Mercantile Mutual Health Limited v Commissioner of Stamp Duties
[2001] QSC 294
•10 August 2001
SUPREME COURT OF QUEENSLAND
CITATION: Mercantile Mutual Health Limited v Commissioner of Stamp Duties & Anor [2001] QSC 294 PARTIES: MERCANTILE MUTUAL HEALTH LIMITED
ACN 009 798 592
(plaintiff)
v
COMMISSIONER OF STAMP DUTIES
(first defendant)
STATE OF QUEENSLAND
(second defendant)FILE NO/S: S549 of 1995 DIVISION: Trial Division DELIVERED ON: 10 August 2001 DELIVERED AT: Brisbane HEARING DATE: 8 March 2001 JUDGE: Douglas J ORDER: Action dismissed CATCHWORDS: TAXES AND DUTIES – STAMP DUTIES – EXEMPTIONS – QUEENSLAND
TAXES AND DUTIES – STAMP DUTIES – OVERPAYMENT OF DUTY – a health insurance company mistakenly remitted monthly payments of stamp duty in respect of health insurance policies – whether they could recover stamp duty paid on common law principles
EQUITY – MISTAKE – RECOVERY OF MONEY PAID OR EXPENDED – MONEY PAID BY MISTAKE – GENERAL PRINCIPLES – MISTAKE OF LAW
INSURANCE – INSURANCE COMPANIES – OTHER INSURANCE BUSINESS – health insurance – whether the plaintiff was a registered “health insurance business” for the purposes of s 67 of the National Health Act 1953 (Cth) and therefore able to claim an exemption in respect of stamp duty payable for “health insurance business” under the Stamp Act (Qld) 1894.
Limitation of Action Act 1974, s 38
National Health Act 1953 (Cth), s 67, s 67(1) s 67(3), s 67(4)
Stamp Act 1894 (Qld), 4B1, s 13A, Schedule 1, Item 2Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd (1993-1994) 182 CLR 51
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Lynch v Keddell (No 2) [1990] 1 Qd R 10
Torrens Aloha Pty Ltd v Citibank NA (1997) 72 FCRCOUNSEL: R W Gotterson QC and with him J H McKenna for plaintiff
K D Dorney QC and with him P R Flanagan for defendantsSOLICITORS: Malleson Stephen Jacques for plaintiff
B T Dunphy, Crown Solicitor, for defendants
DOUGLAS J: The plaintiff is, and at all material times has been, a company duly incorporated. Prior to 29 October 1993 the plaintiff was known as Mercantile Mutual Casualty Insurance Limited. The plaintiff at all material times was a health care insurer. That is, it was the insurer under numerous policies of insurance, issued to members of the public, which provided them with insurance against certain health care expenses.
Plaintiff’s Policies of Health Insurance
Prior to 1 September 1985 the plaintiff actively promoted its health care insurance policies to members of the public.
Some policies were “group” policies. The general terms of these policies were in a standard format. These policies were issued by the plaintiff to a single insured, for the purpose of providing health insurance to a group of individuals who were employed by the insured (together with their immediate families).
Other policies were “individual” policies. The general terms of these policies were in three standard formats. These policies were issued by the plaintiff to particular individuals, for the purpose of providing health insurance to the insured and their immediate families.
The general terms of these policies were supplemented each year with schedules which recorded the limits of the particular benefits offered and the premium charged for that year. These limits and premiums varied amongst the policies, and varied from time to time. In general terms, the limit of benefits and the level of premiums were each increased over time. The types of benefits were never changed.
A particular feature of the group policy is that any individual who falls within the class of persons insured by the policy is entitled, after leaving the group, to have a policy issued to them personally (see cl 13). This is a right which many individuals exercised).
A similar feature exists in the individual policies. These policies cover a range of family members other than the policy holder (see for example definition of “Insured Person”). Again, members of this class of persons are entitled to have a new policy issued in their own name in certain events (for example children who are no longer dependent: Cl 9). This right was also exercised by many individuals.
By 1 September 1985 numerous policies on these terms had been issued to various members of the public.
A schedule of all policies in existence as at 1 September 1985, or issued thereafter, is in evidence. In this schedule:
(a) each line contains the particulars of a single policy;
(b) the policy number is recorded in column 2. This number indicates the policy type by the letters in its prefix:
(i) “GH” as referring to Mercantile Mutual Group Health Insurance Policy;
(ii) “Ex” as referring to the Mercantile Mutual American Express Extra Cover Health Insurance Policy;
(iii) “B”, “C” or “D” as referring to Mercantile Mutual Health Insurance Policies (either Plan A or Plan B).
