FEDERAL COURT OF AUSTRALIA

Resolution Life Australasia Limited v Teagle [2024] FCAFC 140

ORDERS

THE COURT ORDERS THAT:

1.    The appeal is dismissed.

2.    The appellant is to pay the costs of the third respondent as agreed or assessed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    Before the Full Court is an appeal from the judgment of Stewart J in NSD 732 of 2023, Resolution Life Australasia Ltd v Teagle [2023] FCA 1607, delivered on 18 December 2023 (primary Judgment or J).

2    By the primary Judgment, the Court dismissed an application made by Resolution Life Australasia Limited (Resolution Life or the appellant) seeking review of a Determination, made by the Australian Financial Complaints Authority Limited (AFCA or the respondent), on 20 June 2023 (Determination). The first respondent, Mr Teagle, was the complainant in the original complaint to AFCA and has since had the benefit of the Determination in his favour. Mr Teagle has filed a Submitting Notice, as did N.M. Superannuation Proprietary Limited (NM Super), the second respondent. Accordingly AFCA, as the only active respondent, has provided assistance to the Court by acting as a contradictor before the primary Judge, and on this appeal.

3    By the Determination, AFCA determined that (J[34]):

This determination sets aside the decision of insurer 2 [Resolution Life] to not compensate the complainant. AFCA substitutes a decision that insurer 2 must compensate the complainant for an amount equivalent to the TPD cover.

This determination otherwise affirms the decision of insurer 2 to not pay the TPD claim. It also affirms the decision of the trustee to agree with insurer 2’s decision to not pay the TPD claim.

However, if it is beyond insurer 2’s power to compensate the complainant for an amount equivalent to the TPD cover, then AFCA does not affirm insurer 2’s decision not to pay the TPD claim. Instead, it sets aside that decision in the alternative and substitutes a decision that insurer 2 must pay the TPD claim on the basis that it would be unfair and unreasonable to rely on the exclusion to defeat the TPD claim in these circumstances.

4    The appellant is seeking to set aside the Determination on the basis that AFCA exceeded its authority under Part 7.10A Division 3 (Division 3) of the Corporations Act 2001 (Cth) (Corporations Act). As an alternative, Mr D A Lloyd SC, who appeared with Mr Duncan for the appellant, fairly conceded that, if this Court were to find that there were an error, and that the error raised matters which could have been dealt with by AFCA but were not, the matter should be remitted for re-determination.

5    It was not in dispute that the complaint by Mr Teagle was a “superannuation complaint” within the meaning of s 1057(1) of the Corporations Act, nor that the appellant was entitled to appeal to this Court from the decision of the primary Judge by way of the Notice of Appeal filed on 2 February 2024.

Factual Background

6    The facts in this matter as set out in the primary Judgment in paragraphs [1] to [34] of the decision under appeal do not appear to be in dispute. What follows is a brief summary.

7    This appeal arises out of a complaint by Mr Teagle made on 1 June 2022 to AFCA in which he sought compensation pursuant to a total and permanent disability insurance policy (TPD policy) he had taken out through his superannuation with Flexible Lifetime – Super (FSL), the trustee of which was AMP Superannuation Ltd (ASL). The complaint however was originally made against AMP Financial Planning Pty Ltd (AFP) (Appeal Book Part C (AB-C) Doc 20 page 1). AFP was the employer of the financial planner who then assisted Mr Teagle with his financial affairs (AB-C-20 at 1).

8    Mr Teagle was at the time a motor mechanical engineer and ran his own business (AB-C-2 at 4). On his application for insurance to AFP, he had disclosed a “lower back strain” between 12 January 2003 and 12 February 2003, which had resolved in fairly short order after a massage and electronic current therapy (AB-C-2 at 11).

9    On 12 August 2004, AMP Life Limited (AMP Life) – on letterhead headed “AMP Financial Services” – wrote to Mr Teagle (AB-C-3 at 2). The letter was signed by a Mr Sainsbury and set out details of the FSL plan. That letter noted:

Your insurance benefits

You have applied for the following insurance benefits:

•    extra death benefit of $1,000,000.00

•    total and permanent disablement benefit of $500,000.00

We are currently assessing these benefits. When we have finished, we’ll send you a letter to confirm whether they can be added to your plan.

10    On 29 November 2004, Mr Teagle received a letter providing an offer of insurance (AB-C-5 at 1). This letter was also signed by Mr Sainsbury, but was not on the same letterhead as the 12 August 2004 letter, in that the letterhead did not include a reference to “AMP Financial Services”. However, both letters included the contact details of AMP Life and referred to the FSL superannuation policy. It is not disputed that AMP Life was, at the outset, the insurer which provided the TPD cover to the trustee, for the benefit of Mr Teagle (J[7]).

11    The 29 November 2004 letter advised that Mr Teagle’s insurance of $1,000,000 Extra Death Benefit and $500,000 of TPD insurance was granted subject to an exclusion in the enclosed Advice of Revised Terms as follows (AB-C-5 at 3):

Exclusions

Lumbar/Sacral Spine:

Total and Permanent Disability Benefit under this plan shall not be payable for injury or illness that is caused wholly or partly, directly or indirectly by any injury to or disorder of the lumbar and sacral spine or any part of the lumbar and sacral spine including its muscles, ligaments, discs or nerve roots.

(exclusion).

12    The 29 November 2004 letter included the following information in relation to the exclusion (AB-C-5 at 1 to 2):

Why we used the exclusion clause?

