members and the Applicant, it is a term of that contract that the “property and income of the Association shall be applied solely towards the promotion of the objects of the Association” (clause 3(2) of the Constitution).[36]
[36] A1, T11 at 95.
The Respondent contends the contract to observe the Constitution is express or implied by the process of becoming a member or it is statutory and made by s 21 of the 2015 Act which provides that the rules of the Applicant bind the Applicant and the members as if they contained an agreement on the part of each member to be bound by and observe all the provisions of the rules and that agreement were duly executed by each member. Section 21 of the 2015 Act provides:
21.Effect of rules
(1)The rules of an incorporated association bind the association and the members of the association as if —
(a)they contained an agreement on the part of each member to be bound by and observe all the provisions of the rules; and
(b)that agreement were duly executed by each member.
(2)Subsection (1) has effect only so far as the rules are consistent with this Act.
(3)The application of this section extends to an association that is, or is deemed to be, an incorporated association immediately before the commencement of this section.
The Respondent rejects the Applicant’s assertion that there is nothing in the Constitution to guide or direct the committee of management. The Constitution is not, and could not be expected to be, a complete guide as to the business of the Applicant but all business of the Applicant must be directed towards the objects of the Applicant as expressed in the Constitution.
The Respondent agrees with the Applicant’s summary of the inference to be drawn from the Rules set out at [38] above that the Rules purport to create members’ rights to benefits consistent with the Constitution and the objects and says that it contends it is not surprising that the Constitution does not specify all rights for every contract with members – that would restrict the committee of management in pursuing the objects.
The Constitution provides a broad authority to management when dealing with the property or income of the Applicant to contract with members in a manner consistent with the objects of the association.
The Respondent accepts that the Rules:
(a)are not lodged with the Commissioner for the purposes of the 2015 Act;
(b)have not been altered in accordance with the 1987 Act or the 2015 Act; and
(c)are not mentioned in the Constitution or in s 13 of the 1987 Act.
but does not agree with the Applicant’s contention that the Rules cannot create rights or powers not mentioned in the Constitution arguing that there is nothing in either the
1987 Actor the 2015 Act to prevent the Applicant from entering into legally binding contracts with any or all of its members that are not formally incorporated into the Constitution provided that such contracts are not “alterations of the rules” of the Applicant within the meaning of s 17 of the 1987 Act or s 30 of the 2015 Act. To the extent that the Rules evidence a contract between the Applicant and its members for the provision of sickness and other benefits to its members, the Rules are not “alterations of the rules” of the Applicant within the meaning of either s 17 of the 1987 Act or s 30 of the 2015 Act because they are not inconsistent with the Constitution and that they do not relate to matters that are required by either the 1987 Act or the 2015 Act to be included in the rules of an incorporated association.
The Respondent says that while the Rules are not deemed by s 21 of the 2015 Act to be part of a contractual relationship between the Applicant and its members, the provision to each proposed member of the “information sheet” at the time of the consideration of a proposed membership[37] (attachment B to the Applicant’s SFIC) making express reference to the Rules means that the Rules are relevant to discerning the mutual promises made by the Applicant and by the proposed member and the form of the contract between the member and the Applicant as regards the provision of benefits to members. The Rules are relevant to determining the terms of the contract. The Rules need not be “deemed” to be part of the contractual relationship. It is sufficient that they are relevant as containing the express or the implied terms of that relationship.
[37] A1, T3 at 14.
The Respondent disputes the Applicant’s contention set out in [38] and [39] above to the effect that the Rules do not create any enforceable right on the part of a member to a benefit and says that whether or not a member is entitled to a benefit in any particular circumstances will depend upon whether the member meets the criteria for the benefit. The Respondent says that where the Rules identify the criteria for the benefit, in all cases the wording of the Rules confers the benefit without any mention of a residual discretion to the Applicant to withhold the benefit and often, to the contrary, makes it clear that the obligation to confer the benefit is mandatory.
