NORWICH UNION LIFE AUSTRALIA LIMITED and COMMISSIONER OF STATE REVENUE
[2011] WASAT 149
•19 SEPTEMBER 2011
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
STREAM: COMMERCIAL & CIVIL
ACT: TAXATION ADMINISTRATION ACT 2003 (WA)
CITATION: NORWICH UNION LIFE AUSTRALIA LIMITED and COMMISSIONER OF STATE REVENUE [2011] WASAT 149
MEMBER: JUDGE D R PARRY (DEPUTY PRESIDENT)
HEARD: 24 MARCH 2009 (JUDGE J E ECKERT, DEPUTY PRESIDENT) TRIBUNAL RECONSTITUTED 9 AUGUST 2011
DELIVERED : 19 SEPTEMBER 2011
FILE NO/S: CC 964 of 2008
BETWEEN: NORWICH UNION LIFE AUSTRALIA LIMITED
Applicant
AND
COMMISSIONER OF STATE REVENUE
Respondent
Catchwords:
Taxation - Stamp duty - Policy of insurance - Insured persons elected to pay premiums under policies halfyearly, quarterly or monthly, rather than annually - Policies terminated prior to anniversary of issue or renewal of policies and insured persons did not pay any further premiums - Insurer paid duty monthly - Insurer did not pay duty after termination of policies - Whether insurer's liability for stamp duty was underdeclared - Duty on policy of insurance is ' ... calculated by ascertaining the total amount paid to the person with whom the policy of insurance is effected in respect of the issue or renewal of the policy' - Proper interpretation of expression 'amount paid' - Whether 'amount paid' is the premium actually received by the insurer in respect of a policy or the total consideration for the issue or renewal of the policy even if this amount is to be paid by instalments - Whether the consideration for the issue or renewal of the insurer's policies is an annual premium where the insured elects to pay premiums halfyearly, quarterly or monthly - Whether the insurer's policies are properly characterised as annual policies in respect of which an annual premium is payable
Legislation:
Accident Compensation Act 1985 (Vic), s 138(1)
Compensation (Commonwealth Government Employees) Act 1971 (Cth), s 99
Payroll Tax Act 1971(NSW), s 6
Stamp Act 1921 (WA), s 4(1), s 17(1)(a), s 95A, s 96(2), Second Schedule Items 16(1), 16(3)
State Administrative Tribunal Act 2004 (WA), s 11(8), s 87(1), s 87(4)
Taxation Administration Act 2003 (WA), s 15, s 15(3), s 34, s 37(2), s 40, s 40(1), s 42(1), s 43(2), s 43(3)
Result:
Decision of respondent to disallow applicant's objection to assessment set aside and decision substituted that applicant did not have an underdeclared stamp duty liability of $130,288.34 for the period 2000/012004/05
Respondent ordered to refund $130,288.34 plus interest to applicant
Category: B
Representation:
Counsel:
Applicant: Mr S Stevens
Respondent: Ms LA Eddy
Solicitors:
Applicant: Freehills
Respondent: State Solicitor's Office
Case(s) referred to in decision(s):
Commonwealth of Australia v Goodfellow (1980) 31 ALR 533
Cooper Brookes (Wollongong) Pty Ltd v The Commissioner of Taxation (Cth) (1981) 147 CLR 297
Geographe Point Pty Ltd and Town of Claremont [2009] WASAT 98; (2009) 64 SR (WA) 1
Tran and Town of Vincent [2009] WASAT 123 (S)
Victoria WorkCover Authority (Vic) v Kenman Kandy Pty Ltd [2002] VSCA 190
REASONS FOR DECISION OF THE TRIBUNAL:
Summary of Tribunal's decision
Norwich Union Life Australia Limited sought review by the Tribunal of the decision of the Commissioner of State Revenue to disallow its objection to an assessment of liability for stamp duty in relation to life, critical illness and income protection policies of insurance. In the policies that were the subject of the assessment, the insured had elected to pay premiums halfyearly, quarterly or monthly and had ceased to pay premiums or had requested cancellation of the policy prior to the anniversary of the date on which the policy was issued or renewed.
Section 96(2) of the Stamp Act 1921 (WA) (as it stood at the relevant time) stated that the amount that was chargeable with duty 'shall be calculated by ascertaining the total amount paid to the person with whom the policy of insurance is effected in respect of the issue or renewal of the policy'. The Commissioner argued that the expression 'amount paid' in this provision means the total consideration for the issue or renewal of the policy, even if this amount is to be paid periodically by instalments, and that the total consideration for the issue or renewal of the policies in question was an annual premium. The Commissioner submitted, therefore, that the insurer was liable to pay stamp duty on the annual premium even though the insurer did not receive part of the premium from the insured.