We have used this exclusion clause because your medical history presents a greater than normal risk of future disablement. Because of the complexity and nature of most medical conditions, it is extremely difficult and impractical to write them on an individual basis in an attempt to “tailor” them to each person’s particular medical history.

Will we pay a claim involving the exclusion?

We consider all claims on their merits and do not intend to deny any claim involving the exclusion without considering all the circumstances causing the illness or injury. We are prepared to consider the payment of a disability claim if it would be unfair, or contrary to the intent of the plan for the exclusion to apply. For example, we would pay if illness or injury is caused by a motor vehicle accident or, by cancer, and is not related to, aggravated by, or complicated by your lower back problems.

13    Mr Teagle accepted the offer of cover, which included the exclusion, on 9 December 2004 (AB-C-5 at 6).

14    Shortly after accepting the offer of cover, Mr Teagle queried with (apparently) ASL (although the complaint form records “Siebel Financial Services” as the recipient of the complaint), in the following terms (AB-C-6 at 1):

client would like to know why his back isnt covered in insurance and would an explanation on this

[as written in original]

15    There is no indication of the response, if any, to this query.

16    On 30 June 2020, an Amendment Deed between NM Super, the second respondent, and AMP Life recited that on 15 May 2020, there was (AB-C-10 at 3):

… a successor fund transfer of members and assets supporting their benefits including [relevantly, Mr Teagle’s policies of insurance] by ASL to [NM Super] as trustee of the Super Directions Fund.

17    The effect of the Amendment Deed was that NM Super became the trustee of Mr Teagle’s superannuation, and AMP Life remained the insurer. At some point, which on the evidence is unclear but is not temporally relevant, Resolution Life became the insurer in place of AMP Life (J8). During the hearing, the appellant was also referred to as the insurer and NM Super as the trustee.

18    Over the years, Mr Teagle developed back problems, which became serious. On 14 December 2021, Mr Teagle signed a claim form of 20 pages for a TPD claim (AB-C-12). His condition was “neurogenic claudication and spinal stenosis” which resulted in limited movement, leg numbness, and permanent pain (AB-C-12 at 2). He had spinal surgery and took medication for his pain (AB-C-12 at 2). He had been advised by his doctor to cease all work as from 28 February 2021. The claim was submitted on 15 December 2021 by email from a financial adviser (AB-C-13 at 1).

19    On 17 May 2022, Mr Darren Walker, Case Manager, Claims - Insurance wrote to Mr Teagle notifying him that his claim “may not meet the terms of the policy because [he] made a claim for a condition that AMP excludes under the policy” (AB-C-17 at 1). This letter (later referred to by the appellant in correspondence as a Procedural Fairness letter) noted that before a decision was made, Mr Teagle would be given an opportunity to review and comment on the claim, and to provide any new evidence (AB-C-17 at 3). The letter is written in the first person plural (“we”), and the letterhead on the first page of that letter indicated that it was from AMP Life. However, Mr Walker’s signature block noted that he wrote (AB-C-17 at 3):

On behalf of N.M. Superannuation Proprietary Limited [ABN] (trustee) which is a part of the AMP Group (AMP). The insurer of this account is AMP Life Limited [ABN] (insurer).

20    Mr Teagle then (on 27 May 2022) corresponded with the appellant about his claim (AB-C-19) and on 1 June 2022 made a complaint to AFCA (the complaint) (AB-C-20 at 1). The complaint noted that it was made against “AMP Financial Planning Pty Ltd” and that it related to a “Life insurance” policy which was “provided through a superannuation fund”. The complaint noted that the outcome sought was:

I am seeking compensation

I am not sure how much I am seeking

$500-$1 million

and identified a fair and reasonable outcome as (AB-C-20 at 1-2):

My TPD that i have been paying is of the some of $.250.000.00 one million two hundred odd thousand all i want is what I am insured for and move on with life the best way I can and stop this stress

[as written in original]

History of the complaint

21    On 6 June 2022, AFCA notified the appellant of the complaint, and the appellant replied noting that the complaint “has been lodged against the incorrect entity. The correct entity is [NM Super], member no [XXX]” [anonymisation added] (AB-C-21 at 1). AFCA responded to Mr Teagle on 8 June 2022 noting that “the complaint should be lodged against [NM Super]” (AB-C-22 at 1). Mr Teagle responded, understandably:

I have never heard of them before and I don’t even know who they are. So what do I do now? My superannuation is with AMP and my insurance??

22    AFCA responded on 10 June that (AB-C-22 at 1):

[NM Super] is an AMP owned trustee that AMP have said holds your superannuation. As the insurance is held inside super, the complaint needs to go through the super trustee.

23    Each of the appellant (on 19 July 2022) (AB-C-24 at 1) and AMP Life (on 21 July 2022) (AB-C-25) wrote to Mr Teagle saying that they had reviewed his complaint to AFCA, and that they respectively maintained the position that the outcome proposed in the Procedural Fairness letter was appropriate. Mr Teagle informed AFCA of this result on 21 July 2022 and sought that AFCA “investigate my complaint review and let me know of the outcome please” (AB-C-25).

24    There was then some correspondence between AFCA and each of the appellant and NM Super, as well as with Mr Teagle. In an email to Ms Wood and Mr Silvester of AFCA of 25 November 2022, Mr Teagle said (AB-C-37):

AMP or the AMP Advisor at no time reviewed my TPD insurance or offered me a upgrade in TPD insurance or change in 19 years and this is why i didn't even know i could ask for a review no one told me

[as written in original]

25    AFCA joined the appellant to the complaint on 9 December 2022 (AB-C-38). In the email and attachments notifying the appellant of this step, AFCA said (AB-C-38 at 6):

Notice - section 1054(2) of the Corporations Act 2001 (Cth)

AFCA is empowered, under section 1054(1) of the Corporations Act 2001 (Cth) (the Act), at any time to join a party to a superannuation complaint. Section 1054(2) of the Act requires AFCA to give all new and existing parties to the complaint written notice of our decision, and the reasons for it.