The position that the Respondent takes is that the Rules are relevant to discerning the terms of the contract between the members and the Applicant. Aside from the
New Membership Application Form (annexure “A” to the Applicant’s SFIC) and the “information sheet” [38] (annexure “B” to the Applicant’s SFIC) (where the operation of the Rules is identified to prospective members) it is the Rules which express the precise terms of the contract between each member and the Applicant.
[38] A1, T3 at 14.
The express, implied, alternatively statutory, contract between the member and the Applicant confers contractual rights, consistent with the objects of the Applicant,
to benefits in the case of “financial assistance to members in a case of hardship including”: (a) “aid … in the case of sickness or accident”; (b) a “sum in case of death of any contributing member, spouse or dependent”; (c) “a retiring allowance”.
The membership subscriptions are properly described as “premiums” for the provision of those benefits to address the uncertain risks that could cause hardship.
The Rules do not contain a discretion to refuse a benefit. In all cases the amount is a matter of a mandated requirement with words like it “will be payable” (Rule 20) or “shall be paid” (Rule 20) or “will be paid” (Rule 23, 23a) to the member or the member “shall receive” (Rule 25). There is no mention of a discretion, certainly no language in the documents of the type considered by the High Court in Bailey v NSW Medical Defence Union Ltd[39] (Bailey) referring to a “sole and absolute discretion” to refuse an existing benefit.
[39] (1995) 184 CLR 399; [1995] HCA 28.
The Respondent also contends, consistently he says with Bailey, that the rules of a company, or in this case the Constitution, do not preclude a member from separately or in addition contracting individually with the company on terms which may or may not be defined by reference to the constitution. A power to alter the constitution will not necessarily mean an alteration to the terms of the contract with the member rather it will depend on the intention of the parties. A reservation (in the constitution or in the agreement with the member) to amend an entitlement, without more, will operate prospectively. In Bailey, Brennan CJ, Deane and Dawson JJ said:[40]
The whole purpose of the contract being the purchase of cover up to a specified limit for acts done and omissions made during a specified period, it is hardly to be thought that the parties to the contract intended that the Union should be able unilaterally to reduce the indemnity in respect of claims arising for such acts or omissions or to refuse it altogether, particularly after the period of the cover had expired. An alteration to the relevant articles would, of course, affect the terms of any contract made after the alteration. But it cannot have been the intention of the parties that insurance cover already purchased upon terms contained in the articles should be diminished by a subsequent alteration to those articles.
[40] Ibid 415 [24].
CONSIDERATION
Was the Applicant “formed for the purpose of insuring … [members] against loss, damage or risk of any kind”?
I understand that it is not in dispute that the expression “formed for the purpose of insuring persons...” in s 121 of the ITAA refers to the purpose for which the association was established and for which it is currently conducted or, in this case, conducted in the relevant income years.[41] In that regard I note the finding of the court in Cronulla Sutherland Leagues Club Limited v Commissioner of Taxation:[42]
The material facts and circumstances which should be examined to characterise the main purpose of the relevant body include its constitution, its activities, its history and its control. These may alter from time to time and the purpose of establishment may correspondingly change. It is not sufficient to look to the formation of the body and to ascertain what was at that time the purpose of its formation. The statute gives a periodic operation to the words and directs the inquiry to a particular time, namely, the year of income so that consideration must be given not only to the purpose for which the society was established but also the purpose for which it is currently conducted.
[41] Paragraph 35 of Applicant’s SFIC and paragraph 40 of Respondent’s SFIC.
[42] (1990) 23 FCR 82, 95-96 per Lockhart, Beaumont and Foster JJ.
The parties’ respective statements of the issues to be determined are, in effect, in very similar terms (see [20] above). The first issue is whether the Applicant was “formed for the purpose of insuring … [members] against loss, damage or risk of any kind”. The Applicant in its closing submissions says that that question:[43]
Put another way:
Is the Fund legally liable to pay benefits to its members in certain circumstances? Or
Do the members have a legal right to be paid benefits in certain circumstances?
[43] Paragraph 1 of Applicant’s closing submissions.
The arguments of the parties as developed through the respective SFICs, the written submissions and at the hearing, came down to that question: was the Applicant under a legal obligation to pay benefits to its members in certain circumstances?
