Resolution Life Australasia Ltd v N. M. Superannuation Pty Ltd [2023] NSWCA 138

The NSW Court of Appeal has dismissed unanimously^* an appeal by a life insurer which argued that superannuation-linked life insurance policies contained a promise by the trustee of a superannuation fund to pay premiums in relation to each fund member until each member’s cover ceased. In so doing, the Court of Appeal confirmed that the ordinary principles of contractual construction apply to contracts of life insurance.

Background

Resolution Life Australasia Ltd is a life insurer (Insurer) and N. M. Superannuation Pty Ltd (Trustee) is the trustee of the AMP Super Fund (Fund).

The Fund is a ‘regulated superannuation fund’ within the meaning of s 19 of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act).

The Trustee arranged life insurance for Fund members. Approximately 274,000 Fund members (Master Trust Portfolio) held the benefit of life insurance under nine contracts of life insurance issued by the Insurer to the Trustee. The Trustee was the contractual counter-party, rather than the members individually.

The proceeding related to four of those contracts (Contracts). The Contracts had been issued between 1991 and 2004, and generated an estimated annual premium to the Insurer of approximately $265 million.

In August 2022, the Trustee invited proposals from life insurers (including the Insurer) to be the primary insurer of the Master Trust Portfolio going forward (Request for Proposal).

The Insurer initially participated in the Request for Proposal. However, after a short time, it withdrew its participation and commenced proceedings against the Trustee seeking to restrain the Trustee from continuing with the Request for Proposal on the basis the Trustee threatened to breach an implied term of the Contracts.

That term, as found by the primary judge and not challenged on appeal, was that with respect to each Contract the Trustee was to ‘do what is necessary on its part to enable [the Insurer] to have the benefit of [that] contract and [not to] hinder or prevent the fulfilment of the purposes of the express promises made in the contract’. The Insurer’s claim was based on a threatened breach of the second limb of this term.

Central to the Insurer’s case was its claim that it had an unconditional right under each of the Contracts to be paid monthly premiums by the Trustee in respect of each Fund member. This right was said to exist irrespective of whether, relevantly, the Trustee believed it was in the best interests of a member that cover with the Insurer should lapse, for example because some other life insurer was offering to provide insurance on better terms than the Insurer.

It was not in dispute that the Contracts made monthly payment of premiums in advance a condition precedent to the continuance of cover.

At first instance, Stevenson J dismissed the Insurer’s claim: Resolution Life Australasia Ltd v N. M. Superannuation Pty Ltd [2023] NSWSC 98. The primary judge found the Trustee had not promised to pay monthly premiums due for each member.

Issue on appeal

On appeal, the Insurer contended that the primary judge erred by failing to find, as a matter of construction of each Contract, that under each of the Contracts, the Trustee had promised to pay monthly premiums in relation to each member until his or her cover otherwise ceased.

By notice of contention, the Trustee argued that the primary judge’s conclusion (that there was no obligation on the Trustee to pay monthly premiums) was supported by the Trustee’s general duties and statutory duties imposed by s 52(2) of the SIS Act.

On appeal, the case was argued by reference to the most lucrative of the Contracts, called Contract 20555 (Contract 20555). The Insurer accepted that if its arguments did not succeed in relation to the Contract 20555, the same conclusions would apply to each of the Contracts.

The principal judgment was given by Meagher JA, with whom Basten AJA agreed. Adamson JA agreed in a short concurring judgment.

The SIS Act

An important overlay to the issue of contractual construction was the SIS Act. When each of the Contracts was initially made and subsequently, s 52 of the SIS Act provided that the governing rules of a superannuation entity, such as the Fund, included covenants by the trustee of the superannuation entity in favour of the members of the fund to the following effect:

• To act with the same degree of care, skill and diligence as an ordinary prudent person would exercise when dealing with property of another.

• To ensure the trustee’s duties and powers were performed and exercised in the best interests of the beneficiaries.

• Not to enter into any contract that would prevent the trustee from, or hinder the trustee in, properly performing or exercising the trustee’s functions and powers.

Reasoning

Meagher JA noted the legislative context in which the Contract was made included s 52 of the SIS Act, noted above. In this regard, his Honour referred to the relevance of legislative context when construing a contract by reference to Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at [11] and Amcor Ltd v Construction, Forestry, Mining and Energy Union (2005) 222 CLR 241 at [64] (at [12]).

His Honour stated at [40] that, from the Trustee’s perspective, whether it must pay premiums with respect to a member when due ‘depends on what is required in the performance of (the Trustee’s) duties owed to each Member. If the Member instructs that the cover is not to continue, (the Trustee’s) duty is to allow the policy to lapse. In doing so, it does not breach any obligation under the policy, because the non-satisfaction of the condition precedent does not constitute a breach of contract on its part’.

Meagher JA further confirmed that the well-established principles of contractual construction applied to the construction of the Contracts noting, at [42], that ‘The construction of the policy is to be approached objectively and accordingly by reference to what the language would be understood to convey to reasonable parties in the position of (the Insurer) and (the Trustee)’.

His Honour stated that the context in which Contract 20555 was to be construed included matters which were known to the parties when the contract was made. His Honour accepted, in this regard, that commercially sophisticated and well-advised parties in the position of the Insurer and the Trustee would have been well aware of the nature and scope of the Trustee’s duties to its beneficiaries including those pursuant to s 52 of the SIS Act (at [43]).

Meagher JA found that Contract 20555 did not in terms contain a promise by the Trustee to pay monthly premiums in respect of each member, nor provide the Insurer with a right to cancel the cover should such a promise be breached.

In particular, his Honour held that cl 3.8 of Contract 20555 (which provided that ‘If a premium due in respect of a Member is not paid within one month of its due date the Insurance Benefits in respect of that Member will lapse’), did not require the Insurer to positively elect that benefits would lapse, or cover would cease, where the premium was not paid on time (at [35]).

Secondly, neither cl 3.8 nor cl 3.9 (which provided, relevantly, that ‘the premiums in respect of a member’s cover is to be paid monthly in advance’), could justify an order for specific performance of any obligation of the Trustee to pay a member’s premium monthly in advance. This was because the parties instead agreed the Trustee would have one month from the due date in which to pay the premium. The parties had also agreed what should happen if the premium was not paid by the end of that month, namely, each benefit would lapse (at [65], [68]).

Thirdly, there was no obligation on the Trustee to pay the unpaid premium after the cover had lapsed (at [66]).

Finally, there was no obligation on the Trustee to pay damages if the premium was not paid by the due date or within one month of that date (at [67]). Any requirement that premium be paid was not enforceable in debt or damages or by specific performance (at [68]).

Accordingly, Meagher JA dismissed the appeal.

Adamson JA agreed with Meagher JA. However, her Honour also emphasised the significance of the statutory framework in which the Contracts were made, in particular s 52 of the SIS Act ([87]-[88]).

Her Honour accepted the submission by the Trustee that another reason why the Insurer’s case must fail was that the effect of compliance with the term which the Insurer contended ought to be implied would put the Trustee in breach of its statutory obligations imposed on it by s 52 of the SIS Act. In her Honour’s view, a term which had the consequence of preventing the Trustee from investigating whether other insurers might be able to provide life insurance cover for its members on better terms than the Insurer offered and from engaging such insurer, if better terms were forthcoming, ought, accordingly, not be implied (at [91]). BN

^ENDNOTES

^{* No application for special leave to appeal to the High Court was made by the Insurer.}