In accordance with section 1054(2) of the Act, you are given notice that AFCA has joined Resolution Life as a party to this complaint. The reason for this decision is because Resolution Life is a party to the decision to potentially decline the complainant’s TPD claim.

26    In response, the appellant contended that it was “yet to make a decision on the TPD claim” (AB-C-39 at 2). The appellant then notified NM Super on 31 January 2023 that the claim had been declined, and gave reasons for that decision (which are not here generally relevant) (AB-C-40).

27    On 30 March 2023, AFCA wrote to Mr Teagle with its recommendation. That was, in short, that the decisions of the trustee and insurer to decline the removal of the exclusion were fair and reasonable, and Mr Teagle was given 30 days to advise whether he accepted the recommendation (AB-C-45). Under cover of that email, Mr Teagle was provided with a letter from the appellant to AFCA dated 27 March 2023, which went into some detail as to the underwriting decision underlying the decision regarding Mr Teagle’s TPD claim (AB-C-44).Mr Teagle did not accept the recommendation (AB-C-46). Apparently referring to his earlier email, Mr Teagle asked:

Why was I even insured for 18 years and AMP did nothing but take my money

28    On 31 March 2023, Mr Silvester, the Senior Dispute Resolution Specialist handling the complaint at AFCA, wrote to the appellant and passed on Mr Teagle’s queries about why no review of his policy was undertaken during the time he had paid the policy premiums, given that the underwriting assessment documents provided by the appellant to AFCA on 27 March 2023 and passed on to Mr Teagle referred to reviews of exclusions being undertaken after two or three years “symptom free” (AB-C-44 at 5).

29    The appellant responded on 6 April 2023 attaching further underwriting material and responding:

Why was a review not undertaken for the Complainant?

A review must be requested by a Complainant, or their adviser, they are not undertaken by Resolution Life without a request. The underwriter at the time the assessment was made would have called the adviser to discuss the assessment outcome. They would have also discussed the possibility of any reviews. Due to the passage of time, we cannot locate notes on such a conversation, however, as per the attached document titled ‘Underwriting Philosophy’, it was part of standard process in 2004 to call the adviser to personally communicate the underwriting decision on all non-standard assessments.

30    The Underwriting Philosophy document did refer to a telephone call to the adviser, but as the primary judge noted at J[26], “it was silent on the matter of telling an adviser about the availability of a review of an exclusion”.

31    Under cover of letter dated 18 April 2023, to both NM Super and Resolution Life in relation to the two complaints, AFCA identified that according to the underwriting guidelines, Mr Teagle could have had the exclusion reviewed after a period of three years (AB-C-51 at 3). The letter went on to ask several questions which queried, inter alia (J[27]):

(a)    whether this opportunity for review was disclosed to Mr Teagle;

(b)    the manner in which it was signposted to Mr Teagle;

(c)    what any potential review would have looked like;

(d)    what the likely outcome of the review would have been had it taken place; and

(e)    whether the language in the covering letter extracted above at [12] above had the potential to mislead or misrepresent the likelihood that payment would be made in the event that a complaint was unrelated to the injury leading to the exclusion.

The request as to “signposting” also asked the appellant to:

address any application of the decision of QSuper Board v Australian Financial Complaints Authority Limited [2020] FCAFC 55 to these joined complaints.

32    In its response dated 11 May 2023, the appellant answered AFCA’s questions as follows (AB-C-54 at 1 to 3; J[28]):

(a)    it was the usual practice to communicate the review opportunity, and there is no reason to believe that Resolution Life would have departed from this practice in the present case;

(b)    there was no positive obligation to “signpost” the review opportunity to Mr Teagle;

(c)    had a review been requested in 2009, the insurer would have required a full personal statement by Mr Teagle, including a back questionnaire detailing ongoing symptoms, dates and durations, impacts, investigations and treatment, along with further medical information at their discretion;

(d)    based on the information before the insurer, any review request made in 2009 would have been denied; and

(e)    the wording in the covering letter was not misleading, with its purpose being to communicate the holistic approach that Resolution Life would take in assessing claims on their merits, with any payment outside of policy terms being at its discretion.

33    Included in Resolution Life’s response was a Statutory Declaration by a person whose name was redacted which provided a retrospective opinion that any review request made in 2009 would not have resulted in the exclusion being removed (AB-C-54 at 5 to 8; J[29]). It is not clear why 2009 was the time selected by the appellant, although the primary Judge at J[84] considered this choice “opportunistic” because at that point, Mr Teagle had developed back problems, not having done so three years after the first onset of relevant symptoms, in 2006.

AFCA’s Determination

34    As stated above at [3], AFCA made the Determination on 20 June 2023. After summarising Mr Teagle’s arguments, broadly canvassed above at [24] and [27], it determined that (AB-C-57 at 6 to 7; J[31]):

(a)    the exclusion effectively defeated Mr Teagle’s claim as the back-related condition fell within its scope;

(b)    AMP Life failed to signpost in a meaningful way that Mr Teagle had the opportunity to have his exclusion reviewed; and

(c)    the exclusion had a material impact on Mr Teagle’s claim, and had Mr Teagle sought his review opportunity, the exclusion would have been removed.