The Applicant’s case is that it is not legally liable to pay benefits to its members. It can choose to accept a loss that falls within the scope. In making that assertion the Applicant argues that the only document that determines the legal relationship between it and its members, and therefore the legal rights of the members and the legal obligations of the Applicant, is the Constitution. The only part of the Constitution relevant to that issue, according to the Applicant, is section 3 which is in the following terms:
Objects of Association
3.(1) The objects of the Association are:
(i)[sic] To provide financial assistance to members in case of hardship including but not limited to:
·a weekly allowance, as ,may be decided from time to time for the purpose of rendering aid to contributing members in the case of sickness or accident;
·a certain sum in case of death of any contributing member, spouse or dependent;
·a retiring allowance
(2)The property and income of the Association shall be applied solely towards the promotion of the objects of the Association and no part of that property or income may be paid or otherwise distributed, directly or indirectly, to members, except in good faith in the promotion of those objects.
The Applicant argues that the Constitution does not say how much, in what circumstances, when or to whom benefits are to be paid and that it is only the Constitution that can create a legal obligation between the Applicant and a member. This aspect of the Applicant’s argument is summarised in its closing submissions in the following terms:[44]
27.In summary, the 1987 Act contemplates that only the rules of an association lodged with the Commissioner have legal effect, at least to the extent that they are of the kind appearing in Schedule 1 to the Act.
In this context, Rule 9 in Schedule 1, concerned as it is with control of an association’s funds, is a matter to be addressed in Constitution Rules: Rush, [56] (Pullin JA). The place for the conferral on members of a right to benefits is the Constitution. The conferral of such rights cannot be described as matters incidental to those identified in Schedule 1.
The 2015 Act is in similar terms.
[44] Paragraph 27 of Applicant’s closing submissions.
Item 9 in Schedule 1 to the 1987 Act is:
The manner in which the funds of the association are to be controlled.
The Applicant cites [56] of the judgment of Pullin JA in Rush which is as follows:
The Commissioner noted that Hasluck J, in the injunction proceedings Rush v WA Amateur Football League (Inc) [2003] WASC 70, came to a similar conclusion when he said, at [38]:
In my view, s 17 [of the Act] is directed to constitutional rules dealing with matters of the kind set out in Sch 2 of the Act [this should read Sch 1].
The prescribed procedure does not extend to incidental matters or matters not expressly covered by the Schedule such as disciplinary powers.
Commissioner Odes agreed with Hasluck J. On that basis it was held that it was not necessary to amend by-law 3 by special resolution and that the Management Committee amendment was effective.
In Rush the committee of management of the Amateur Football League (the League) purported to amend one of its by-laws to change who was to comprise an investigation tribunal and to expand that tribunal’s disciplinary powers. Clause 10 of the League’s constitution allowed for the committee of management to amend by-laws. The amendment to the by-laws had been made in accordance with clause 10 of the League’s constitution, however, it had not been made in accordance with s 17 of the 1987 Act. The complication in that case was that at the time that the League had been brought under the 1987 Act,
it appeared that the then by-laws, as well as the League’s constitution, had been filed with the Commissioner for Fair Trading (the Commissioner). The Commissioner had subsequently issued a certificate which was tendered into evidence at first instance which read:[45]
This is to certify that:
1.The above named association was incorporated as of the Twenty Third day of February 1984; and
2.The attached copy of the above-named association’s rules is a true copy of those rules lodged with the Commissioner for Fair Trading as at the Twenty Fifth day of July 1988, the Nineteenth day of August 2000 and the Twenty Seventh day of June 2002.
[45] (2007) 35 WAR 101; [2007] WASCA 190 [53].
That certificate attached both the League’s constitution and the by-laws as they were prior to the purported amendment referred to in [68] above. The court at first instance held that, notwithstanding the issue of the certificate by the Commissioner, the by-laws were not part of the rules for the purposes of s 17 of the 1987 Act meaning that they did not have to be amended in accordance with s 17 of that act. Pullin JA, with whom Wheeler JA agreed, however, found that:[46]
…Section 38 provided that a certificate of the Commissioner, to the effect that the copy of the rules of an incorporated association specified in the certificate is a true copy of those rules as lodged with the Commissioner at the date specified in the certificate, is evidence of the matter or matters so specified.
