Young v NM Superannuation Pty Ltd

[1993] HCATrans 247

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No Al3 of 1993

B e t w e e n -

STEPHEN ELLIOTT YOUNG

Applicant

and

NM SUPERANNUATION PTY LTD

Respondent

Application for special leave

to appeal

DAWSON J

TOOHEY J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

Young.S 1 26/8/93

FROM ADELAIDE BY VIDEO LINK TO CANBERRA

ON THURSDAY, 26 AUGUST 1993, AT 10.08 AM

Copyright in the High Court of Australia

MR D.M.J. BENNETT, QC:  May it please the Court, I appear

with my learned friend, MR N.W. MORCOMBE, QC, for

the applicant. (instructed by Cowell Clarke)

MR J.R. MANSFIELD, QC:  May it please the Court, I appear

with my learned friend, MR I.C. ROBERTSON, for the

respondent. (instructed by Piper Alderman)

DAWSON J: Yes, Mr Bennett.

MR BENNETT:  May it please the Court, this case laid down

for the first time a proposition that where under a

policy of assurance the benefits are payable either

on death or on retirement at any time, then the

policy is a policy of life assurance within the

meaning of the Bankrupt~y Act which, of course, has

no definition of those terms. That is a

proposition which has not been stated before. The

novel aspect of the proposition is that a policy

under which benefits are payable on retirement at

any time, even before a fixed retirement date, at

any time selected by the assured, is a policy of

life assurance.

In this case it was a particularly strong

finding because the assured was a person called

Barrett. He was the only person who had a policy

of the relevant type under the superannuation
scheme for a private company, J.C. Barrett Pty Ltd,

and that policy provided that the whole of the

premiums were paid by the company and that he could

obtain the benefits which were effectively interest

to date at a rate determined annually by the life

assurance company by retiring at any time. I said

there was no case at all which establishes that.

There are two very passing pieces of dicta by two concurring Justices of this Court, which are both set out in the judgments in the appeal book, which

are the only authorities supporting that. One is

at page 66 of the application book in the middle of

the page in The Commissioner of Stamp Duties v

Jones, 125 CLR 511 at page 515, where

Mr Justice Menzies said:

"I do not know how a policy upon the life of a

person while he is in the employ of a company

is to be described if it is not to be

described as a poiicy on the life of that

person."

That is in the overall context of discussing a

policy dealing with retirement at a specific date,

but it certainly was not in the context of any

detailed discussion about early retirement at any

time at the assured's discretion.

Young.S 2 26/8/93

The other statements, on the next page of the application book, Your Honours see the long

quotation, and about 9 lines down in that long
quotation, against the words "being terminated" in
the left-hand margin, there is the passing

reference:

the surrender value being payable in certain

circumstances if he retires from the service

before reaching the retiring age, when in
respect of him the policy is cancelled.

That is a very casual reference to one possible term of such a policy where what he is paid is a surrender value, and even then it is in certain circumstances and there is a reference to a

cancellation, but again, a very thin reed on which

to base so far reaching a proposition.

The proposition is far reaching for a number

of reasons. At page 69 of the application book,

the central reason for the decision was stated by

Justice Burchett. At line 7 he said:

The benefit is payable "upon the happening of

a particular event (namely the early

retirement) contingent upon the duration of
human life" - for there will be no early

retirement, and therefore no benefit, if the

member of the fund should die before the

employment ends.

We make two comments on that. The first is that,

of course, the estate still gets the same amount if

he dies, so the amount up to that date is payable

whether he dies or retires. But secondly, and more

importantly, if that is the true ratio, that would

apply to a policy payable on demand, because if the

policy required a demand by the assured under his

own hand, as in Gorton's case, that on this test

would be an event contingent on the duration of

human life, because you could not make a demand if
he were dead. Thus, a policy where one of the

conditions was that it was repayable on demand

would fit that test.

Now, I do not need to go that far in order to

demonstrate the importance of the decision. The

importance of it is that for the first time it is

said that a policy under which the proceeds are

repayable at any time which can be caused by the

discretion of the assured, and of course this case

illustrates that beautifully because it is

employment by a private family company, an event of

that nature can be sufficient to cause a policy to

be a life assurance policy.