35    AFCA went on to find that it was satisfied that the appellant’s decision was fair and reasonable as the exclusion defeated Mr Teagle’s claim, and subsequently that NM Super’s decision to agree with the appellant’s decision was fair and reasonable due to the claim not having reasonable prospects of success as a result of the exclusion (AB-C-57 at 7; J[32]).

36    Despite this, AFCA found that Resolution Life’s decision to not compensate Mr Teagle was not fair and reasonable in all the circumstances, due to their failure to signpost the review opportunity to him, resulting in Mr Teagle missing out on a meaningful opportunity that materially affected his claim (AB-C-57 at 8; J[33]). The Determination’s Key Findings included, relevantly (AB-C-47 at 7):

Are the decisions of [the appellant] and the trustee fair and reasonable?

The panel is satisfied that [the appellant]’s decision to decline to pay a TPD benefit is, in its operation in relation to the complainant, fair and reasonable in all the circumstances. This is because the exclusion effectively defeats the TPD claim.

The panel is satisfied the trustee’s decision to agree with [the appellant]’s decision to decline the TPD claim is, in its operation in relation to the complainant, fair and reasonable in all the circumstances. This is because the TPD claim does not have a reasonable prospect of success due to the lumbar/sacral spine exclusion, so it is fair and reasonable to agree with [the appellant]’s decision.

The panel is not satisfied [the appellant]’s decision to not compensate the complainant is, in its operation in relation to the complainant, fair and reasonable in all the circumstances. This is because [AMP Life] failed to signpost to the complainant that he had an opportunity to have his exclusion reviewed after three years of cover. This failure has led to the complainant being deprived of a meaningful opportunity that has had a material effect on his TPD claim. The panel understands [the appellant] has taken over responsibility for complaints relating to [AMP Life] as part of the transfer of [AMP Life’]s life insurance business. Therefore, [the appellant] is responsible for compensating the complainant.

37    The appellant sought a stay of AFCA’s determination pending appeal, which was refused by the primary Judge on 18 October 2023 (see Resolution Life Australasia Ltd v Teagle (Stay Application) [2023] FCA 1244).

Findings of the primary Judge

38    By the filing of a notice of appeal with the Court on 18 July 2023, subsequently amended on 29 November 2023, Resolution Life commenced an “appeal” from the Determination (J[35]).

39    The primary Judge, with the benefit of the amended notice of appeal and submissions advanced by Resolution Life, distilled the contentions put forward by the appellant as follows (J[36]):

1    AFCA acted beyond power and in error of law in positing the existence of a relevant reviewable decision of Resolution Life to not compensate Mr Teagle, where Resolution Life made no such decision, and then purporting to review that posited decision (ground 2).

2    AFCA erred in law in determining that Resolution Life must make a gratuitous payment to Mr Teagle (ground 3).

3    AFCA erred in law in failing to exclude the complaint as was required by rule C.1.4 of the AFCA Complaint Resolution Scheme Rules because it was a complaint about “underwriting or actuarial factors leading to an offer of a Life Insurance Policy on non-standard terms” (ground 1), and AFCA acted beyond power and in error of law in purporting to make an underwriting decision of Resolution Life (ground 9).

4    AFCA’s determination that Mr Teagle satisfied the TPD definition in the policy was attended by jurisdictional error or legal unreasonableness (ground 4B).

5    Having determined that the TPD claim-rejection decision (ie the decision to not pay a TPD benefit) was fair and reasonable, it was legally unreasonable of AFCA to determine that the TPD claim-rejection decision was, in fact, not fair and reasonable in the event that it was beyond Resolution Life’s power to compensate Mr Teagle for an amount equivalent to the TPD cover, as determined and ordered by AFCA (ground 4A).

6    Having made its recommendation dated 30 March 2023 in favour of Resolution Life and NM Super and determining that no further action was required, AFCA erred in failing to provide procedural fairness to Resolution Life by proceeding to make the determination, reversing its position in the recommendation, on the following findings without giving notice to Resolution Life of, and giving to Resolution Life a fair and reasonable opportunity to respond to, them (ground 5):

a)    Resolution Life made a posited decision to not compensate Mr Teagle (ground 6);

b)    Resolution Life had to compensate Mr Teagle outside the terms of the policy (ground 7);

c)    Rejecting or discounting the evidence of Resolution Life of a retrospective underwriting opinion as at January 2009 on the basis that Resolution Life’s retrospective underwriting evidence was at an irrelevant date (ground 8); and

d)    Resolution Life acted in breach of a duty of utmost good faith owed to Mr Teagle (ground 10).

7    AFCA erred in finding that Resolution Life acted in breach of the duty of utmost good faith (ground 11).

40    What follows is a high level summary of the primary Judge’s findings and subsequent reasons for rejecting the above contentions, which were extensively canvassed at [45] to [90] of the primary Judgment.

41    On contention one, the primary Judge found that Resolution Life, in choosing not to compensate Mr Teagle outside of the policy terms (the No Compensation Decision), did in fact make a decision under s 1053(1). His Honour identified that failing to make a decision and conduct and the failure to engage in conduct amounts to a decision, referring to s 1053(5) (J[48]). The primary Judge found (at J[49]) that the No Compensation Decision by Resolution Life was a complaint within s 1053(1)(a), as the appellant had been joined to the complaint against NM Super, and cited MetLife Insurance Ltd v Australian Financial Complaints Authority & Anor (2022) 295 FCR 1; [2022] FCAFC 173 at [107].

