Hallmark General Insurance Co Ltd v Commissioner of Stamp Duties
[1988] TASSC 101
•19 October 1988
Serial No B33/1988
List "B"
COURT: SUPREME COURT OF TASMANIA
CITATION:Hallmark General Insurance Co Ltd v Commissioner of Stamp Duties [1988] TASSC 101; B22/1988
PARTIES: HALLMARK GENERAL INSURANCE CO LTD
v
COMMISSIONER OF STAMP DUTIES
FILE NO/S: 3/1988
DELIVERED ON: 19 October 1988
JUDGMENT OF: Neasey J
Judgment Number: B33/1988
Number of paragraphs: 26
Serial No B33/1988
List "B"
File No LCA 3/1988
HALLMARK GENERAL INSURANCE CO LTD v COMMISSIONER OF STAMP DUTIES
REASONS FOR JUDGMENT NEASEY J
19 October 1988
1 The appellant insurance company, which is an objector to an assessment of duty made by the respondent Commissioner under the Stamp Duties Act 1931 ("the Act") has appealed, pursuant to s21(1) of that Act, against the Commissioner's assessment. The Commissioner assessed duty totalling $237,180 in respect of certain Consumer Credit Insurance Policies issued by the appellant during the period July 1983 to March 1987 inclusive. The appellant was given notice of the assessment by letter dated 22 December 1987. The respondent advised that the assessment had been made under s10A(1) of the Act. There may be a question whether s10A(1) was the appropriate vehicle for making the assessment, but nothing turns on that. s21(4) of the Act provides in substance that if an objector remains dissatisfied after confirmation or modification of an assessment by the Commissioner, he may appeal to a judge as provided by s22. s22 enacts some procedural provisions, and provides that upon the hearing of the appeal the judge may make an order confirming or varying the assessment, as he may think just.
2 The appellant company in conjunction with an associated company named Hallmark Life Insurance Company Ltd. has over a period of years, in a number of States including Tasmania, been entering into what it regards as insurance contracts, compendiously known as "consumer credit insurance contracts". The appellant is a subsidiary of Hallmark Life Insurance Company Ltd., and both are ultimately owned by a company called Avco Financial Services Ltd. The latter company carries on business as a financier, in which it provides funds by way of loan in a number of consumer trading areas. These include, for example, retail sales of household items and the like, direct loan transactions, usually made no doubt to finance retail purchases of one kind or another, the loans being sometimes secured by real property and sometimes not, and sometimes involving repayment of both principal and interest, and at other times interest only. People who borrow money from AVCO in this way are able to, and perhaps encouraged to, insure themselves with the two Hallmark companies against various contingencies which might affect adversely their ability to repay their debt to AVCO. Obviously, the overall purposes of the integration of the financing and "insurance" aspects of these transactions is to provide some financial safety for both the lender and the debtor in the case of events or contingencies occurring which would ordinarily be expected to diminish the ability of the debtor to repay, such as death, disability, unemployment, and the like; and to enable the companies to conduct profitable business over the whole range of such transactions. The substantial issue between the parties in this appeal is whether these "insurance" agreements are properly so described, or whether on the contrary they are in substance contracts of guarantee, as the respondent Commissioner contends. The type of contract written by the appellant during the assessment period has changed from time to time, but I do not think the form of these changes affects the result of the appeal.
3 During the course of argument, four forms of contract were treated as typical of individual contracts issued after the coming into effect of the Insurance Contracts Act of 1984 of the Commonwealth (prior to that, "group" policies were issued, one each for the various trading areas in which the appellant engaged). A brief description of these four is in order. The first is identified as exhibit "E" to the affidavit of Mr Henry Leslie Sauter. It sets out the terms of the Consumer Credit (Retail Sales) insurance contract which Hallmark generally entered into during the period August 1986 to March 1987 inclusive. It can be taken as typical of the retail sales insurance contracts exemplified by exhibits B, C, D, and E of Mr Sauter's affidavit. Page 1 is headed "Consumer Group Credit Insurance Plan (Retail Sales) underwritten by Hallmark Life Insurance Company Ltd. and Hallmark General Insurance Company Ltd". Then follows (omitting incidental details) a section headed "The Schedule", and "Policy of Insurance". Under those headings, the form has room for a "beneficiary", with a "state or branch" number to be named, and an "insured", with room for particulars. Under that the form provides for details of a consumer contract, with expiry date, account number, monthly instalment, and the like, and for a statement of the residue owing on the account, and a "total premium".