In contrast, Norwich Union Life Australia Limited argued that the expression 'amount paid' means the premium actually received by the insurer from the insured. Alternatively, it argued that, even if 'amount paid' means the total consideration for the issue or renewal of the policies, the policies in question were not annual policies, and the consideration for the issue or renewal of the policies was not an annual premium, but rather a halfyearly, quarterly or monthly premium.
The Tribunal determined that the Commissioner was correct in its suggested interpretation of the expression 'amount paid'. However, the Tribunal also determined that Norwich Union Life Australia Limited was correct in its characterisation of the policies in question as not being annual policies subject to an annual premium.
The Tribunal therefore determined that the assessment was incorrect. The Tribunal allowed Norwich Union Life Australia Limited's objection to the assessment and ordered the Commissioner of State Revenue to repay the stamp duty that was paid under the assessment together with interest.
Introduction
This proceeding involves an application brought by Norwich Union Life Australia Limited (Norwich), pursuant to s 40(1) of the Taxation Administration Act 2003 (WA) (TA Act), for review of the decision of the Commissioner of State Revenue (Commissioner) to disallow Norwich's objection to an assessment of liability under the Stamp Act 1921 (WA) (Stamp Act) for stamp duty of $130,288.34 in relation to policies of insurance during the period 2000/01 2004/05 (assessment). The assessment was issued on 7 March 2006 and the objection was lodged on or about 4 May 2006. The objection was disallowed on 24 April 2008. On 20 June 2008, Norwich commenced this proceeding for review by the Tribunal of the Commissioner's decision to disallow the objection to the assessment.
Under s 43(2) of the TA Act, when the Tribunal is dealing with a matter that relates to an assessment under the Stamp Act, it is to be constituted by the President or by a Deputy President, sitting alone. On 24 March 2009, Judge JE Eckert, a Deputy President of the Tribunal, conducted the final hearing in the proceeding. At the conclusion of the hearing, her Honour reserved her decision. In early 2011, Judge Eckert resigned as a Judge of the District Court of Western Australia and as a Deputy President of the Tribunal, due to ill health. Judge Eckert did not give a decision in this matter before she resigned.
On 9 August 2011, the President reconstituted the Tribunal for the purpose of determining the application, pursuant to s 11(8) of the State Administrative Tribunal 2004 (WA) (SAT Act), so as to comprise myself. In accordance with s 11(8) of the SAT Act, the reconstituted Tribunal 'can have regard to any record of the proceeding of the Tribunal in relation to the matter before the alteration or any evidence taken in the proceeding before the alteration'. For the purpose of determining the application, I have had regard to the following records of the proceeding and evidence taken in the proceeding:
•Application for review filed on 20 June 2008 and attachments;
•Respondent's Statement of Issues, Facts and Contentions dated 15 September 2008 and filed on 16 September 2008;
•Applicant's Statement of Issues, Facts and Contentions dated 5 November 2008 and filed on 7 November 2008;
•Respondent's Response to the Applicant's Statement of Issues, Facts and Contentions dated 24 December 2008 and filed on 6 January 2009;
•Applicant's Response to the Respondent's Response to the Applicant's Statement of Issues, Facts and Contentions dated 10 March 2009 and filed on 13 March 2009;
•Respondent's Section 24 Bundle of Documents dated 13 September 2008 and filed on 16 September 2008;
•Applicant's Bundle of Additional Documents dated 5 November 2008 and filed on 7 November 2008;
•Authorities filed by the Commissioner on 13 March 2009 and by the applicant at the final hearing on 24 March 2009; and
•Transcript of the final hearing on 24 March 2009.
Background
Norwich is the insurer of Aviva Protection policies of insurance (life, critical illness and income protection) taken out by people in Western Australia. Specifically, at all relevant times for the purposes of this proceeding, the Aviva Protection policies comprised the following:
•Aviva Protection Life (including Executive version);
•Aviva Protection Recovery (including Executive version);
•Aviva Protection Recovery Money (including Executive version);
•Aviva Protection Flexible Recovery Money (including Executive version);
•Aviva Protection Stand Alone Recovery Money (including Executive version);
•Aviva Protection Income and Gold & Income Excel (Agreed Value & Indemnity);
•Aviva Protection Income Business Expenses.