42    In rejecting contention two, the primary Judge preferred a broader construction of the word “conferred” in s 1055(1) of the Corporations Act than that advanced by Resolution Life. His Honour determined that as it was within Resolution Life’s power to make a discretionary payment, AFCA did not err in law in determining that Resolution Life must make a gratuitous payment, and that contention two must be rejected (J[52] to J[56]).

43    On contention three, the primary Judge determined that the complaint made by Mr Teagle was not one concerning underwriting or actuarial factors leading to an offer of a life insurance policy on non-standard terms, and was therefore not excluded by r C.1.4(b) of AFCA’s rules. His Honour concluded that the complaint was better characterised as one directed at the failure to provide an opportunity of a review of the exclusion, which was said to be unfair or unreasonable (J[57] to J[60]).

44    On contention four, the primary Judge rejected the submission that AFCA had acted beyond its jurisdiction. His Honour concluded that considering the counterfactual of what would have happened had Mr Teagle been afforded a review and that review had resulted in the removal of the exclusion from his policy was within AFCA’s wide jurisdiction and powers under s 1055(1) (J[61] to J[65]).

45    On contention five, the primary Judge rejected Resolution Life’s submission that each of the four steps in AFCA’s reasoning process in concluding that the TPD claim-rejection decision was not fair and reasonable were legally unreasonable or amounted to factual finding without evidence (J[66] to J[75]).

46    First, his Honour found that there was no foundation to the submission that AFCA’s factual finding that Mr Teagle was not advised of an opportunity to have the exclusion reviewed after three years was made without evidence or was attended by legal unreasonableness (J[69]). Second, his Honour found that there was ample material on which AFCA could base its decision that were the exclusion reviewed, it would have been removed by the insurer (J[71]). Third, his Honour found that there was no error in AFCA’s approach in finding that Mr Teagle satisfied the TPD definition in the policy, explaining that this finding was only in the context of deciding whether the failure to offer Mr Teagle a review of the exclusion was material and thus unfair or unreasonable (J[73]). Fourth, his Honour reiterated that as Resolution Life has accepted that it has a discretion to make a payment outside of the terms of the policy, there is no relevant error in AFCA finding that the failure to do so by Resolution Life was unfair or unreasonable (J[74]).

47    On contention six, the primary Judge concluded that none of Resolution Life’s specific complaints with regard to procedural fairness had any substance (J[79]). His Honour found that Resolution Life had been given clear and adequate notice, on numerous occasions, that the central issue of the Determination was the question of Mr Teagle’s opportunity to request a review of the exclusion (J[79]).

48    On contention seven, the primary Judge noted that no submissions were addressed to the ground of appeal relating to the duty of utmost good faith. His Honour concluded that there was no error in AFCA’s reasoning that, according to that duty, the insurer should have advised Mr Teagle of the opportunity to request a review of the exclusion (J[90]).

Appellant’s Grounds of Appeal

49    The grounds of appeal filed by the appellant were much narrower than the grounds advanced before the primary Judge, and consisted as filed of four grounds. Ground three was not pressed, nor was part of ground four. That left the following intact grounds in the Notice of Appeal:

1.    The primary judge erred in finding that there was a relevant decision of the trustee under s 1053(1)(a) of the Corporations Act 2001 (Cth) whereby the jurisdiction of AFCA to deal with the complaint was enlivened.

2.    The primary judge erred in failing to find that, having determined that the decision of the Appellant to not pay a TPD benefit was fair and reasonable, it was beyond jurisdiction or legally unreasonable for AFCA nevertheless hold that the Appellant was obliged to compensate the First respondent for an amount equivalent to the TPD cover.

50    Grounds 1 and 2 have a degree of overlap, Ground 2 relying on the same statutory interpretation issue as Ground 1. These two grounds will be considered together.

51    Ground 4 as filed read:

The primary judge erred in failing to find that AFCA had erred in determining that Appellant acted in breach of s 13 of the Insurance Contracts Act 1984 (Cth).

In her written submissions, Ms Holmes, counsel for the respondent characterised Ground 4 as not having been raised before the primary Judge, and pointed to prejudice that had this ground been raised, there may have been evidence which could have been brought before the primary Judge as to whether the contract of insurance had been varied as between the insurer and the trustee so as to bring the contract of insurance under the Insurance Contracts Act 1984 (Cth) (AB-C-64 at [28]). Senior counsel for the appellant conceded the point and, in argument, restricted this ground to the extent that the primary judge made a legal error extending the insurer’s duty of utmost good faith to a point which required it to signpost the right to a review. These reasons will deal with ground 4 in that more limited way.

52    The position for the appellant on this appeal focused on an issue of statutory construction in relation to the operation of Division 3 which, it was submitted by the appellant, limited AFCA’s authority to determine superannuation complaints to decisions which fell within s 1053(1)(a)-(j).

The Legislative Framework

53    The relevant section (as it was in force at the relevant time) reads:

Part 7.10A External Dispute Resolution

Division 3—Additional provisions relating to superannuation complaints

Subdivision A—When complaints relating to superannuation can be made under the AFCA scheme

1053 When complaints relating to superannuation can be made under the AFCA scheme

(1) A person may, subject to section 1056, make a complaint relating to superannuation under the AFCA scheme only if the complaint is a complaint:

(a) that the trustee of a regulated superannuation fund or of an approved deposit fund has made a decision (whether before or after the commencement of this section) relating to:

(i) a particular member or a particular former member of a regulated superannuation fund; or

(ii) a particular beneficiary or a particular former beneficiary of an approved deposit fund;

that is or was unfair or unreasonable;

…

(3) A complaint made in accordance with subsection (1) of this section is a superannuation complaint.