4 Then follows on page 1 these statements:–
"MAXIMUM BENEFITS
SECTION 1 SECTION 2 SECTION 3
LIFE DISABILITY INVOLUNTARY
(Consumer Credit) UNEMPLOYMENT
The balance outstand– The amount of the The amount of
ing on the date of Monthly Instalment the Monthly
death less rebate of excluding the Instalment
charges and arrears initial 14 days of excluding the
not exceeding $5,000 each disability and first 14 days
in total not exceeding $300 of each claim.
per month Limited to a
maximum period
of 120 days or
$1,200 which–
ever is the
lesser in any
consecutive 12
months period
commencing from
the Effective
Date.
FULL DETAILS ARE SHOWN IN THE APPLICABLE SECTIONS OF THE POLICY.
Blue copy to HALLMARK together with the Monthly Report."
The second page of the document is the same as the first down to the section which leaves space for account number and monthly instalment. Under that, in place of the section headed "Maximum Benefits", the following appears:–
"In consideration of the return premium shown hereunder, the undersigned hereby surrenders all rights under this POLICY and releases Hallmark Life Insurance Company Ltd. and Hallmark General Insurance Company Ltd. from any liability thereunder. Effective from the TERMINATION DATE shown hereunder."
6 Then follows space for statement of a termination date, reason for termination, return premium, and customer signature. On the bottom of the page is the legend "Pink Copy for AVCO FILE. This copy must be sent to Hallmark the Monthly Report when (1) Return Premium is made; and (2) in the case of a Death Claim". "AVCO" referred to therein is AVCO Financial Services Ltd. – see paragraph 1 of Mr. Sauter's affidavit.
7 Page 3 of the document is identical to the first page down to the end of the section which appears under the heading "Maximum Benefits". Underneath that, it contains first a statement which is apparently designed to inform the insured of his rights under the "free–look" provision in s64 of the Insurance Contracts Act 1984 (Act No 80 of 1984) of the Commonwealth. It is to the effect that the insured person is asked to read the policy carefully, and is informed that if he is not satisfied with the coverage for any reason, he should return the policy within 15 days after receipt and the total premium paid will be refunded. Under that statement, appears the following:–
"THIS IS TO CERTIFY that the Insured named above who is indebted to the Beneficiary by virtue of a credit arrangement (hereinafter referred to as the 'CREDIT ARRANGEMENT(S)') is insured by HALLMARK LIFE INSURANCE COMPANY LTD. and HALLMARK GENERAL INSURANCE COMPANY LTD. (hereinafter referred to as 'THE COMPANY' and shall refer collectively to the Companies or individually to a particular Company as determined by the context) subject to the terms, conditions, limitations and exclusions of this POLICY."
8 The fourth and fifth pages set out the "conditions, limitations and exclusions" just referred to; and since they are important to resolution of the present dispute, I set them out in full, as under:–
"EXCLUSIONS
This POLICY does not cover TOTAL DISABILITY or INVOLUNTARY UNEMPLOYMENT which:
(a) is directly or indirectly attributable to or consequential upon:
(i) intentional self injury;
(ii)INVOLUNTARY UNEMPLOYMENT occurring within twenty eight (28) days after the EFFECTIVE DATE;
(iii)any sickness, disability or disease which the Insured has previously suffered provided that if the Insured having previously suffered a sickness, disability or disease but has not had any treatment or symptom during the twelve (12) month period immediately preceding the EFFECTIVE DATE, benefits will be paid in respect of recurrence of that sickness, disability or disease during the term of this POLICY;
(b) happens to Insured whilst:
(i)travelling beyond the limits of Australia or New Zealand (other than by direct transit between places therein or between Australia and New Zealand) unless the written consent of THE COMPANY shall have been previously obtained;
(ii) engaging in professional sporting activity of any kind;
(c)happens to the Insured whilst travelling other than as a passenger in a fully licensed standard type aircraft owned or operated by a recognized airline over an established air route;
(d)in the case of a woman is attributable wholly or in part to childbirth or pregnancy, whether existing on the EFFECTIVE DATE, or developing subsequent thereto;
(e)is caused by accident, sickness or disease which is directly or indirectly attributable to intoxicating liquor, narcotics or drugs;
(f)is due to any consequence of war, invasion, act of foreign enemy, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection or military or usurped power;
(g) is due to the cessation of seasonal, temporary, casual or part–time work;
(h)is due to unemployment caused by termination for misconduct as determined by the Insured's employer at the time of his termination;
(i)is due to elective or cosmetic surgery unless such surgery is necessary as a result of injury as defined herein and which injury is not otherwise excluded under this POLICY.