In approximately October or November 1988, Norwich applied to the Commissioner for permission to account for and pay all stamp duty on policies of insurance in respect of risks within Western Australia on a monthly return under s 95A of the Stamp Act (as it then stood), rather than having to pay duty upon the individual stamping of the policies. By letter dated 28 November 1988, the Assistant Commissioner (Stamp Duty Returns) granted Norwich's application and thereafter Norwich accounted for and paid stamp duty monthly. From 1 March 2003, Norwich's approval to account for and pay stamp duty monthly under s 95A of the Stamp Act continued in force as a 'special tax arrangement' made under the TA Act.
On 22 and 29 October 2004, Mr Nigel Balm of the Office of State Revenue conducted a compliance visit at Norwich's office in Melbourne in relation to insurance policies dutiable in Western Australia. Mr Balm found that Norwich paid stamp duty in relation to Aviva Protection policies based on the amount of premiums it received from insured persons during the month to which the return related. In circumstances where an insured person had elected to pay premiums for an Aviva Protection policy halfyearly, quarterly or monthly, and the policy was terminated by nonpayment of the premium for the next halfyear, quarter or month (as the case may be), or by cancellation of the policy by the insured, and therefore payment of premiums under the policy ceased, Norwich did not remit any further stamp duty in relation to the policy to the Commissioner, even though the policy was terminated prior to the anniversary of the date on which it was issued or renewed.
On 28 February 2006, Mr Balm prepared a report for the Commissioner in relation to the compliance visit that took place in October 2004 and further information which was apparently provided by way of a 'voluntary disclosure offer' by Norwich. Mr Balm's report included the following:
The Stamp Act imposes duty on policies of insurance. In the majority of cases insurance policies are taken out for a period of one year and in almost all cases these policies are renewed on an annual basis. In some cases the policy may be terminated or cancelled midterm for many reasons. The Act sets out to collect duty on any policies when they are incepted, renewed, endorsed or adjusted. When a policy is incepted, an annual premium is charged in almost every case but a small handful. The [A]ct stipulates that duty should be collected at the applicable rate, up front and in full, be it general insurance or life insurance based on this annual premium. The [A]ct does not allow for cancellation nor is it concerned with how the annual premium is paid and the frequency of payment should it not be paid in full when the policy is incepted.
Having said this, the industry wide practice, bar a few insurers[,] is to allow the customer to pay the annual premium on an instalment basis, be it monthly, quarterly or halfyearly, so long as the entire premium is paid prior to the policy coming up for renewal. In these instances the insurer is collecting and remitting the duty to this office at the time it collects the premium from the customer, who may be paying on an instalment basis. If the customer continues to pay the premium on the instalment basis until the policy reaches full term, there is no concern for this office as all the duty will be collected and remitted.
Should the customer cancel or terminate its cover before the full term of the cover has expired, the insurer does not collect any further premium and accordingly does not collect or remit any further duty to this office.
The concern for this office in these instances is that duty that rightfully belongs to the Office of State Revenue, will not be collected by the insurer and accordingly does not get to this office.
NORWICH UNION LIFE AUSTRALIA LIMITED is one such insurer that engages in the practice of allowing its customers to pay annual policies by instalments, thus making them susceptible to understating duty in the case of midterm cancellations.
Mr Balm recommended that the Commissioner should issue an assessment pursuant to s 15 of the TA Act for underdeclared duty of $130,288.34 for the period 2000/01 2004/05, which was the amount of duty that Mr Balm considered was attributable to Aviva Protection policies during the period between the 'customer cancell[ing] or terminat[ing] its cover [and] before the full term of the cover has expired'. Thus, the critical assumption that underlay Mr Balm's report and recommendation was that the Aviva Protection policies are annual insurance policies in respect of which an annual premium is payable from the insured to Norwich, although the insured and Norwich may have entered into a commercial arrangement under which the insured was permitted to pay the annual premium on an instalment basis.
The Commissioner accepted Mr Balm's recommendation and issued the assessment on 7 March 2006. The assessment stated that Norwich's stamp duty liability for the period 2000/01 2000/04 had been assessed under s 15(3) of the TA Act, resulting in a 'debit assessment' of $130,288.34. As Norwich's account balance was $0.03 in credit and as it had prepaid $19,170.57 towards the assessment, the assessment claimed an outstanding balance of $111,117.74 for payment by 21 April 2006.
Norwich paid the balance claimed in the assessment by the due date. However, by letter dated 1 May 2006, Norwich objected to the assessment, pursuant to s 34 of the TA Act, on the basis that the assessment was inconsistent with the way in which the amount that was chargeable with duty in relation to a policy of insurance was to be ascertained under s 96(2) of the Stamp Act (as it stood at all relevant times). Norwich's letter stated that 'on the basis that our objection is successful[,] we would expect to be refunded the full amount assessed and any applicable interest'.