Pullin JA went on to find:[47]
The critical question, therefore, is whether the by-laws are part of the “rules”.
If there had been no certificate tendered, I would agree with Hasluck J and the Commissioner [this is a reference to Mr Michael Odes sitting as a Commissioner of the Supreme Court of WA] that the “rules” would normally be taken to refer to the Constitution. If there had been some evidence to explain that the by-laws were accidentally filed, then the evidentiary effect of the certificate might have been overcome. But there was no such evidence.
[46] Ibid [54].
[47] Ibid [59].
Pullin JA as a result held that the by-laws could only be amended by special resolution under s 17 of the 1987 Act. As they had not been so amended, the unamended by-law applied with the result that the investigation tribunal which had been constituted under the ineffectively amended by-law had not been properly constituted and had,
more problematically, exceeded its disciplinary powers.
The Applicant’s submission referred to in [65] above appears to be relying on Rush as holding that it is only in the Constitution that the manner in which the Applicant’s funds are to be controlled (Item 9 of Schedule 1 to the 1987 Act) can be determined. That, in my view, is not what the court in Rush held. The court determined that the by-laws, which in that case dealt with disciplinary powers and processes, were part of the “rules” to which
s 17 of the 1987 Act applied because the Commissioner had issued a certificate under
s 38 of that act to that effect and, accordingly the purported amendment of the by-laws by the committee, rather than in accordance with s 17 of the 1987 Act, was not effective.
It is not authority for the broader proposition, as seems to be argued by the Applicant,
that only the Constitution can deal with and regulate how the Applicant’s funds are distributed.
It is undoubtedly the case that the terms of the Constitution create a contract between the members and the Applicant; Section 21 of the 2015 Act so provides (see [51] above).
That is not to say, however, that the terms of the relationship between a member and the Applicant can only be effected and governed by the Constitution as lodged by the Applicant with the Commissioner.
As noted at [54] to [60] above, the Respondent argues that, although they are not part of the Constitution, the Rules, or at least parts of the Rules, are incorporated into the contract between the Applicant and its members by the so-called “information sheet” provided to prospective members by the Applicant before or at the time of completing the membership application form which refer to the Rules (see [12] above at 9 and 10 and [40] above). The “information sheets” (five examples of which were attached to the Applicant’s submissions as Attachment B) were in similar terms with the major material differences being amounts of the benefits to be paid changing to reflect different rates of pay for different periods. The third example “information sheet” in the bundle stated that the rates referred to were “effective pay w/e 9 June 2016 and will increase with each pay rise”. That “information sheet”, as did the others with minor changes to reflect different rates for different periods, included the following statements:
History
The Fund was set up on 25 January 1932 by a group of Firemen to ensure that their families never went without food if in the event they went off on sick leave. …
Objectives of the Fund
1.To provide a certain weekly allowance, as may be decided from time to time for the purpose of rendering aid to contributing members in the case of sickness or accident.
2.To provide a certain sum in case of death of any contributing member or their dependant.
3.To provide a retiring allowance.
…
Why join the Fund?
You will be provided with financial assistance in the event that you utilize all your paid sick leave and still require leave from work. If you, a spouse or dependant die there is a death benefit payable. If you don’t use the Fund for the first two (2) reasons you will receive 75% of your contributions back when you retire. Really, it doesn’t cost you a great deal to join.
What will it cost me?
This rate is effective pay w/e 9 June 2016 and will increase with each pay rise.
The contribution rate is set at 0.6% of a Third Class Firefighters’ Wages =$1,564.75 x 0.6% = $9.39 per week.
What do I get in return? (Emphasis added.)
