Resolution Life Australasia Ltd v N. M. Superannuation Pty Ltd

1. [1]

   The plaintiff, Resolution Life Australasia Limited (“the Insurer”), is a life insurance company.

2. [2]

   The Insurer provides, amongst other products, “life risk insurance”. This includes “individual” or “retail” risk insurance of particular persons. It also includes “group” or “wholesale” risk insurance of, relevantly, members of corporate superannuation plans. The Insurer was formerly a member of the AMP group of companies. It was then known as AMP Life Limited. It is now a member of the Resolution Life group of companies.

3. [3]

   The defendant, N. M. Superannuation Proprietary Limited (“the Trustee”), is the current trustee of the AMP Super Fund (“the Fund”). The Trustee has been a member of the AMP group of companies at all relevant times.

4. [4]

   Between January 1991 and May 2004, the Insurer and the Trustee’s predecessor trustee of the Fund, AMP Superannuation Limited (“the Former Trustee”) entered into four contracts, each described as life policies and containing a variety of “Insured Benefits” in the nature of life insurance (“the Contracts”).

5. [5]

   Between October 2018 and November 2021, AMP Limited sold its “wealth protection and mature businesses” to subsidiaries of the Insurer’s ultimate parent company, Resolution Life Group Holdings Limited, for a very significant sum (“the Sale”). The Sale completed on 30 June 2020.

6. [6]

   The terms of the Sale were recorded in a Share Sale and Purchase Agreement (“the Sale Agreement”) made between members of the AMP group and the Resolution Life group. The Sale Agreement was originally made on 25 October 2018, then twice amended and restated. Its final and prevailing iteration was dated 23 June 2020, seven days prior to completion of the Sale.

7. [7]

   Although AMP was selling its life insurance business, it was not selling certain investment operations that the Insurer had hitherto performed under life investment policies issued to the Former Trustee. It was therefore necessary to restructure the Contracts so that the investment elements were separated and retained within the AMP group. It was also necessary to make other changes to the Contracts to reflect the fact that the Insurer and the trustee of the Fund, to be the Trustee, would no longer be related entities within the same corporate group.

8. [8]

   It was a condition precedent to completion of the Sale that the Contracts be restructured to reflect these matters.

9. [9]

   Satisfaction of the condition precedent was achieved by two sequential rounds of documentation. The “agreed principles” for the restructure of the Contracts were recorded in a “Separation Deed” dated 15 May 2020 between the Insurer, the Trustee, the Former Trustee and AMP Limited. “Greater detail” was set out in amendment deeds to the four Contracts.

10. [10]

    As part of the Sale transaction, there was on or about 15 May 2020 a successor fund transfer of members and assets of the Fund from the Former Trustee to the Trustee, such that the Trustee now has all the powers and liabilities under the Contracts.

11. [11]

    As part of the consideration for the Sale a member of the AMP group acquired a minority equity interest in the Insurer’s then parent, a member of the Resolution Life group. AMP later sold that interest to another member of the Resolution Life group so that, by 28 June 2022, the AMP group ceased to hold any interest in the Resolution Life group.

12. [12]

    Shortly thereafter, in September 2022, the Trustee commenced a tender process, known as the “Request for Proposal” (“the RFP”), whereby it sought expressions of interest from insurers to provide life cover to those individuals and groups of individuals currently insured by the Insurer under the Contracts.

13. [13]

    For a short time, the Insurer participated in the RFP process. It has ceased to do so for reasons evidently associated with issues it says arise in relation to its reinsurance arrangements. I will return to this.

14. [14]

    The Insurer contends that the Trustee is thereby acting in breach of an implied term of the Contracts and seeks a declaration to that effect.

15. [15]

    It also seeks injunctions restraining the Trustee from:

16. [16]

    The Trustee has stated, both before and during the hearing, that it is not proposing to terminate the Contracts.