By letter dated 24 April 2008, the Commissioner disallowed Norwich's objection on the basis that the assessment had been correctly determined in accordance with s 96(2) of the Stamp Act. The letter disallowing the objection notified Norwich of its right to seek review by the Tribunal of the decision, under s 40 of the TA Act, within 60 days after notice of the decision was served on it (see s 42(1) of the TA Act). This proceeding for review of the decision was commenced within that period.
Statutory context
At all material times, s 16(1) of the Stamp Act provided that the 'the duties to be charged … on or in respect of the instruments specified in the Second Schedule shall be the duties specified opposite to those instruments in that Schedule …'. Prior to 1 July 2003, the term 'instrument' was defined in s 4(1) of the Stamp Act to include 'every document in writing or duplicate or counterpart thereof and every matter or thing enumerated or set forth in the Second Schedule'. After 1 July 2003, the term 'instrument' was defined in s 4(1) of the Stamp Act to 'not include a return'.
At all relevant times, a policy of insurance was a dutiable instrument specified in item 16 of the Second Schedule of the Stamp Act. At all relevant times until 30 June 2004, item 16(1) of the Second Schedule of the Stamp Act referred to 'Any instrument evidencing a policy of insurance, other than life insurance' and specified different duties in relation to workers' compensation insurance, third party motor vehicle insurance and insurance policies 'in any other case'. In relation to insurance policies 'in any other case', the specified duty was 8% in 2000/01 2002/03 and 10% in 2003/04 2004/05 'on the amount calculated under s 96(2)'. From 1 July 2004, item 16(1) of the Second Schedule of the Stamp Act referred to 'Any instrument evidencing a policy of insurance' and included a policy of life insurance in the category 'in any other case'. In relation to insurance policies 'in any other case', the specified duty was '10% of the amount calculated under section 96(2)'.
Until 30 June 2004, item 16(3) of the Second Schedule of the Stamp Act referred to 'a policy of life insurance' and specified duty depending on whether the policy was or was not in respect of a temporary or term assurance. Under item 16(3)(a), 'in the case of a temporary or term assurance', the duty was '5% of the amount calculated under section 96(2) or 5% of the amount so calculated in respect of the first year if the assurance continues for more than one year'. Under item 16(3)(b), 'in a case other than a temporary or term assurance', the duty was specified as $0.05 for every $100 of the sum insured (when the sum insured did not exceed $2,000) or $1 plus $0.10 for every $100 in excess of $2,000 (where the sum insured exceeded $2,000). For the purposes of item 16(3) of the Second Schedule of the Stamp Act as it stood until 30 June 2004, the Aviva Protection life insurance policies involved a temporary or term assurance.
Therefore, at all material times, item 16 of the Second Schedule of the Stamp Act specified that the duties to be charged in respect of the Aviva Protection policies of insurance were a nominated percentage on or of 'the amount calculated under section 96(2) [of the Stamp Act]'.
At all material times, s 96(1) (3) of the Stamp Act stated as follows:
(1)This section applies in relation to a policy of insurance referred to in item 16(1) [or (3)(a) until 30 June 2004] of the Second Schedule.
(2)The amount that is chargeable with duty under item 16(1) [or (3)(a) until 30 June 2004] of the Second Schedule shall be calculated by ascertaining the total amount paid to the person with whom the policy of insurance is effected in respect of the issue or renewal of the policy.
(3)Where a policy of insurance or a renewal certificate in respect of a policy of insurance shows an amount that represents the amount payable on account of duty in respect of the issue or renewal of the policy that amount shall be disregarded for the purposes of the calculation under subsection (2).
At all material times, under s 17(1)(a) and item 16(1) and (3) of the Second Schedule of the Stamp Act, the person liable to pay duty on a policy of insurance was 'the person issuing the policy'. As noted earlier, until 1 March 2003, Norwich was required to account for all stamp duty on policies of insurance in respect of risks within Western Australia on a monthly return under s 95A of the Stamp Act. After 1 March 2003, this facility and requirement continued in force as a 'special tax arrangement' made under the TA Act. At all relevant times, Norwich was required to endorse the statement 'WA Stamp Duty Paid' on each policy to which a monthly return related.
Under s 37(2) of the TA Act, '[t]he onus of establishing that an assessment or decision to which an objection relates is invalid or incorrect lies on the taxpayer'.
Issues for determination
The following two principal issues arise for determination in this review:
(1)What is the meaning of the expression 'amount paid' in s 96(2) of the Stamp Act (as it stood during the period 2000/01 2004/05) and, in particular, does 'amount paid' mean
(a)the premium actually received by the insurer from the insured in respect of a policy (as Norwich argued); or
(b)the total consideration for the issue or renewal of a policy, even if this amount is to be paid periodically by instalments during the term of the policy (as the Commissioner argued).