1.Sickness Benefits will be 70% of substantive wages up to SFF:
5th Class $1,022.07 4th Class $1,043.00 3rd Class $1095.32 2nd Class $1126.71 1st Class $1231.34 Senior FF and above $1,283.66 Rule 20 states: Benefits will be payable to members provided that
i)members who are at level of 3rd Class (as FESA classes changed pay rise 9 June 2011) or above that commence sick leave no pay shall have accumulated a minimum of 96 hours of accrued personal leave. Failure to have the required number of hours accrued will result in benefits being payable at the rate of 50% of the 3rd Class Firefighter’s pay rate (first payment only).
ii)Members at levels below 3rd Class must accrue a minimum of
48 hours personal leave otherwise benefits payable will be calculated at 50% of the 3rd Class Firefighter’s rate (first payment only).
iii)Members who are in their first year of service will be exempt from the requirements of (iii) as above.
2.If you pass away whilst a financial member of the Fund, your nominated beneficiary will receive a payment of $30,000. If a dependent [your partner or child up to the age of 18 years old, if not working or fulltime student up to the age of 25 years old] your [sic] will receive a $10,000 payment.
Benefits are payable whether they are work related or not. (The above figures are reviewed on an annual basis prior to the AGM).
3.If you have been in the Fund for longer than four (4) years you are entitled to a refund of 75% of your contributions. In the event that you have drawn on the Fund in the way of Sickness or Death Benefits this amount is deducted.
If you are under the balance of the retiring allowance you will receive the difference. If the amount you have received from the Fund is greater than the Retiring Benefit you don’t receive anything and you do not have to repay the Fund.
What if I don’t join the Fund today?
Employees not joining the Fund within six (6) months of joining DFES,
shall contribute to the Fund for two (2) calendar months before becoming entitled to any benefits of the Fund.
…
Change of Beneficiary Details (Emphasis added.)
In the event that you no longer wish to have the person currently nominated as your beneficiary please complete a Change of Beneficiary Form. More than one (1) beneficiary can be nominated but please advise what percentage you would like left to each beneficiary.
The language of the information sheet is that of a contract. It is unequivocal in stating what the member will receive by way of benefits. Those statements are reflective of the Rules.
I do not accept the Applicant’s argument that the Rules cannot create legal rights to benefits because they are not lodged with the Commissioner. That argument ignores the fact that at the time that the relationship between the Applicant and a member is created the Rules are specifically referred to by the Applicant in its “information sheet” which not only refers to the Rules, but quotes the critical Rule 20 under the heading “What do I get in return?” The language of the Rules in relation to the members’ entitlements to benefits (as quoted in the “information sheet”) is mandatory (see [55] – [57] above). As the Applicant concedes:[48]
On the face of them, the Rules for Management of the Fund purport to create members’ rights to benefits consistent with the Fund’s objects but not mentioned in the Constitution. See for example, Rules 20, 23, 23a and 25.
[48] Paragraph 38 of Applicant’s SFIC.
The Applicant’s argument also overlooks the unequivocal language of the “information sheet”, a document the purpose of which appears to be to provide information to those who are becoming members on, amongst other things, their entitlements to benefits as members. Even if the whole of the Rules are not incorporated by reference by the “information sheet”, the terms of the information sheet itself, even without the Rules, make absolute statements as to joining members’ entitlements to benefits. The Applicant says that:[49]
Before completing an Application Form, a prospective member will have read or been given a Fund generated information sheet: Exhibit A1, T3, pp 14-15, and attached to the Fund's SFIC and marked with the letter ‘B’ (Exhibit A2).
[49] Paragraph 37 of Applicant’s closing submissions.
The Applicant argues, however, that “[t]he information sheet is just that”, a sheet containing information and is not intended to contain a contract or contractual terms.[50]
I do not accept that argument. Firstly, it is the Applicant that describes the document provided to prospective members as an “information sheet”. The document is not headed that way nor is there any statement in the document to the effect that it is meant simply to contain information (whatever that might mean) and is not to be taken as being any type of representation as to benefits to which a member will be entitled. Its language is unequivocal. It makes clear and unambiguous representations as to what members will receive in certain circumstances (see [73] above). There is certainly no indication, express or implied, in the document that in return for payment of contributions all that the member is getting is an undertaking by the Applicant that it will consider a claim made in the identified circumstances but that, in the end, it is at the discretion of the Applicant whether any payment is made and the member has no legal right to receipt of a benefit.