(c) The date of commencement of the original policy is recorded in column 3. The majority of policies were issued prior to 1 September 1985. Those policies which are recorded as issuing after 1 September 1985 were issued because persons who were insured prior to 1 September 1985 exercised the right under their insurance policy to have a separate policy issued in their own name.
(d) The date beyond which the policy was no longer renewed is recorded in column 4. Each policy was extended, by payment of annual premiums, between the date in column 3 and the date in column 4.
(e) The policy number (and type) at the termination date (being the date referred to in column 4) is recorded in column 5.
(i) Where this policy number in column 5 is the same as that in column 2, then the policy has remained on foot throughout the relevant period;
(ii) Where the policy number in column 5 differs from the policy number in column 2, this reflects one of the following circumstances:
A. if the column 5 number is a “GH” number, it reflects an individual insured becoming employed by a group insured and obtaining insurance under an existing group policy;
B. if the column 5 number is an individual policy number which was in existence prior to 1 September 1985, it reflects an individual insured becoming a member of a family group insured under an existing individual policy.
C. if the column 5 number is an individual policy number which was not in existence prior to 1 September 1985, it reflects an individual insured separating from their family group and obtaining a new individual policy.
Plaintiff’s Administrative Practices
The plaintiff’s practices for administering its health insurance policies were as follows.
The administration of the policies was carried out through an office in Sydney. This office serviced the whole of Australia. The staff of this office:
(a) received and processed applications for insurance (or for variation or cancellation of insurance);
(b) issued, varied and cancelled insurance policies and new schedules to those policies (details of which were recorded on the office computer);
(c) issued annual demands for premiums in a standard form printed from the computer;
(d) received and processed payments of premiums (which were generally accompanied by a standard form remittance advice). These again were entered into the office computer; and
(e) received and processed claims under the insurance policies.
The staff of this office also dealt with the payment of stamp duty, throughout Australia, arising from these health insurance policies.
Insofar as Queensland stamp duty was concerned, duty was paid by the plaintiff on a monthly basis by remitting to the first defendant by post:
(a) a cheque drawn on the plaintiff’s bank account for the total amount of duty calculated by the plaintiff as being owing on all relevant premiums received during that month; and
(b) a completed form of stamp duty return in accordance with s 13A of the Stamp Act 1894 (or its predecessor).
The plaintiff’s practice in preparing these returns was:
(a) to program the computer to automatically calculate the stamp duty to be paid to the relevant State authority during the relevant month;
(b) to program the computer to undertake a calculation which accorded with the most recent advice from the relevant State authority as to the level of duty to be paid. This programming was changed when any new advice as to changes in duty to be paid were received from the relevant State authority;
(c) for a junior staff member to obtain from the computer a calculation of the duty to be paid, to prepare the stamp duty return on the basis of this calculation, to request a cheque for this sum from the accounts department and to remit this sum with the completed return to the first defendant.
Prior to 1994 the plaintiff did not seek or obtain any advice as to the accuracy or applicability of the duty or rates thereof programmed into its computer.
Change in Commonwealth Legislation – 1 September 1985
On 1 September 1985 a change in the National Health Act 1953 (Cth) (“National Health Act”) came into force with the enactment of a new s 67.
Section 67(1) provided:
“A person (other than a registered organisation) shall not carry on health insurance business.”
Section 67(4) defined “health insurance business” to be:
“the business of undertaking liability, by way of insurance:
(a) with respect to loss arising out of liability to pay fees or charges in relation to the provision in Australia of hospital treatment or an ancillary health benefit; or
(b) with respect to, or with respect to the happening of an occurrence connected with, the provision in Australia hospital treatment or an ancillary health benefit;
but does not include:
(c) accident and sickness insurance business;
(d) liability insurance business; or
(e) business of a kind prescribed for the purposes of this paragraph.”
However, s 67(3) provided that:
“A person shall not be taken to contravene subsection (1) by reason only that the person is carrying on business for the purpose of discharging liabilities assumed by the person before the commencement of this section.”
Upon the enactment of these provisions:
(a) the plaintiff chose not to apply for registration under s 67, and
(b) ceased offering health insurance to persons not already insured as at 1 September 1995.
Thereafter the plaintiff conducted its business in relation to health insurance in the following way.
First, the plaintiff maintained the practice of inviting all existing insured persons to extend their policy for a further year by paying the annual premium. These invitations were taken up to the extent recorded in Document 6 annexed to a statement of “Non Contentious Facts”.
Secondly, the plaintiff offered to existing insured persons increased limits of benefit under their policy. This was undertaken by forwarding to each insured person a schedule of the benefit limits provided under their policy, which generally increased over time to reflect the rising cost of health treatment.