(2)If the meaning of the expression 'amount paid' in s 96(2) of the Stamp Act (as it stood during the period 2000/01 2004/05) is in accordance with para (b) of issue 1, whether, in a case where an insured person has elected to pay premiums halfyearly, quarterly or monthly, the total consideration payable by the insured to Norwich for the issue or renewal of an Aviva Protection policy the subject of the assessment is an annual premium.
I will address each of these issues in turn.
What is the meaning of the expression 'amount paid' in s 96(2) of the Stamp Act?
Parties' submissions
Norwich contended that the term 'amount paid' in s 96(2) of the Stamp Act means the premium actually received by the insurer from the insured. Norwich submitted that:
… the term 'amount paid' appearing in s 96(2) of the [Stamp] Act must be given its ordinary meaning. There is no basis for reading the words 'amount paid' in s 96(2) of the Act as meaning or including 'amounts payable', either under the Act itself, or under the general meaning of the word 'paid', legal dictionary definitions or case law'.
Norwich referred to dictionary definitions of the word 'paid', noting that the definitions indicate that the word is expressed in the past tense, and that it can be contrasted with the meaning of 'payable'. Norwich also referred to three decided cases in which the meaning of the word 'paid' was considered, namely Commonwealth of Australia v Goodfellow (1980) 31 ALR 533 (Goodfellow), Victoria WorkCover Authority (Vic) v Kenman Kandy Pty Ltd [2002] VSCA 190 (Kenman Kandy) and Bond Brewing NSW Ltd v Chief Commissioner of Payroll Tax (1989) 89 ATC 4158 (Bond Brewing).
In contrast, the Commissioner's principal submission in relation to this issue was that:
Having regard to the context of s 96(2) within the [Stamp Act] as a whole, and having regard to the nature of stamp duty being a duty imposed on instruments and not transactions, the reference in section 96(2) of the [Stamp Act] to 'the total amount paid … in respect of the issue or renewal of the policy' must be a reference to the total consideration for the issue or renewal of the policy, rather than a reference to money actually received.
The Commissioner argued that Norwich's suggested interpretation of the term 'amount paid':
… requires acceptance of the somewhat remarkable concept that a new obligation to pay duty arises each time an insured makes a payment by way of instalment, despite the fact that the dutiable instrument is only effected once (by way of issue or renewal of a policy).
The meaning of 'amount paid'
In Cooper Brookes (Wollongong) Pty Ltd v The Commissioner of Taxation (Cth) (1981) 147 CLR 297, Mason and Wilson JJ stated, at 320, as follows:
… The fundamental object of statutory construction in every case is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole. … .
It appears that the legislative intention of the words 'amount paid', ascertained by reference to the language of the section generally, accords with the Commissioner's suggested interpretation that these words refer to the total consideration for the issue or renewal of a policy of insurance, rather than to the premium actually received by the insurer from the insured. There are two strong textual indications in s 96(2) of the Stamp Act that support the Commissioner's suggested interpretation.
First, the 'amount paid' is 'to the person with whom the policy of insurance is effected' (emphasis in bold added). A policy of insurance can only be 'effected', that is, a policy of insurance can only be entered into on the part of the insurer and the insured, where there is valuable consideration given by each party. As NC Sneddon and MP Ellinghaus state in Cheshire and Fifoot's Law of Contract, (9th ed, 2008) at [1.26]:
A contract is formed only if the promise or act of each part constitutes good consideration. To constitute good consideration, the promise or act relied on must be given in exchange, and must have 'value'.
The consideration given by the insured to the insurer in order to effect a policy of insurance is what the Commissioner termed 'the total consideration', that is the total premium, in respect of the policy. This is the case even if the insurer and the insured have entered into a commercial arrangement under which the premium for effecting a policy of insurance is to be paid by instalments during the period of the policy. Read in the context of s 96(2) of the Stamp Act, the expression 'amount paid' is the total consideration or premium in respect of the policy, even if the premium is to be paid by instalments.
Second, the 'amount paid' is 'in respect of the issue or renewal of the policy' (emphasis in bold added). The 'amount paid' to the insurer 'in respect of the issue or renewal of the policy' is the total consideration or premium for the issue or renewal of the policy, even if the insured may, by agreement with the insurer, pay the premium by instalments during the term of the policy.