[50] Paragraph 37 of Applicant’s closing submissions.
Secondly, the circumstances in which the document is provided to prospective members (see [76] above) indicates an intention that the entitlements to benefits described in considerable detail are to be part of the relationship, a contractual relationship, between the member and the Applicant. As noted by Carter:[51]
Intention of parties. Although the basis upon which pre-contractual statements are classified is the intention of the parties, an objective approach is taken. A court must ask what conclusion a reasonable person in the position of the person to whom the statement was made would have reached. (See eg Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 61; 55 ALR 417). If such a person would have concluded that the person who made the statement intended to guarantee its truth, the statement takes effect as a contractual term. (See eg Ellul v Oakes (1972) 3 SASR 377 at 381).
…
Time of statement. The proximity between the statement made and entry into the contract is relevant to the intention of the parties. If the period is brief, it can be presumed that the statement induced entry into the contract. Although that is not sufficient to establish the statement as a contractual term, when combined with other factors that may be the appropriate conclusion.
(Footnotes omitted.)
[51] John W Carter, Contract Law in Australia (LexisNexis, 7th ed, 2018) 212 [10-06]-[10.07].
The other factors identified by Carter as being indicative of a statement being treated as a term of the contract are the content of the statement and the knowledge of the parties,
in particular the relative positions of the parties and their respective knowledge of the facts.[52]
[52] Ibid 213 -214 [10-08], [10-19].
There is, in my view, no basis for the Applicant’s assertion that:[53]
In the context, it is simply an information sheet containing material a prospective member might want to know about before deciding whether or not to become a member of the Fund. It is not intended to be a contract on the terms contained in the Information sheet or on the terms of the Rules for the management of the Fund referred to by it.
[53] Paragraph 37 of Applicant’s closing submissions.
Quite to the contrary, the language of the “information sheet”, the circumstances in which it is provided (which the Applicant concedes is at the point when someone is deciding whether to become a member) and the parties’ relative states of knowledge, all point to a finding that a reasonable person in the position of the person to whom the statement was made would have reached the conclusion that the representations made in that document would form part of the contract between the Applicant and that person.[54]
[54] See [78] above.
I find that the representations set in the “information sheet”, including the terms of Rule 20, are incorporated into the contract between the Applicant and its members.
In the alternative, if I am incorrect in finding that the terms contained in the “information sheet” form part of the contract between the Applicant and its members, the facts are sufficient to sustain a collateral contract to that claimed by the Applicant as constituted by the Constitution. The terms of that collateral contract would be the terms of the “information sheet”, including Rule 20. The elements for that collateral contract (at least) are satisfied. Carter describes a collateral contract arising in the following circumstances:[55]
Form and nature. A collateral contract is a contract the consideration for which is entry into another contract. (See generally K W Wedderburn, ‘Collateral Contracts’ [1959] CLJ 58). The nature of such contracts appears from Lord Moulton’s judgment in Heilbut Symons & Co v Buckleton: ([1913] AC 30 at 47. See also Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 at 139).
It is evidence, both on principle and on authority, that there may be a contract the consideration for which is the making of some other contract. ‘If you will make such and such a contract I will give you one hundred pounds,’ is in every sense of the word a complete legal contract. It is collateral to the main contract, but each has an independent existence, and they do not differ in respect of their possessing to the full the character and status of a contract.
(Footnotes omitted.)
[55] John W Carter, Contract Law in Australia (LexisNexis, 7th ed, 2018) 215 [10-11].
Even if I am wrong in finding that the information sheet is incorporated into the contract between the Applicant and its members or constitutes a collateral contract, I find that terms of similar effect, or at least a term entitling the member to payment of benefits, would be implied into the contract under the principles set out in BP Refinery v Hastings. Contrary to the Applicant’s assertion[56], a term to the effect of that set out in the “information sheet” encapsulating the effect of Rule 20:
(i)is reasonable and equitable;
(ii)is necessary to give business efficacy to the contract;
(iii)is so obvious that “it goes without saying”;
(iv)is capable of clear expression; and
(v)does not contradict an express term of the contract.