Thirdly, the plaintiff extended its insurance cover to:
(a) new persons who fell within the group definitions in group policies;
(b) the issue of new policies to persons who invoked their right to have such policies issued under the terms of the existing policies;
(c) the issue of new policies to insured persons who (for example by reason of divorce) wished to have a separate policy.
Fourthly, the plaintiff provided benefits pursuant to the policies.
Change in Stamp Duty Legislation
On 26 April 1988 the Stamp Act 1894 (Qld) (“Stamp Act”) Schedule 1 was amended to add a new exemption for:
“2.A policy of insurance entered into in the course of an insurer’s ‘health insurance business’ within the meaning of the National Health Act 1953 (Cth).”
The plaintiff was not expressly advised of this change in legislation by the defendants, nor did this change in legislation come to the attention of the officers of the plaintiff who were responsible for remitting stamp duty.
Between 1988 and 1994, pursuant to its earlier practice the plaintiff continued to remit monthly payments of stamp duty to the first defendant in respect of its health insurance policies.
The evidence contains a schedule of cheques which were:
(a) drawn by the plaintiff on its bank account;
(b) payable to the first defendant;
(c) for the specified amount;
(d) delivered by the plaintiff to the first defendant, accompanied by the relevant monthly stamp duty return;
(e) in apparent payment of the duty calculated under the “Policies of Insurance” head of charge under the Stamp Act in respect of health insurance policies issued, extended or renewed in the relevant month; and
(f) met upon presentation.
Discovery of Error and Commencement of Proceedings
In about March 1994:
(a) the manager of the plaintiff’s business (Mr Colwell), in the course of a general review of operations, investigated whether stamp duty was properly payable to the first defendant;
(b) Mr Colwell formed the view that the monies were not payable and instructed his staff not to remit any further monies.
On 24 June 1994 the plaintiff (by its solicitors) wrote to the first defendant explaining its position and requesting a refund of duty.
Between 24 June 1994 and 13 December 1994 further correspondence exchanged concerning this matter.
On 3 April 1995 the plaintiff caused a writ of summons to be issued against the first defendant for recovery of the monies mistakenly paid.
Between 3 April 1995 and 11 July 1996 the plaintiff and the first defendant sought to resolve this matter by correspondence.
On 11 July 1996 the first defendant advised that he had decided that the exemption did not apply and suggested that the first defendant was not the appropriate defendant to the proceedings.
On 14 October 1996 Ambrose J ordered the joinder of the second defendant.
The above recital is taken from an agreed statement of non contentious facts agreed upon between the parties.
The primary conclusion of this case can be reached relatively quickly. It can be done, in my opinion, by first considering the amendments to the National Health Act, made on 1 September 1985. It is plain from s 67 that an insurer which was not a registered organisation could not, by reason of s 67(1) have lawfully “entered into” business within the definition of “health insurance business” in the “course” of such business. Such an insurer could carry on because of the provisions of s 67(3), “business for the purpose of discharging liabilities assumed by the person before the commencement of this section”. In my view all of the liabilities of the plaintiff were liabilities assumed by it before the commencement of s 67. I include in this the obligation to issue new policies to individuals covered by a group policy subsequently existing into an individual policy if eligible, as described above.
More importantly, in my view, the plaintiff does not satisfy the requirements of the definition of “health insurance business” in s 67 of the National Health Act or that business as is referred to in the exemption created by the amendment to the Stamp Act on 26 April 1988.
The business being carried on by the plaintiff was one “for the purpose of discharging liabilities assumed by the plaintiff” before s 67(1) took effect. As is pointed out by the defendants, this is to be contrasted with the definition of “health insurance business” in s 67(4) of the National Health Act which uses the present tense word “undertaking”, concerning liabilities: cf “discharging”.
In my view the purpose of the amendment to the Stamp Act was to provide an exemption in respect of stamp duty for the “health insurance business” carried on pursuant to s 67 of the National Health Act post the amendments on 1 September 1985, and not to provide such an exemption for the type of business already being carried on by the plaintiff.
The above, in my view, disposes of the action. However, it is necessary to consider some other matters. I am satisfied that, on the evidence, the stamp duty paid between May 1988 and March 1994 inclusive was paid in the mistaken belief that duty was payable when the plaintiff thought it was not. My findings above render further findings nugatory, but if I am wrong in those findings I take the view that if stamp duty was not payable, the events which occurred in this case come within the decision of the High Court of Australia in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 particularly at 378 where the court said:
“The payer will be entitled to prima facie to recover monies paid under a mistake if it appears that the monies were paid by the payer in the mistaken belief that he or she was under a legal obligation to pay the monies or that the payee was legally entitled to payment of the monies. Such a mistake would be causative of the payment.”