CONDITIONS
1Written notice containing full particulars of any event in respect of which a claim is to be made must be given as soon as possible.
2Upon receipt of notice of a claim, a Claim Form, which will be provided, must be returned within fourteen (14) days of receipt, fully completed together with written statements, medical certificates, and/or any other relevant evidence in support of the claim. All such certificates and other evidence shall be furnished at the expense of the Insured and shall be in such form and of such nature as THE COMPANY shall prescribe.
3Claims for benefits under Section One (1) must be supported by proof in a form satisfactory to THE COMPANY of the death, age and identity of the Insured.
4THE COMPANY shall have the right in the case of death of the Insured at its own expense to make any enquiries or to have a post mortem examination before settlement of the claim.
5THE COMPANY shall at its own expense have the right and opportunity to carry out any enquiry it deems necessary and/or to examine the person of the Insured when and so often as it may reasonably require in respect of any claims under Sections Two (2) and Three (3).
6This POLICY will not apply to any person under the age of sixteen (16) years and all cover will cease when the Insured attains the age of sixty–five (65) years or on the TERMINATION DATE of the POLICY (whichever date is the earlier).
7If in the event of a claim under Sections Two (2) and Three (3) the amount insured is less than the amount of the Monthly Instalment as shown in the Schedule then the Insured shall pay the difference between the Monthly Instalment and the amount insured.
8All Benefits shall be paid to the BENEFICIARY and will be applied to the indebtedness of the Insured. Any Benefits paid under the POLICY in excess of the amount required by the BENEFICIARY under the CREDIT ARRANGEMENT(S) shall be paid to the Insured or the Estate of the Insured.
9In the event that Monthly Instalments under the CREDIT ARRANGEMENT(S) are deferred, the term of this POLICY shall be increased by a period representing the number of payments deferred.
10In the event of termination of this POLICY prior to the EXPIRY DATE the unused portion of the premium will be refunded. Refunds will be calculated according to the 'Rule of 78' formula and will be paid to the INSURED.
11 This POLICY may be cancelled at any time at the request of the Insured.
12The Insured hereby irrevocably appoints the BENEFICIARY to be the Beneficiary and all Benefits payable under the POLICY shall be paid to the BENEFICIARY to reduce or extinguish the indebtedness under the CREDIT ARRANGEMENT(S)."
9 The next typical contract was identified as Exhibit "J" to Mr Sauter's affidavit, being one of the group of consumer credit (loans) insurance contracts entered into by the applicant during the assessment period, where repayment of the loan was not secured by a mortgage of real estate. Exhibit "J" related to the period May 1986 to August 1986, inclusive.