The Contracts

1. [17]

   There are four Contracts. They were known as Contract 20555, Contract 20555A, Contract 20666 and Contract 70002C. They were originally made between the Insurer (to repeat, then a member of the AMP group and known as AMP Life Limited) and the Former Trustee on dates between January 1991 and May 2004. Contract 20555 comprises both individual and group risk insurance. The other three Contracts provide only group risk insurance.

2. [18]

   The four Contracts were amended and restated on 30 June 2020; the day the Sale completed. They have been amended since, but not materially to the issues here. Thus, although in its List Statement the Insurer refers to the December 2022 iteration of the Contracts, it accepts that these are not materially different from their 30 June 2020 iterations.

3. [19]

   The Contracts have substantial value. At 30 June 2022, the annual premium income earned by the Insurer from the Contracts was several hundreds of millions of dollars and provided cover for some 135,000 Fund members.

4. [20]

   In their submissions, the parties focused on the most valuable Contract, Contract 20555. I will do the same. I understand that my conclusion in relation to Contract 20555 will apply to each of the other Contracts. I will invite submissions from the parties as to whether they contend that any different result should be found in relation to Contracts 20555A, 20666 and 70002C.

The Request for Proposal (“RFP”)

1. [21]

   On 18 August 2022, an email was sent from “AMP Master Trust Tender”, on behalf of the Trustee, to various insurers, including the Insurer. It stated:

2. [22]

   The RFP invited insurers to tender for “most of the life insurance provided to Members of the [Fund]”.

3. [23]

   The RFP stated:

4. [24]

   On 5 September 2022 the Trustee sent an email to the insurers participating in the RFP process, stating:

5. [25]

   As I have said, for a short time the Insurer participated in the RFP process but withdrew shortly thereafter.

6. [26]

   As I have also said, this was evidently because of the reaction to the RFP process of the Insurer’s reinsurer, Munich Reinsurance Company of Australasia Limited (“Munich Re”). On 27 and 29 August 2022 Munich Re wrote to the Trustee and the Insurer, respectively. Munich Re asserted that the Insurer’s obligations under its treaty prevented it from participating in the RFP, and that if action taken by the Trustee led to the Insurer breaching its duty with Munich Re, Munich Re would hold the Trustee responsible for the extremely large loss it contended it would suffer.

7. [27]

   In view of the conclusion to which I have come, it is not necessary for me to further consider Munich Re’s position.

8. [28]

   The RFP process is ongoing and has proceeded, and is proceeding, to the following timetable:

The Insurer’s case

1. [29]

   It is common ground that Contract 20555 contains the following express terms (“the Express Terms”): [1]

2. [30]

   The Insurer contends that there is an implied term of Contract 20555 (“the Implied Term”) that:

3. [31]

   The existence of the Implied Term in contracts other than insurance contracts is well established. [4]

4. [32]

   The Trustee disputes that such a term should be implied into a contract of insurance, such as Contract 20555, because an implied obligation to act in the utmost good faith already exists, [5] and that, accordingly, it was not necessary to imply the posited term. [6]

5. [33]

   However, as the Insurer pointed out:

6. [34]

   I am satisfied that Contract 20555 contained the Implied Term.

7. [35]

   The Insurer does not contend that the Trustee has acted or is threatening to act in breach of the positive obligation posited by the Implied Term: to “do what is necessary” to enable the Insurer to have the benefit of the contract.

8. [36]

   Rather, the Insurer’s contention is that by engaging in the RFP, the Trustee is proposing to breach the negative covenant in the Implied Term not to “hinder or prevent the fulfilment of the purposes of the express promises made in the contract”.

9. [37]

   Thus, the Insurer contends:

10. [38]

    As is evident from that submission, the Insurer’s position is that there is an “express promise” in Contract 20555 of the kind posited in the Implied Term: that it be paid the “premium revenue in respect of Members who are insured under the Contracts” by the Trustee.