…

(5) For the purposes of this section, a trustee, an insurer, an RSA provider or another decision-maker, makes a decision if:

(a) the trustee, insurer, RSA provider or other decision-maker, or a person acting for the trustee, insurer, RSA provider or other decision-maker, makes, or fails to make, a decision; or

(b) the trustee, insurer, RSA provider or other decision-maker, or a person acting for the trustee, insurer, RSA provider or other decision-maker, engages in any conduct, or fails to engage in any conduct, in relation to making a decision;

whether or not the decision or conduct involved the exercise of a discretion.

54    It was common ground that the sub-sections of s 1053(1) from (b) to (j) were not relevant except as examples of other “superannuation complaints”. It was not disputed on this appeal that the complaint made by Mr Teagle was a “superannuation complaint” within the meaning of sub-s 1053(1)(a).

55    Section 1054 of the Corporations Act enables AFCA to join a party, including an insurer, to a superannuation complaint. That section is found in Subdivision C (Determination of superannuation complaints) and provides, relevantly:

1054 Power to join other parties to superannuation complaint

(1) AFCA may (subject to subsection 1056A(3)) at any time join, as a party to a superannuation complaint made under the AFCA scheme, any of the following persons whom AFCA decides should be a party to the complaint:

(a) a person who has applied to become a party to the complaint;

(b) a trustee of a regulated superannuation fund or an approved deposit fund;

(c) an insurer;

(d) an RSA provider;

(e) a superannuation provider;

(f) a person whom AFCA decides is responsible for determining either or both of the existence and the extent of a disability (whether total and permanent or otherwise), if the subject matter of the complaint relates to a benefit in respect of the disability, whether under a contract of insurance or otherwise.

…

56    AFCA’s powers to make a determination are set out in s 1055.

1055 Making a determination

(1) In making a determination of a superannuation complaint, AFCA has, subject to this section, all the powers, obligations and discretions that are conferred on the trustee, insurer, RSA provider or other person who:

(a) made a decision to which the complaint relates; or

(b) engaged in conduct (including any act, omission or representation) to which the complaint relates.

…

Varying etc. decisions or conduct

(4) If AFCA is satisfied that:

(a) a decision (except a decision relating to the payment of a death benefit), in its operation in relation to the complainant; or

(b) conduct;

is unfair or unreasonable, or both, AFCA may take any one or more of the actions mentioned in subsection (6), but only for the purpose of placing the complainant, as nearly as practicable, in such a position that the unfairness, unreasonableness, or both, no longer exists.

(6) AFCA may, under subsection (4) or (5), do any of the following:

(a) vary the decision;

(b) set aside the decision and:

(i) substitute a decision for the decision so set aside; or

(ii) remit the decision to the person who made it for reconsideration in accordance with any directions or recommendations of AFCA;

…

Limitations on determinations

(7) AFCA must not make a determination of a superannuation complaint that would be contrary to:

(a) law; or

(b) subject to paragraph (6)(c), the governing rules of a regulated superannuation fund or an approved deposit fund to which the complaint relates; or

(c) subject to paragraph (6)(d), the terms and conditions of an annuity policy, contract of insurance or RSA to which the complaint relates.

Ground 1

57    Ground 1 deals with the No Compensation Decision that “[the appellant] has decided to not pay the complainant a TPD benefit” (AB-C-63 at [4]). The primary judge dealt with this ground in J[45]-J[51].

58    It was submitted by the appellant that a complaint being identified as falling within one of the sub-sections of s 1053(1) is a jurisdictional requirement for the making of a complaint to AFCA, and AFCA may only review decisions which were “superannuation complaints” as specified in that section. That is, AFCA was given jurisdiction only in relation to decisions (or failures to make decisions) of trustees of regulated superannuation funds where that trustee (on the facts of this case) (AB-C-63 at [20]):

has made a decision … relating to a particular member of [the fund] … that is or was unfair or unreasonable.

59    On the other hand, the respondent submitted that the primary Judge was correct to regard the existence of a “superannuation complaint” as a “gateway” to AFCA’s powers, and the description in s 1053(1)(a) sets out the characteristics that a complaint must meet before AFCA can consider it. The respondent’s approach draws a line between “a decision” as the basis of a “superannuation complaint” in s 1053(1), and a “decision to which the complaint relates” (in s 1055(1)) or “a decision … in relation to the complainant” (in s 1055(4)).

Appellant’s submissions

60    Senior counsel for the appellant pointed out that the remedies available to AFCA in superannuation complaints differ from those available in respect of non-superannuation complaints, which complaints fall within AFCA’s general jurisdiction (AB-C-63 at [24]). In particular, he submitted that general complaints are subject to a monetary limitation, while superannuation complaints are not.

61    The No Compensation Decision was, as noted above, a decision made by the appellant not to make an ex-gratia payment to Mr Teagle. There was no such corresponding decision by NM Super (AB-C-63 at [12] and [25(d)].

62    The appellant characterises the operation of s 1053(1) as being to identify a decision of NM Super which falls within sub-section (a), which, as a valid “superannuation complaint”, enlivens the jurisdiction of AFCA. Section 1054(1)(c) then provides that, faced with a valid superannuation complaint, it may join an insurer to the complaint. It has a broad power to do so (s 1054(1)).