10 The general format of "J" is similar to "E", but under the names of the companies it has a heading, "Application and Authorisation (to be completed with all loans other than those secured by real estate)". It has a section 1, relating to life insurance, and a section 2, relating to credit disability (consumer credit) insurance. It states, "This insurance is not required as a condition for granting credit nor is it a factor considered in the granting of credit. The debtor(s) may arrange insurance with an insurance company, agent or broker of his/her choice". It has a place at the top for "beneficiary", with particulars; and for "first debtor" and "second debtor" with relevant particulars. The second half of the first page consists of a section which is to be completed in the debtor's handwriting, after he reads the following:–
"NOTE –
(a)THE FIRST DEBTOR IS NOT ENTITLED TO RECEIVE CREDIT DISABILITY INSURANCE BENEFITS IF THE CLAIM RELATES TO AN INJURY OR SICKNESS WHICH THE FIRST DEBTOR HAD TREATMENT FOR OR SYMPTOMS OF DURING THE FIRST TWELVE (12) MONTHS PRIOR TO THE EFFECTIVE DATE (SEE POLICY OF INSURANCE, SECTION 2, EXCLUSION a). THESE EXCLUSIONS WILL APPLY IRRESPECTIVE OF THE FACT THAT THE FIRST DEBTOR MAY HAVE RECEIVED CREDIT DISABILITY INSURANCE BENEFITS UNDER PREVIOUS CREDIT DISABILITY INSURANCE COVERING A PRIOR CREDIT ARRANGEMENT WITH THE BENEFICIARY.
(b)INSURANCE IS NOT AVAILABLE TO DEBTOR(S) WHOSE AGE WILL EXCEED 65 YEARS AT THE DUE DATE OF THE FINAL LOAN INSTALMENT.
(c)ALL EXCLUSIONS BENEFITS AND CONDITIONS ARE SHOWN IN THE ATTACHED POLICY OF INSURANCE.
I/WE REQUIRE THE FOLLOWING COVERAGE(S) FOR WHICH A PREMIUM AMOUNT IS SHOWN ABOVE AND HEREBY IRREVOCABLY APPOINT THE BENEFICIARY TO BE THE BENEFICIARY AND ALL BENEFITS PAYABLE UNDER THIS POLICY SHALL BE PAID TO THE BENEFICIARY TO REDUCE OR EXTINGUISH THE INDEBTEDNESS UNDER THE LOAN ARRANGEMENT."
11 Then follows spaces for the signature of the first and second debtors. At the foot, this page is stated to be "Office copy – original – place in customer's file".
12 The second page appears to be identical to the first, except at the foot is stated, "Debtor(s) copy – handed to debtor(s)".
13 The third page of document "J" has the heading "Policy of Insurance", under that the "Schedule", space for the names and particulars of the beneficiary and first and second debtors to be entered; and then the following:–
"Term of insurance is the period between the effective date and the due date of the final loan instalment as stated in the loan agreement between the beneficiary and the debtor(s) for the Loan Account above ('Loan Agreement'). Maximum term 72 months; and 'INSURANCE EXPIRY DATE' is the due date of the final loan instalment as stated in the loan agreement."
14 Then there follows statements of "definitions" and "benefits" under a s1 relating to "life insurance", and definitions, benefits and exclusions and general provisions relating to s2, dealing with "credit disability (consumer credit) insurance available to first debtor only". The general provisions contain a provision important in the present context, that "any benefit paid under the Policy which is in excess of the amount required by the Beneficiary under the Loan Agreement shall be paid to the Debtor(s) or the Estate of the Debtor(s)".
15 "P" is the form of contract relating to consumer credit (loans) insurance contracts where the loan from AVCO was secured by a mortgage over real estate and repayments by the insured during the term of the loan were made on account of both principal and interest. "P" related to the period between November 1986 and March 1987 inclusive. The form of the document is in general terms similar to that of "J", but the second page contains a statement that it is required to have attached to it a "completed statement of health". This "personal statement of health" is a quite detailed document which is stated to relate to "personal loans and all real estate loans". It sets out a statement to the borrower of "your duty of disclosure", in respect of a contract of life insurance or of general insurance about to be entered into by the borrower. It includes statements of the results of a failure to comply with the duty of disclosure, either in respect of life insurance or general insurance. In this appeal there is no issue concerning the insurance nature of the relevant contracts relating to life insurance, so I need not set out the terms relating to these. In relation to "contracts of general insurance (credit) disability", the form states, "If you fail to comply with your duty of disclosure, the insurer may be entitled to reduce his liability under the contract in respect of a claim or may cancel the contract. If your non–disclosure is fraudulent, the insurer may also have the option of avoiding the contract from its beginning." Then follow questions and space for answers to various questions relating to the health record of the borrower.