Young.S 26/8/93

Now, that causes some fairly surprising

consequences under the Bankruptcy Act. The

Bankruptcy Act, it will be recalled, in section 116(2)(d) and (e) draws a distinction

between, on the one hand in (d), promises of life assurance not defined, or endowment assurance not defined, other than policies for pure endowment,

which are defined - I will take Your Honours to the

definition in a moment - and in relation to those

they have to be in existence for two years.

Policies for pure endowment get a lower level of

protection. They have to be in existence for five

years, and a policy for pure endowment is defined

by section 5 - the definition section - as being in

a policy under which an amount is payable at a

specified date, if the person survives to that
date.

So, the anomalous consequence of the decision here is that a policy which you can draw on at any

time by retiring from your family company is a

policy which is a policy of life assurance and one has the five year protection, but the policy which

is far closer to the original concepts, the policy

where you only get it if you retire on your

retirement date, is a policy of pure endowment and

has to be enforced for five years and, therefore,

has a lower level of protection, and that is

completely anomalous and cannot, with respect, have

been the intention of the legislature.

One hears often, in the financial press, of the phrase "non-bank financial institution", and

one hears how insurance companies are in many ways
assimilated to the role of banks. If this decision
stands not only will they be, in many ways,
assimilated to the role of banks, but they will
when they carry on what are basically banking

activities, entitle debtors to have the protection

of the Bankruptcy Act. Now, of course, as was said below, one of the	policies of these provisions is the protection of
bankrupts who wish to engage in thrift and preserve
something for their families, by means of
superannuation or life policies, and, of course,
that is an important consideration. But it must be
weighed against the interests of the bankrupt's
creditors, and if any person can, by setting up a
policy of this nature, under which he or she can obtain the benefits at any time, by retiring,
particularly retiring from a family company, the
result is that what is in substance a banking
investment, a type of -

DAWSON J:  I think we might call on Mr Mansfield now,

Mr Bennett.

Young.S	26/8/93
MR BENNETT: If Your Honours please.
MR MANSFIELD:	If the Court pleases, there is an outline of the submission we make in response, but to come to
grips specifically with the proposition which my learned friend is putting, in our submission, the
way it is being put is really a distraction from
the real question which the court had to decide,
and that is the proper construction of
section 116(2)(d) of the Act. What he is
putting - - -

McHUGH J: It is always proper to look at consequences in

determining what is the proper construction of an

Act.

MR MANSFIELD:	Yes, we agree with that, Your Honour, of course. What we say by way of that though is that
what he is complaining about, or the consequence
which he is referring to as possibly indicating some oblique or different legislative intention, is
derived not from the meaning of the Act, but from
some other set of facts.  And what we submit is
that the legislative consequence and the legislative intention is drawn by the distinction
between a policy of pure endowment in
subsection (2)(e), and the general catch-all
protection of subsection (2)(d), because if the
Court goes to those two subsections what can be seen is that (2)(d) protects:

policies of life assurance or endowment

assurance -

and then the bracketed part is important -

(other than policies for pure endowment) in

respect of the life of the bankrupt -

and so on, and subsection (e) deals with the

proposition about policies of pure endowment.

Now, there is, as my learned friend pointed

out, a distinction between those two, and the
policies for pure endowment is defined. It was

argued in this case before the court that this

particular policy was a policy of pure endowment as

it appears somewhat faintly, and that argument was

rejected.

McHUGH J: Assuming that your arguments are ultimately

accepted, there is an important question of public

interest involved in this case, is there not?

MR MANSFIELD: With respect, Your Honour, we do not accept

that, for this reason; that although the

distinction between a life policy or an endowment

Young.S 26/8/93

assurance policy generally, and a policy of pure

endowment may be important, that will depend upon

the terms of each particular set of policies and

the terms of each particular policy.

McHUGH J: But there is nothing unusual about the terms of

this particular policy, is there? I mean in

principle, although perhaps not in detail, it

reflects the type of policy that is issued in this

situation, is it not?