The three cases on which Norwich relied are each distinguishable, because they were decided in different statutory contexts to the present case. Goodfellow involved the interpretation of the expression 'paid the employee' in s 99 of the Compensation (Commonwealth Government Employees) Act 1971 (Cth). Kenman Kandy involved the interpretation of the expression 'compensation has been paid, or is or may be payable' under s 138(1) of the Accident Compensation Act 1985 (Vic). Bond Brewing involved the interpretation of the expression 'wages that are paid or payable by an employer' in s 6 of the Payroll Tax Act 1971 (NSW). None of these provisions concerned stamp duty or, in particular, stamp duty on policies of insurance.
It follows that, as Ms Lisa Eddy, counsel for the Commissioner, submitted, on the proper interpretation of s 96(2) of the Stamp Act the 'amount paid' for the purposes of that section is 'what is paid in relation to the policy rather than what has been paid as in received'. It is, therefore, necessary to now consider whether 'what [was] paid in relation to [an Aviva Protection] policy', in a case where the insured elected to pay premiums halfyearly, quarterly or monthly, was an annual premium, with the consequence that Norwich was liable to pay duty in relation to the annual premium, even if the policy was terminated prior to the anniversary of its issue or renewal. This turns on the proper characterisation of the Aviva Protection policies that are the subject of the assessment.
Is the total consideration for the issue or renewal of an Aviva Protection policy an annual premium where the insured has elected to pay premiums halfyearly, quarterly or monthly?
Parties' submissions
It was common ground between the parties that the terms of the Aviva Protection policies in question were set out in the Aviva Protection Range Product Disclosure Statement issued on 1 October 2003 which included the application form for the policies (disclosure statement). The disclosure statement does not expressly state whether the Aviva Protection policies were annual policies subject to an annual premium. The parties sought to draw inferences as to whether the policies were or were not properly so characterised from the following four sets of provisions.
First, the disclosure statement contained the following provision in relation to each of the Aviva Protection policies which is referred to below as the 'guaranteed renewable provision':
These policies are 'guaranteed renewable'. This means that provided you pay the premiums you can renew your cover each year until the policy expiry date without having to provide further medical evidence. (Pages 3, 8, 13, 16, 19 and 28).
Second, the disclosure statement contained the following provisions which are referred to collectively below as the 'commencement of cover provisions':
Interim Accident Cover commences at the later of the date of receipt of the completed proposal by us; and the receipt of the first or deposit premium. (Page 31).
Your insurance cover is effective as soon as we issue the policy. (Page 41).
Norwich Union Life Australia Limited shall be on risk when the following conditions have been met.
Conditions 1. Payment of the first premium is received in full.
… .
(Section 20 of application, page 67).
Third, the disclosure statement contained the following provisions which are collectively referred to below as the 'termination of cover provisions':
Your policy terminates the earlier of: the Expiry Date shown on the schedule, or the death of the life insured, or when we receive your written request for cancellation, or when any premium remains unpaid for more than 30 days.
…
(This provision applied to the Income Gold, Income Protection and Income Business Expenses policies only). (Page 27).
If you have not made payment within 30 days from the due date or from the date of notice to pay, (whichever is later), your cover will cease with effect from when the premium was due and no benefits will be payable. (Page 36).
Fourth, the disclosure statement contained the following provisions which are collectively referred to below as the 'payment provisions':
Where premium payments are received more frequently than annually, a loading of 5% of premium and policy fee for halfyearly payments, and 8% of premium and policy fee for all other payments, is applied. (Page 34).
Payment details
Yearly
Halfyearly
Quarterly
Monthly
DDR
DDR
DDR
DDR
Credit Card
Credit Card
Credit Card
Credit Card
Cheque
Cheque
Cheque
(Application, page 69).
Mr Steven Stevens, counsel for Norwich, acknowledged that insurance policies historically developed as, and largely remain, annual policies. However, Mr Stevens submitted that, in light of the provisions set out above, the Aviva Protection policies that are the subject of the assessment are to be characterised as:
… life policies which are longterm and noncancellable except for nonpayment of the premium [that] can also of course be terminated by the insured. (T: [19], [24.3.09]),
with
… every payment [being] in relation to the renewal of the policy. Every payment affects an extension of the contract and every payment therefore is in relation to renewal … . (T: [12], [24.3.09]).
Referring to the termination of cover and payment provisions, Mr Stevens submitted that:
[Norwich's] policies clearly allow the insured to choose to extend the policy by means of either an annual premium payment or a halfyearly premium payment or a quarterly or a monthly payment. Indeed the policy allows the insured to effect the issue of the policy through a monthly payment or some other term.
Once the policy is terminated either by written notice from the insured to [Norwich] [in relation to the Income Gold, Income Protection or Income Business Expenses policies] or by nonpayment of the premium due within 30 days[,] the policy is at an end. No further premiums will be paid and the insurer has no right to sue for nonpayment of premiums because in fact no further premiums are payable. [Norwich] submits that the Act does not require [Norwich] to pay any further duty after the cancellation in respect of any amount that has not been paid to [Norwich] itself.