(See also Codelfa Constructions Pty Ltd v State Rail Authority (NSW);[57] Bell Group v Westpac Banking Corporation (No 9) [58] (Bell); Tanioria v Commonwealth (No 3)[59]).
[56] Paragraph 40 of Applicant’s closing submissions.
[57] (1982) 149 CLR 337; [1982] HCA 24, 347.
[58] (2008) 39 WAR 1, [2009] WASC 239, 327.
[59] [2018] FCA 1623 at [81].
Owen J in Bell, having referred to the above five criteria from BP Refinery v Hastings, noted:[60]
But these criteria are not applied rigidly in the case of an informal contract: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 121 per Deane J and Hawkins v Clayton at 571 per Deane J. In the case of a contract that has not been reduced to complete written form, a term will be implied (apart from in circumstances of established mercantile usage or professional practice or past course of dealing) if, but only if, the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case…
[60] (2008) 39 WAR 1, 327 [2675].
The present case meets all of the identified criteria. Terms to the effect requiring the Applicant to make payments to members in the circumstances identified:
(i)are reasonable and equitable given the objects of the Applicant as stated in both the Constitution and the Rules. The alternative situation, that proposed by the Applicant, that it is under no obligation to pay members any benefits but only under an obligation to consider claims is clearly not reasonable or equitable in circumstances where the members have paid contributions on the clear representation that they would receive benefits in line with the “information sheet” and the Rules.
(ii)are necessary to give business efficacy to the relationship between the Applicant and its members. An arrangement under which the Applicant was under no obligation to pay benefits to members who have paid contributions would be of no business efficacy.
(iii)are so obvious that it would go without saying. The whole point of members paying into a benefit fund is that they receive benefits, particularly in circumstances where that representation has been unequivocally made to them prior to them joining. The receipt of benefits in return for payment of contributions is clearly the whole point of the relationship, the whole point of the Applicant.
(iv)are capable of clear expression as evidenced by the fact that they are clearly expressed in the information sheet and Rule 20.
(v)do not contradict an express term of the contract. The Applicant argues that the express terms of the contract, in fact the only terms, are set out in the Constitution and “the Constitution does not grant members the right to benefits”.[61] The Applicant does not, however, nor could it, argue that the Constitution prohibits rights being granted to members. An implied term to the effect that the members would be entitled to payment of benefits, benefits that have for many years actually been paid by the Applicant to members (see [12] above) is not in contradiction of a term of the Constitution. On the contrary, such a term would facilitate the objects of the Applicant as set out in the Constitution and would reflect what, as a matter of fact, has occurred since the Applicant’s establishment and continues to occur.
[61] Paragraph 41 of Applicant’s SFIC.
I am therefore satisfied that the Applicant is “legally liable to pay benefits to its members in certain circumstances”, as the Applicant put it (see [62] above), pursuant to:
(a)an express term of the contract that it enters into with its members contained in the information sheet and the Rules; or
(b)an implied term of that contract (see [84] to [86] above); or
(c)a collateral contract (see [83] above).
I am therefore satisfied that the Applicant was “formed for the purpose of insuring … [members] against loss, damage or risk of any kind” for the purpose of s 121 of the ITAA.
Does s 121 of the ITAA deem the Applicant to be carrying on the business of insurance?
The Tribunal’s understanding of the Applicant’s argument is set out at [19] above. The Applicant concludes:[62]
How can the ITAA 1936, s 121 deem an association of persons to be a company carrying on insurance business when the s 6 definition of ‘insurance business’,
by s 3 of the Insurance Act 1973, clearly excludes such a company from the definition?
[62] Paragraph 44 of Applicant’s SFIC.
The difference between the parties is summarised in [16] to [20] above.