16 The next document is "U", which is said to be typical of the contracts relating to consumer credit (loans) insurance contracts where the loan from AVCO was secured by a mortgage over real estate, and where repayments during the term of the loan included amounts on account of interest only. "U" was in force during the period January 1986 to March 1987 inclusive – see par13 of Mr Sauter's affidavit. I need not set out details of the form, because it is similar to "P". It is also required to be accompanied by the personal statement of health.
17 Important changes in the statutory position relative to the Stamp Duties Act 1931 have taken place during the course of the assessment period. The Stamp Duties Act 1931 (Act 22 Geo V No 19) was substantially amended by the Stamp Duties Amendment Acts, No. 67 of 1986, No 111 of 1986 and No 94 of 1987. The principal amendments affecting the present case were made by Act No 67 of 1986. Since those amendments were enacted, the second Schedule to the Act, which enumerates the several kinds of instruments, and the rates of stamp duty to be paid in respect of them pursuant to s9 of the Act, contain relevant Items 31 and 33. Item 31 relates, inter alia, to "(b) Receipts for a renewal premium payable on a policy of insurance (other than a policy of life assurance or a policy of insurance that is exempt from duty by virtue of any of the provisions of Schedule 3)". It provides that the duty payable shall be 7½ % of the amount of the renewal premium after deducting therefrom any amount actually paid away by way of reinsurance effected in this State with another insurer (in addition to the duty payable under Division 1 of Part IV). Item 33 relates to policies of life assurance, and is not directly in issue in this appeal.
18 The appellant contends that the relevant item prescribing the stamp duties to be paid by it in respect of contracts in the abovementioned forms, which it argues are contracts of insurance, is if duty is payable at all, Item 31(b). Under Item 31(b)(ii) of Schedule 3 of the Act, "a policy of insurance insuring a payment in consequence of the sickness of a person or in consequence of incapacity of a person from personal injury" is exempted from paying duty at all, and the appellant relies on this as taking all or most of its contracts of insurance apart from life out of the dutiable category.
19 Schedule 2 also contains Item 11, which is "Deed or any other instrument of any kind not otherwise subject to ad valorem duty, the duty prescribed being $20 for each such Deed. The respondent contends that, since the abovementioned contracts are not contracts of insurance but of guarantee, they are covered by Item 11. The difference in the amount of duty payable is of course considerable; such that, as the appellant has informed the Commissioner by letter, it would mean that this stamp duty if payable would exceed the premium income.
20 Prior to the amendments enacted by the 1986 Act, the appellant's position was as follows. s47 of the Act prescribed that, in effect, the Treasurer might on the application of an insurer grant to such insurer a licence authorising it to pay duty on policies of insurance and other instruments granted or issued by the insurer in the manner prescribed by the section. This licence had effect, pursuant to s47(2), inter alia to authorise the payment of the duty on policies on other instruments in accordance with s47 in lieu of payments of duty by means of stamps affixed to or impressed on those policies and other instruments. s47(5) provided that an insurer to whom a licence had been granted under the section was required to pay, during the continuance of the licence, duty at the rate prescribed in Item 31 or Item 33 in Schedule 2, whichever was applicable. Item 31(b) to which s47 applied was in the same terms prior to the 1986 Act as it was afterwards, so that the appellant was at all relevant times prior to the 1986 Act paying at the same lesser rate of duty. There was prior to the 1986 Act no item in Schedule 2 precisely comparable with Item 11 as it now stands.
21 Certain definitions in s3 of the Act need to be noticed. "Policy of insurance" means any instrument whereby any contract of insurance is made or agreed to be made or is evidenced, whether the same is called insurance or assurance. "Insurer" means a person who carries on insurance business, and includes an association of underwriters whether carrying on business as an association or through a managing underwriter or an insurance broker. These definitions do not aid resolution of the main issue.