63    It was submitted for the appellant that, while an insurer can be joined to a complaint, it is only the decision of the superannuation trustee (in this case, of NM Super) which is the basis for AFCA’s jurisdiction, and joinder of the insurer does not change the content of the “superannuation complaint”. Such was, it was submitted, the finding in Metlife where the Full Court (Middleton, Jackson, and Halley JJ) said at [102]:

Textually, there is no room for a construction that a complaint “relating to superannuation” that falls outside subss 1053(1)(a) to (j) may be made under AFCA’s general jurisdiction.

64    At [5], the Full Court in MetLife said:

… we are satisfied that AFCA does not have the authority to determine a “complaint relating to superannuation’ that falls outside the ambit of subss 1053(1)(a) to (j) …

65    The appellant submitted that while a superannuation complaint may well heavily involve an analysis of the insurer’s decision, the legislation restricts AFCA’s review to a decision of the trustee. Accordingly, it was submitted, the Determination that the failure by the insurer to decide to make an ex-gratia payment to Mr Teagle was not one which fell under the legislative provision granting AFCA jurisdiction to review the fairness and reasonableness of the No Compensation Decision. As a result, it was submitted that there was no ability for AFCA to take, if satisfied that the appellant’s No Compensation Decision was not fair and reasonable, one of the actions in sub-s 1055(6), in this case, to set the decision aside and substitute its own decision (sub-par (b)(i) of sub-s 1055(6)) (AB-C-63 at [27]).

66    Section 1055(7) restricts AFCA to making decisions that are not contrary to law.

67    It was submitted that the scheme in relation to superannuation complaints under Division 3 directed only to “decisions” which fall within the terms of s 1053(1)(a)-(j) which may be reviewed by AFCA, and under subs (a), only decisions of trustees. The appellant submitted that, once enlivened, AFCA is “empowered to deal with the decision of the trustee and any other related party joined to the complaint”, but on the current set of facts, the No Compensation decision was a decision which lay outside s 1053(1)(a).

68    It was further submitted that any failure to make an ex-gratia payment was not one which affords a common law or equitable remedy; the very nature of an ex-gratia payment is that it is one made, not out of an exercise of a corporation’s duties or contractual constitutional provisions, but as an incident of the insurer’s business, after a claim has been properly rejected (AB-C-63 at [26]). In support of this submission, the appellant pointed to Retail Employees Superannuation Pty Ltd v Crocker (2001) 48 ATR 359; [2001] FCA 1330 at [21]-[28], [31] where Allsop J said (at [28], in relation to a predecessor section):

The question as to whether a decision was unfair or unreasonable cannot be judged otherwise than by having regard to the conformity of the decision with the governing rules of the fund and the terms of the policy. The conformity of the decision with those matters is therefore a relevant consideration in the sense discussed in Minister for Aboriginal Affairs v Peko-Wallsend (1986) 162 CLR 24 at 39-40 and see Telstra Corp Ltd v Seven Cable Television Pty Ltd (2000) 178 ALR 707 (special leave refused on 20 August 2001). If conformity with the governing rules or the terms of the policy required the very decision, which was made, to be made, the strictures of subs37(5), the universe of possible conduct under subs37(3) and the balance of the Act, including subs37(6), would require a conclusion of the Tribunal that the decision was not unfair or unreasonable. It could not be otherwise, as it would, on this hypothesis, be the only decision capable of being reached by the Trustee or the Insurer in the light of the governing rules or terms of the policy; or, put another way, any determination under para37(3)(b), para37(3)(c) or para37(3)(d) would involve the Tribunal doing an act contrary to the governing rules or the terms of the policy.

69    It was submitted that the question as to whether a decision was unfair or unreasonable cannot be judged otherwise than by having regard to the conformity of the decision with the governing rules of the fund and the terms of the policy. The appellant pointed to paragraph [49] of the primary Judgment as demonstrating the error upon which it says it should succeed. In that paragraph, the primary Judge said:

… there was a complaint to AFCA about NM Super’s decision relating to a particular member, namely Mr Teagle, within s 1053(1)(a) of the Corporations Act. The insurer was then joined to that complaint (see [13] and [19] above). Such a complaint is within s 1053(1)(a): MetLife at [107].

70    The Full Court, in par [107] of MetLife, cited by the primary Judge at J[49] (see par [41] above), said:

By reason of s 1053(1)(a), the 2018 Complaint could still have been made under the AFCA Scheme as a complaint against a superannuation trustee that had made a decision that is alleged to be unfair or unreasonable, in the case of the 2018 Complaint a decision not to pursue the insurer for indemnity, and the insurer could then be joined to the complaint pursuant to s 1054(1). On the assumption that there was a bona fide complaint by a member against a decision of an insurer it is not apparent how a decision by a superannuation trustee not to pursue the insurer could not be the subject of a complaint by the member against their trustee. If ultimately, once the insurer is joined, AFCA determines that the decision of the insurer was incorrect then it would appear to follow that the member had a sound claim against a superannuation trustee that had not pursed the claim against the insurer. Hence the inability to bring a claim directly against an insurer under the AFCA Scheme does not appear to give rise to any practical lacuna.

[emphasis added]

71    It was contended that this passage from MetLife did not support the primary Judge’s conclusion in J[49] that there was a relevant decision by the appellant enlivening AFCA’s jurisdiction. It was said that the factual underpinnings of MetLife – i.e., that there was a claim against the trustee for not pursuing a claim for indemnity against the insurer, who had made an incorrect decision – differed from the current claim, where the decision of the insurer was found to be fair and reasonable, and so did not ground the primary Judge’s finding that AFCA had jurisdiction to review the decision of the insurer not to make an ex-gratia payment (AB-C-63 at [34] to [37]).