I do not accept the Applicant’s argument. The answer to the question posed at paragraph 44 of its SFIC as set out in [89] above is that whether it is carrying on an insurance business as that term is defined in s 3 of the Insurance Act 1973, is irrelevant.
The Applicant’s argument that it does not fall within definitions of carrying on
“an insurance business” for the purposes of s 3 of the Insurance Act 1973 or a
“life insurance business” for the purposes of the Life Insurance Act 1995 (see [32] above), misses the point. As the Respondent submits, the test to be applied is identified by the words in s 121 of the ITAA, namely, whether the Applicant was “formed for the purpose of insuring those persons against loss, damage or risk of any kind”. If that test is met,
then the Applicant is, by operation of s 121 of the ITAA, taken to be carrying on the business of insurance. The test is not whether the Applicant is a company actually carrying on a “business of insurance” nor is the test whether the Applicant is a company carrying on an “insurance business” within the meaning of s 3 of the Insurance Act 1973.
The Applicant’s argument also overlooks the well-established principles relating to deeming provisions in legislation. Those principles are set out in the leading textbook Statutory Interpretation in Australia wherein the learned authors relevantly observe:[63]
…as was pointed out in Coates v Commissioner for Railways (1961) 78 WN (NSW) 377, where a statute provides that something is to be deemed to be a fact, it is implicit in such a provision that the assumption shall be made if necessary contrary to the fact. In that case a provision operated in such a way that an injury to a worker was to be deemed to have happened at a certain time. The court held that it was not open to the worker to establish that he had in fact received the injury before that time…
…
Other expressions such as ‘as if’ and ‘shall be taken to be’ are variants on the expression ‘deemed’ and will be interpreted in the same manner: Loizos v Carlton and United Breweries Ltd (1994) 94 NTR 31 at 32; R v Hughes [2000] HCA 22; (2000) 202 CLR 535; 171 ALR 155 at [24]; Martinez v Minister for Immigration and Citizenship [2009] FCA 528; (2009) 177 FCR 337; 256 ALR 32 at [28]-[29].
[63] Dennis C Pearce and Robert S Geddes, Statutory Interpretation in Australia (LexisNexis, 8th ed, 2014) 189-191 [4.45].
Accordingly, the answer to the question posed by the Applicant set out in [89] above is that it can because that is how deeming provisions work. Justice Keifel, as she then was, described the operation of deeming provisions in Secretary, Department of Family and Community Services v Chamberlain as follows:[64]
Unlike a presumption, which may be rebutted by evidence, the purpose and effect of a deeming provision is to prevent any attempt, by either party, to prove the truth: Actors and Announcers Equity Association of Australia v Fontana Films Pty Ltd (1983) 150 CLR 169 at 214, Murphy J; a facility to put to rest the disputes which would otherwise arise concerning the facts: Macquarie Bank Ltd v Fociri Pty Ltd (1992) 27 NSWLR 203 at 227, Kirby P.
[64] (2002) 116 FCR 348, 353; [2002] FCA 67 [24].
As I have found that the Applicant was “formed for the purpose of insuring … [members] against loss, damage or risk of any kind” for the purpose of s 121 of the ITAA, it therefore follows by operation of s 121 of the ITAA that the Applicant “is taken, for the purposes of this Act [ITAA], to be a company carrying on the business of insurance” and therefore by operation of subsection 121(2) of the ITAA the Applicant’s “assessable income… includes all premiums derived by it, whether from its members or not.”
In the present case the contributions paid by the members of the Applicant are the premiums for the purposes of subsection 121(2) of the ITAA.
DECISION
The decision of the Respondent dated 11 September 2018 disallowing the Applicant’s objection lodged 4 May 2018 to a private ruling dated 8 March 2018 issued by the Respondent is affirmed.
I certify that the preceding 96 (ninety-six) paragraphs are a true copy of the reasons for the decision herein of Deputy President Boyle
...........................[sgd].............................................
Associate
Dated: 20 August 2019
Date of hearing: 22 July 2019 Counsel for the Applicant: Mr G Pynt Counsel for the Respondent: Mr C Slater
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