11. [39]

    The Insurer’s case depends on this proposition. I return to it below.

12. [40]

    Finally, the Insurer’s case is that:

13. [41]

    In its Summons, the Insurer seeks a declaration that, on the proper construction of the Contracts, the Trustee may not act as set out at [40 (a)–(c)] above and an order restraining the Trustee from doing so.

14. [42]

    Although the chapeau to the clause set out at [40] asserts that the posited construction arises from the “express and implied terms” of Contract 20555, as developed in argument, the Insurer’s case was that the relevant construction arises only from the Implied Term.

15. [43]

    Thus, I had this exchange with Mr Rich SC, who appeared with Mr Burnett for the Insurer:

16. [44]

    Mr Rich did not seek to develop any argument to show that any of the express terms, as set out at [29] above, could give rise to the posited construction. I do not see how they could.

The vital question

1. [45]

   Much was said during oral and written submissions about:

2. [46]

   The question for me, however, is whether the particular case put forward by the Insurer is made out. As I have explained, that case contends for the Implied Term and for a particular construction of the Contracts said to arise from the Implied Term; and not otherwise.

3. [47]

   As I have explained, as developed in submissions, the Insurer’s case comes down to the proposition that the operation of the Implied Term is enlivened by an “express promise” in the Contracts that the Trustee will pay or cause to be paid premiums under the relevant policy to the Insurer.

4. [48]

   Thus in closing submissions, Mr Rich said:

Does Contract 20555 contain an express, or any, promise by the Trustee to pay premiums?

1. [49]

   The recitals to Contract 20555 provided:

2. [50]

   It is common ground that recitals D and E accurately reflect the provisions in cll 4.5(a) and (b) of the Separation Deed.

3. [51]

   Clause 4.3 of the Separation Deed provided:

4. [52]

   Paragraph 5 of Sch 5, referred to in cl 4.3, provided:

5. [53]

   Clauses 3.8 and 3.9 were inserted in Contract 20555 to give effect to the amendments foreshadowed in the Separation Deed and, in particular, the amendment to reflect par 5 of Sch 5:

6. [54]

   The Insurer’s case, based as it is on the negative covenant in the Implied Term, assumes the existence of an “express promise” on the part of the Trustee to pay Members’ premiums to the Insurer on their due date.

7. [55]

   But there is no such express promise, as Mr Rich accepted in this exchange:

8. [56]

   Nor can I see any such promise implicit in the words of cll 3.8 or 3.9.

9. [57]

   As was put on behalf of the Trustee:

10. [58]

    I agree.

11. [59]

    In my opinion, there is no promise, express or implied, in Contract 20555 by the Trustee to pay premiums.

12. [60]

    That is consistent with the nature of life insurance.

13. [61]

    A life insured is always entitled to terminate cover, whether under the terms of the policy or at common law. [14]

14. [62]

    Indeed, the Insurer led evidence to this effect.

15. [63]

    Thus, Ms Megan Beer, the Chief Executive Officer of the Insurer, deposed:

16. [64]

    The only reference to cancellation in Contract 20555 is in cl 3.7 which provided, relevantly:

17. [65]

    Whether or not that clause should be construed as conferring on a Member a right to cancel the policy, a life insured can always decide to cease paying the premium of a life policy, for example as they age and premiums increase, and bring about the same result as far as he or she is concerned.

18. [66]

    As cl 3.8 of the Contract makes clear, if a premium is not paid timeously, then the cover will lapse. But the Insurer has no entitlement to sue the Trustee for the premium. That is because the Trustee has not promised to pay the premiums. Neither cll 3.8 nor 3.9 contain a promise to pay.

19. [67]

    And if those clauses are read in light of par 5 in Sch 5 of the Separation Deed, [15] this position is even clearer. That clause states, in terms, that although premiums “will be payable” by the Trustee, the remedy for non-payment is confined to lapsing of cover. In that context, the words “will be payable” were obviously intended by the parties to be merely facultative, in the sense described in the Trustee’s submission that I have set out at [57(v)] above.