22 It is often not easy to tell whether complex contracts in this field are in basic substance contracts of insurance or of guarantee – for example, compare Dane v The Mortgage Insurance Corporation Ltd. [1894] 1 QB 54 with In Re Denton's Estate [1904] 2 Ch 178; but in the present case I do not see much difficulty. The relevant contracts show all the indicia of insurance and, as far as I can see, none of guarantee. In Seaton v Heath, Seaton v. Burnand [1899] 1 QB 782, Romer LJ said that there is no magic in the words themselves, "insurance" and "guarantee", which generally speaking have the same meaning, but:–
"... when contracts of insurance are considered it will be seen that, speaking generally, they have in common several features in their character and the way they are effected which distinguish them from ordinary contracts of guarantee. Contracts of insurance are generally matters of speculation, where the person desiring to be insured has means of knowledge as to the risk, and the insurer has not the means or not the same means. The insured generally puts the risk before the insurer as a business transaction, and the insurer on the risk stated fixes a proper price to remunerate him for the risk to be undertaken; and the insurer engages to pay the loss incurred by the insured in the event of certain specified contingencies occurring. On the other hand, in general, contracts of guarantee are between persons who occupy, or ultimately assume, the positions of creditor, debtor, and surety, and thereby the surety becomes bound to pay the debt or make good the default of the debtor. In general, the creditor does not himself go to the surety, or represent, or explain to the surety, the risk to be run. The surety often takes the position from motives of friendship to the debtor, and generally not as the result of any direct bargaining between him and the creditor, or in consideration of any remuneration passing to him from the creditor. The risk undertaken is generally known to the surety, and the circumstances generally point to the view that as between the creditor and surety it was contemplated and intended that the surety should take upon himself to ascertain exactly what risk he was taking upon himself. In all the reported cases of guarantees that I have been able to find, in which it has been held that the party guaranteed owed no duty to the guarantor as to disclosure of material facts, the contracts, when examined, are found to have in substance, though of course not in every detail, the characteristics which distinguish contracts of guarantee from contracts of insurance as above stated by me." – ibid., at pp.792–3.
23 There is no question in the case of the present contracts of the insurer being bound to pay the debt of the insured, or make good his default. On the contrary, in the case of all of them the amount payable by the insurer is predicated upon the occurrence of an event or contingency, and is not directly related to the debt of the insured. Of course, the object of the agreements is to ensure that if the disabling event or contingency occurs, there will still be means available for the debt to be paid: and furthermore, by naming the creditor, the finance company, as the beneficiary under the agreement, it is ensured that the money payable will in fact go towards discharge of the debt. But the latter fact does not of itself tend to negative the contract being one of insurance, because the naming of a beneficiary other than the insured in the case of a policy coming to fruition is a perfectly normal and common–sense incident of many insurance policies.
24 Under none of the contracts in question here does the activation of the policy payment by the occurrence of the event or contingency necessarily mean that there has been or will be default in discharge of the debt by the insured. The insured may have other means to continue to pay off the debt, or it may be paid off by a spouse, or relative, or the like. But, the nature of such retail sales or loans, etc., contracts being, as they are generally, for payment of relatively small sums over a period of time, the contingency is covered that upon certain disabling events occurring, the debtor may be unable to pay, as is not uncommonly the case. Nor is the amount payable under the agreement, if it comes to be payable, necessarily coincident with the amount of the remaining debt. There is usually an upper limit to the amount payable under the contract; and when the amount payable goes to the beneficiary, there may be an excess in the hands of the beneficiary over and above the amount of the debt remaining payable. In that event, the excess is returned to the insured under the provisions of the agreements.
25 Furthermore, it is clear that the insurer (the appellant) when it enters into the agreements does not have knowledge or means of knowledge as to the extent of the risk, and must guard itself in relation to the risk, and also in relation to fixing the premium, by requisition of the necessary information from the debtor. To that end, all the information which is necessary for the insurer to have in order to guard itself is (with some exceptions) required to be given by the debtor, and it is made clear to the debtor that his duty of disclosure is that which ordinarily applies to insurance policies.
26 In addition, the risk is hedged about by many provisions which are typical of insurance policies, such as age limitations, notice requirements, reservation of rights to make enquiries, exclusions arising out of unacceptable actions on the part of the debtor, such as consumption of intoxicating liquor, narcotics or drugs, and exclusions relating to extraordinary events not intended to be covered; and the like. All of these matters are typical of contracts of insurance, but inappropriate in relation to contracts of guarantee. In all matters of form and structure the contracts are typical of insurance, and I have no doubt that this is what they are. Such orders as are necessary and appropriate will be made accordingly.
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