See also Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd (1993-1994) 182 CLR 51 where, in the circumstances prevailing, four of the judges of the High Court found that stamp duty was recoverable on common law principles. See Mason J at 67; Brennan J at 89; and Toohey and McHugh JJ at 103.
Again, should I be incorrect in my primary finding it is necessary to consider whether in fact the two limitation defences pleaded by the defendants are valid. They are:
(a) For both defendants, in respect of payments made before 3 April 1989, that is six years before the commencement of proceedings on 3 April 1995, being payments for May 1988 to March 1989 inclusive, totalling $66,739.47; and
(b) For the second defendant, in respect of payments made after 3 April 1989 and before 14 October 1990, that is six years before the second defendant was added as a defendant by the order of Ambrose J, being payments for April 1989 to September 1990 inclusive. They total a further $112,236.36.
In respect of (a), the plaintiff makes application under s 38 of the Limitation of Action Act 1974. As submitted, paragraph (c) of that section provides that in an action for relief from the consequences of a mistake, the limitation period does not begin to run until the plaintiff has discovered the mistake, or could, with reasonable diligence, have discovered it. The plaintiff in evidence from Colwell and Bray said that it relied upon the various State authorities for information about stamp duty developments and changes.
However, the submission appears respectfully to lose sight of the fact that the first defendant forwarded two letters to the plaintiff dated 3 November 1988 and 4 November 1988, the first of which informed the plaintiff that it had become an “approved insurer” under the Stamp Act, and the second informing it that there was an amendment to the Stamp Act “assented to” on 26 April 1988. As submitted by the defendants it stretches credulity to suggest that the plaintiff should not then (if not in April 1988) have determined for itself what the effect of that amendment was or at least to have sought legal advice as to its effect. In any event it appears that a cause of action for recovery of monies paid under a mistake of law accrues on the date of payment, see Torrens Aloha Pty Ltd v Citibank NA (1997) 72 FCR 581 at 596.
So far as “reasonable diligence” is concerned, it again stretches credulity that such a large insurer as the plaintiff could not itself have found out about the amendment in 1988, particularly in circumstances where the assessment system was based upon self assessment. It follows that I am not satisfied that as to the first limitation defence it is appropriate that an order should be made under s 38 of the Limitation of Actions Act (supra).
As to the second, the plaintiff now seeks an order pursuant to the authority of Lynch v Keddell (No 2) [1990] 1 Qd R 10. The facts relied upon in support of this submission are set out in paragraph 3 of the reply as follows:
“Further, in reply to paragraphs 8 and 9 of the defence:
(a)the plaintiff did not become aware until March 1994 that its belief referred to in paragraph 7(a) of the amended writ of summons was mistaken so that it was not obliged to pay stamp duty in respect of policy renewals after 26 April 1988; and
(b)no circumstances obtained until shortly before March 1994 such that, had it occurred before then, the plaintiff would have discovered its mistake before March 1994.
Further in reply to paragraph 9 of the defence, the second defendant should be taken to have been served, or, alternatively, notified about these proceedings, on the date the first defendant was served with the originating process (3 April 1995) because:
(a)section 4B(1) of the Stamp Act 1894 provides: “when duty becomes payable it shall be a debt due to the Crown and payable to the commissioner in the manner and at the place prescribed”;
(b)accordingly, the payments of duty referred to in paragraph 7 of the amended writ of summons were all made to the first defendant;
(c)after the plaintiff discovered its mistake, as referred to in paragraph 2(a) above, it entered into correspondence with the first defendant seeking a refund of the duty mistakenly paid (in which correspondence the first defendant participated by entering into an exchange about the relevant legal issues and, in the course of which, the first defendant agreed - and then disagreed – that the exemption referred to in paragraph 8 of the amended writ of summons applied such that the duty so paid was not payable);
(d)accordingly, the plaintiff commenced proceedings against the first defendant to recover the mistaken payments of stamp duty;
(e)by letter dated 11 July 1996 the first defendant queried whether it was the proper defendant to the proceedings;
(f)the plaintiff sought leave to add the second defendant to the proceedings;
(g)his Honour Mr Justice Ambrose ordered on 14 October 1996 that the State of Queensland be joined as the second defendant to these proceedings and noted the second defendant’s reservation of its rights to plead such limitation defences (if any) as might be available to it.”
I am of the view that competent legal advice should have advised the plaintiff that it was necessary to sue the second defendant for the recovery of the disputed stamp duty. In my view none of the factors pleaded constitute “special circumstances” which would justify the making of the orders sought.
It follows then that the action is dismissed.
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