So that in the case I gave of a policy cancelled four years and two months after the fourth year and second month, there is no further obligation to pay premiums, nor is there any obligation imposed under the Act to pay duty in relation to such notional premiums which are not paid. It would be a worrying concept that somehow when there is not payment nor an obligation to pay moneys to the insurer that somehow the insurer has to keep paying in those next eight monthly returns additional duty not on amounts paid to it but on some notional or fictional amount that may have been payable under a contract earlier but has been terminated … . (T: [41], [24.3.09]).
In contrast, Ms Eddy argued on behalf of the Commissioner:
Submissions were made in relation to the fact that [Norwich] says [an Aviva Protection policy] is renewed on a monthly or quarterly or halfyearly basis depending on what option they pick. The [Commissioner] says in relation to that well there is a clear reference in every policy that the policy is renewed annually. The premiums are calculated from the basis of a starting point of an annual premium and then it is adjusted depending on the payment. (T: [45], [24.3.09]).
Is the consideration for issue or renewal of an Aviva Protection policy, where the insured has elected to pay premiums halfyearly, quarterly or monthly, an annual premium?
As noted earlier, the disclosure statement does not expressly state whether, in circumstances where the insured elected to pay premiums halfyearly, quarterly or monthly, the Aviva Protection policies are annual policies subject to an annual premium. The commencement of cover provisions are equivocal in this regard. These provisions are equally consistent with the policies being characterised as annual policies, subject to an annual premiums payable by halfyearly, quarterly or monthly instalments, and as halfyearly, quarterly or monthly policies renewed each time the relevant premium is paid. Under either scenario, the insurance would be effective as soon as the policy is issued and the insurer would be 'on risk' when the payment of the first premium is received in full.
The strongest inference in favour of the Commissioner's proposed characterisation of the policies as being annual policies subject to an annual premium arises from the guaranteed renewable provision in relation to each of the policies. As noted earlier, this provision states that 'provided you pay the premium you can renew your cover each year until the policy expiry date without having to provide further medical evidence'.
However, in my view, an inference that Aviva Protection policies are annual and subject to an annual premium from the words 'you can renew your cover each year' in the guaranteed renewable provision is defeated by the overwhelming inference from the termination of cover and payment provisions of the policies that, where an insured elected to pay premiums less frequently than annually, the policy is not annual and is not subject to an annual premium. As Mr Stevens submitted:
… [the] guaranteed renewable provision does not stand in the face of provisions which provide for termination for nonpayment of any premium, be it monthly or otherwise, and therefore it is dependent upon continued payment of a premium. If you have chosen monthly it has to be month by month. Also it does not stand in the face of provisions which allowed the insured to terminate the policy by giving notice thereafter. (T: 34], [24.3.09]).
If an insured elected to pay premiums halfyearly, quarterly or monthly, but does not make payment within 30 days from the due date or from the date of notice to pay (whichever is the later), the insured's 'cover will cease with effect from when the premium was due and no benefits will be payable' (disclosure statement at page 36). Furthermore, in relation to the Income Gold, Income Protection and Income Business Expenses policies, the insured has an express right to request cancellation of the policy in writing. Where a policy is terminated for nonpayment or, where relevant, by receipt of written request for cancellation, the insured is under no obligation to pay any further premium and Norwich has no claim for any further premium from the insured, even if the anniversary of the issue or renewal of the policy has not been reached. As Mr Stevens said, notwithstanding the terms of the guaranteed renewable provision, an insured cannot renew its cover where the policy has been terminated for nonpayment or by receipt of written request for cancellation.
Finally, while the premium where the insured has elected to pay halfyearly, quarterly or monthly is based on the relevant proportion of an annual premium (plus a loading of 5% for halfyearly payments and 8% for more frequent payments), this does not have the effect that the total consideration for issue or renewal of the policy equates to an annual premium. For reasons set out earlier, where, having elected to pay a premium halfyearly, quarterly or monthly, an insured fails to pay the next premium or, where relevant, cancels the policy, the insured is not liable to pay any further premium under the policy. Any further premium is, therefore, not part of the total consideration for the issue or renewal of the policy in respect of which duty is to be paid.