MR MANSFIELD:  No, we do not suggest that this is so unique

that it is not going to throw up the general

question fo·r consideration, but the argument that

we do put is that the legislature has said, "If it

is not a policy of pure endowment as we, the

legislature, has defined, and the court finds that

it is a policy of life insurance or an endowment

assurance, it gets the protection."

The important issue therefore is for the Court

to consider whether there is a seriously arguable

proposition here that this policy fell into the

category of policies of pure endowment and, in our

respectful submission, the Full Court addressed

that and found very readily that it did not. By

looking at the definition, it can readily be seen

that it did not. By looking at the definition or

the interpretation of the phrase, "policies of pure

endowment" in this Court's decision in the

NMLA case, which was not challenged by the

applicant, it found that it did not.

So there is, in our respectful submission,

simply no real issue to be decided. If the consequence is that which my learned friend

contends for, then it is for the legislature to fix

up, because the legislature has chosen to draw the

line, and it has drawn the line by an exclusive

process of saying, "If it falls within this general

category it gets protection, unless it is a policy
of pure endowment." Clearly this policy was not.

I can take the Court, if it would be helpful, to the reasons for decision on that particular

question, or to the definition. For instance, in
the judgment of His Honour Justice Hill, with which

the other judges in the full Federal Court agreed

at pages 108 and 109 of the appeal book, that

particular question is very precisely addressed.

As His Honour there says, two thirds of the way down the page:

this submission was not developed in any

detail and rightly so. No benefit payable

under it was payable at a specified date, that

Young.S 6 26/8/93

is to say, a date nominated in the policy

itself.

That expression is drawn by reference,

specifically, to the definition in section 5 which

the legislature has chosen to adopt. His Honour

goes on then to say:

Reference was made to the retirement benefit,

but even if a benefit payable upon the insured

attaining a specified age is a benefit payable at a specified date ..... the retirement benefit

here is payable only upon the occurrence of a

further condition, namely actual retirement.

In no way can a benefit payable only on

retirement after a nominated age be a benefit

payable at a specified date.

So that the consequence which my learned friend talks about is one which, in our submission,

is not relevant to the proper construction of

subsections (2)(d) and (e). The proper

construction of (2)(e), which is the exclusory

provision, is one about which there is no doubt and

was not challenged in the court below. So that, in

our respectful submission, this is simply not an

appropriate case to grant leave. If the Court

pleases.

DAWSON J:	Mr Bennett?
MR BENNETT:	We do not submit for a moment, Your Honours,

that this is a policy of pure endowment. The only

significance in the reference to the policy of pure

endowment is that it shows one of the anomalous

consequences of the decision. It can hardly have

been the intention of the legislature in using the

phrase "life assurance or endowment assurance" in

(d) to have something which was closer to a loan

and further to a contract of life assurance than a

policy of pure endowment, because the one had two

years and the other had five years. That is the
way in which I lose that point.

Do Your Honours wish to hear me generally in

my submissions in support of the application or

merely in answer to what was said - - -

DAWSON J: Merely in answer.

MR BENNETT:  That is the answer to what my friend has put on

that issue.

TOOHEY J: Your argument, Mr Bennett, would take this

arrangement right outside the operation of the Act?

Young.S 7 26/8/93

MR BENNETT: Yes, Your Honour, certainly so far as the

proceeds turn out to be due to that event

occurring. It may be, if the proceeds were payable

on death, a different question would have arisen.
That involves the issue in Re Carter as to whether one looks at the event which caused the proceeds to

be payable or whether one tries to characterize the

whole policy.

McHUGH J:	You seek to distinguish Carter, do you?
MR BENNETT:	No, Your Honour, we are content with Carter; we

take the same view as Carter. Also, my friend mentioned the National Mutual case. We accept

totally everything in the National Mutual case. We

say that assists us, but Your Honours do not, I

understand, wish to hear me go into detail on that.

DAWSON J:  No. We need not trouble you further, Mr Bennett.

There will be a grant of special leave in this

matter.

AT 10.25 AM THE MATTER WAS ADJOURNED SINE DIE

Young.S 26/8/93