20. [68]

    As there is no promise to pay the premium, there is no obligation or promise, let alone an express obligation or promise, the purpose of which the Trustee could be said to be preventing the fulfilment. The Implied Term is thus not enlivened.

21. [69]

    It must follow that the construction of the Contract for which the Insurer contends is not made out.

22. [70]

    For that reason alone, the Insurer’s case must fail.

The wider context

1. [71]

   There is a wider context confirmatory of that conclusion.

2. [72]

   As I have set out above, Contract 20555 referred to the Separation Deed in its recitals.

3. [73]

   The Separation Deed in turn, in its recitals, made reference to the Sale Agreement thus:

4. [74]

   Documents referred to in the text of a contract form part of the context by reference to which objective determination of the rights and liabilities of the parties may be considered. [16]

5. [75]

   Here, to repeat, the relevant iteration of Contract 20555 was made on 30 June 2020. It referred to the Separation Deed, made on 15 May 2020, which, in turn, referred to the Sale Agreement, the relevant iteration of which was dated 23 June 2020.

6. [76]

   In addition to this cross-referencing, the dates on which the three documents were executed shows that they were part of a suite of documents executed for the purpose of accommodating the parties’ rights and obligations following the Insurer’s departure from the AMP group.

7. [77]

   As the Trustee submitted, it is unlikely to have been an accident that Contract 20555 referred to the Separation Deed which, in turn, referred to the Sale Agreement. Rather, it is likely that this reflected the acknowledgement by the Insurer and the Trustee that the terms of Contract 20555 were agreed as part of a wider transaction.

8. [78]

   Documents which form part of a wider transaction may be read together to determine the legal effect of each. The rule is not restricted to instruments between all the same parties. It is enough that the documents are executed contemporaneously, or within a short time, in relation to a single transaction where each party can be presumed to know of the relevant documents. [17]

9. [79]

   Thus, the terms of the Separation Deed and the Sale Agreement may shed light on how the parties intended Contract 20555 to operate.

10. [80]

    As the Trustee pointed out, the Sale Agreement expressly addressed the transition of the Insurer from being an AMP related entity to being an entity unrelated to the AMP group. An aspect of the transaction was the future prospect that the Trustee may sponsor or support Members to change to a different insurer now that the commercial interests of the Insurer were no longer aligned with those of the AMP group.

11. [81]

    This topic is expressly addressed in cl 26.1(b) of the Sale Agreement which provided:

12. [82]

    Clause 26.1(c) provided that the prohibition in cl 26.1(b) did not apply where a “Seller Group Member” (which includes the Trustee) “who is a trustee is acting in accordance with its duties to its beneficiaries” or is acting on “instructions it receives from a member”.

13. [83]

    Thus, the prohibition in cl 26.1(b):

14. [84]

    As the Trustee submitted, cl 26.1, read as a whole, shows that the parties contemplated that a trustee “acting in accordance with its duties to its beneficiaries” may have to solicit the owners, beneficiaries, or policyholders under policies to a “program of internal replacement” (as defined). Otherwise, the qualification of cl 26.1(b) by reference to cl 26.1(c) would not have been necessary.

15. [85]

    I see the limited terms of the prohibition as being inconsistent with the construction of Contract 20555 that the Insurer contends to arise from the Implied Term.

Conclusion

1. [86]

   My conclusion is that Contract 20555 should not be construed in the manner contended for by the Insurer.

2. [87]

   I understand it to be common ground that the same conclusion must apply for each of the three remaining Contracts. However, as I have said, I will invite submissions about this.

3. [88]

   It is therefore not necessary for me to address the parties’ submissions concerning the appropriateness and utility of the declaratory and injunctive relief sought by the Insurer.

4. [89]

   I will invite submissions from the parties as to the way forward.