Properly characterised, the Aviva Protection policies which are the subject of the assessment are fundamentally different to annual policies of insurance where the insurer allows the insured to pay the annual premium by instalments (whether subject to a loading or not). In the case of annual policies with the annual premium to be paid by instalments, the policy is not terminated by default in payment of an instalment and the insured is not relieved of an obligation to pay outstanding instalments. The situation is different under the Aviva Protection policies where the insured has elected to pay premiums halfyearly, quarterly or monthly; in such a case, the insured is not obligated to pay any further premium beyond the premium in respect of the issue or renewal of the halfyearly, quarterly or monthly policy.
Conclusion
The Commissioner is correct that, on its proper interpretation, the expression 'amount paid' in s 96(2) of the Stamp Act (as it stood in 2001/01 2004/05) referred to the total consideration or total premium for the issue or renewal of the policy of insurance, rather than the sum of money actually received by the insurer from the insured. However, properly characterised, the insurance policies that are the subject of the assessment were not, as the Commissioner considered, annual insurance policies subject to an annual premium. Rather, the insurance policies in question were, variously, halfyearly, quarterly or monthly insurance policies subject to a premium corresponding with their term.
It follows that Norwich did not underdeclare duty during the period 2000/01 2004/05, and that the assessment issued on 7 March 2006 is, therefore, incorrect. In consequence, the objection should be allowed, the assessment should be set aside and the Commissioner should refund the sum of $130,288.34 together with interest at the rate specified for the purposes of s 43(3) of the TA Act to Norwich.
In the application for review, Norwich sought an order that the Commissioner should pay Norwich's costs of the proceeding. Section 87(1) of the SAT Act provides:
Unless otherwise specified in this Act, the enabling Act, or an order of the Tribunal under this section, parties bear their own costs in a proceeding of the Tribunal.
As the Tribunal observed in Geographe Point Pty Ltd and Town of Claremont [2009] WASAT 98; (2009) 64 SR (WA) 1 (Geographe Point), at [15]:
The contemplation of the SAT Act is, therefore, that the Tribunal is generally a no-costs jurisdiction.
Furthermore, as the Tribunal said in Geographe Point at [16]:
… although s 87(2) of the SAT Act confers a discretion on the Tribunal to make an order for the payment by a party of all or any of the costs of another party, the Tribunal's established practice in administrative review proceedings is that normally each party should bear its own costs: Citygate Properties Pty Ltd and City of Bunbury [2005] WASAT 53; (2005) 38 SR (WA) 246; Shark Bay Tuna Farms Pty Ltd and Executive Director, Department of Fisheries (WA) [2005] WASAT 206 (Shark Bay Tuna Farms). As Justice Barker explained in Shark Bay Tuna Farms at [36], the Tribunal was established with its review jurisdiction as part of the system of public administration of the State to ensure that citizens and other entities may seek administrative justice in relation to decisions that affect their personal, proprietary and financial interests. Consequently, an applicant should not be discouraged from seeking administrative justice by the prospect of having to pay the respondent's costs if the applicant does not succeed and, conversely, an applicant is not entitled to an award of costs simply because the applicant succeeds.
In Tran and Town of Vincent [2009] WASAT 123 (S) (Tran), the Tribunal noted, at [29], that '[s]uccessful costs applications in the Tribunal are a "rare bird indeed"'. As the Tribunal recognised in Tran at [35], costs orders have only generally been made in review proceedings where a party has acted unreasonably, including where a party has failed to meet the expectation expressed in s 87(4) of the SAT Act. Section 87(4) of the SAT Act states that, without limiting anything else that may be considered in relation to whether to make an order for the payment by a party of the costs of another party, where the matter falls within the Tribunal's review jurisdiction, the Tribunal is required to have regard to:
Whether the party (being the decisionmaker) genuinely attempted to make a decision on its merits.
As the issue of costs was not discussed at the hearing, I will reserve the costs of the proceeding and direct Norwich to file and serve any application for costs within 28 days of the publication of this decision.
Orders
The Tribunal makes the following orders:
1.The application for review is allowed.
2.The decision made by the respondent on 24 April 2008 to disallow the applicant's objection dated 1 May 2006 to the stamp duty assessment of $130,288.34 issued on 7 March 2006 to the applicant is set aside and a decision is substituted that the objection is allowed on the basis that the applicant did not have an underdeclared stamp duty liability of $130,288.34 for the period 2000/012004/05.
3.The assessment issued by the respondent to the applicant on 7 March 2006 is set aside.
4.The respondent must refund to the applicant the sum of $130,288.34 plus interest at the rate prescribed for the purposes of s 43(3) of the Taxation Administration Act 2003 (WA).
5.The applicant's costs of the proceeding are reserved and any application for costs by the applicant, including evidence and submissions in support, is to be filed and served within 28 days of the publication of this decision.
I certify that this and the preceding [58] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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JUDGE D R PARRY, DEPUTY PRESIDENT
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