Respondent’s submissions

72    The respondent contended that s 1053(1) is concerned with the circumstances in which a person may make a superannuation complaint, and not with what AFCA could do with that complaint once it is validly made. As noted above, Mr Teagle’s complaint was a validly made “superannuation complaint” under sub-s 1053(1)(a). Once that complaint was made, then, it was submitted, AFCA could join the insurer, in order to address aspects of the complaint which concern the insurer’s actions (relying on the last sentence of the paragraph of MetLife at [107], extracted at [63] above) (AB-C-64 at [8]).

73    It was submitted for AFCA that the purpose of s 1053(1) was for the character of the complaint to be identified. Counsel for the respondent pointed to the informality of the complaint (and it will be clear from the recitation of the facts above (see paragraphs [26]-[27]) that Mr Teagle was not a sophisticated person who understood the complex inter-relationship of the superannuation trustee and TPD insurer within his superannuation). However, he made a valid complaint to the effect that he viewed the failure to pay his TPD claim, or to compensate him for not doing so, as unfair and unreasonable.

74    It was submitted for the respondent that while s 1053(1)(a) did not refer to the decisions of insurers, there are a number of products to which the member of the superannuation scheme has access, such as RSAs and annuities, in which the member has a contractual relationship with the insurer. This is in contrast to a member’s relationship with the insurer in the context of insurance within superannuation. In this circumstance it is the trustee who has the relationship with the insurer, and it is for that reason that s 1054 expressly entitles AFCA to join other parties, including an insurer. The power to join other parties enables AFCA to deal with the whole of the complaint (AB-C-64 at [10]).

75    Counsel for the respondent pointed to the gap in the statutory scheme which she says would obtain were the appellant’s position held to be correct; that is, a “superannuation complaint” could only be reviewed as far as it pertained to a specific decision of the trustee. Such an interpretation would render nugatory the power of AFCA to join an insurer (or other parties) to a complaint (AB-C-64 at [10]).

76    In support of this argument, AFCA relied on extrinsic materials, in particular the revised explanatory memorandum (Revised EM) to the Treasury Laws Amendment (Putting Consumers First — Establishment of the Australian Financial Complaints Authority) Bill 2017 (Cth) (AFCA Establishment Bill) which incorporated a summary of the findings of the Final Report: Review of the financial system external dispute resolution and complaints framework, of April 2017 (Ramsay Report). More poetically, the Hermione Example from the Revised EM was relied upon to show that once there is a valid complaint, and the insurer is joined, AFCA can review relevant decisions of both the trustee and the insurer (AB-C-64 at [10]).

77    The Hermione example is as follows:

Hermione makes a claim on a TPD insurance policy held by her superannuation fund. The claim is declined by the trustee on the basis that the superannuation fund’s insurer has determined that Hermione’s disability does not meet the definition of a TPD in the policy.

Hermione makes a complaint under the AFCA scheme about the trustee’s decision to reject her claim. AFCA joins the insurer as a party to Hermione’s complaint.

AFCA can review the decision of the trustee and the insurer. AFCA reviews the information used by the trustee and insurer in making their decisions and determines that the insurer did not gather sufficient information about Hermione’s illness to properly determine whether she has a TPD.

AFCA remits the decision back to the trustee and insurer with directions requiring them to obtain further medical information about Hermione’s disability.

(See also par [122] of MetLife.)

78    Counsel for the respondent pointed to the Hermione example as an exemplar of the ability of AFCA to review decisions in respect of each of the insurer and the trustee (AB-C-64 at [10]). The material from the second reading speech and the Revised EM each speak of the legislation creating AFCA as a “one-stop shop” (see the extracts from the extrinsic material in MetLife at paragraphs [111], which was relied upon by both appellant and respondent in support of their respective cases).

79    As to the question of the meaning “fair and reasonable” in s 1053, the respondent submitted that AFCA, being a consumer-focused body, was concerned with fairness and reasonableness, and should not be required to focus on legal issues of which decision in particular was the one which had the effect of being unfair or unreasonable (or otherwise). The respondent also made reference to the previous regime, under the Superannuation (Resolution of Complaints) Act 1993 (Cth) and the comment of Allsop J in Crocker (where his Honour said (at [21]):

The central task of the Tribunal was to review the decision of the Trustee and, since the Insurer had been joined under s 17A and s 18, to review any decision of the Insurer: para 37(2)(a). In carrying out this task the Tribunal had all the powers, obligations and discretions conferred on the Trustee and the Insurer: paras 37(1)(a) and 37(2)(b).

80    It was contended that it would be an artificial constraint on the legislation to confine Mr Teagle to a complaint about a decision only of the trustee, when he was not a party to the insurance policy (although the trustee was). AFCA found that there was a failure of the insurer to inform him that, pursuant to its own policies, he had a right to seek a review of the exclusion, and that that failure was unfair (AB-C-64 at [18]).

81    The respondent contended that the primary Judge was correct in holding that there was a decision not to compensate Mr Teagle outside of the policy terms (J[48]) and that “there was a complaint to AFCA about [the trustee’s] decision relating to … Mr Teagle … within s 1053(1)(a) of the Corporations Act” (J[49]) to which the insurer was joined (AB-C-64 at [18]).

Ground 2

82    Ground 2 has a considerable overlap with Ground 1, as each ground is focused on the contention that AFCA exceeded its jurisdiction in making the Determination in the way that it did (AB-C-63 at [40]). Ground 2 alleges that the decision by AFCA in respect of the Reversal Determination was legally unreasonable. The paragraphs of the primary Judgment which deal with this aspect are paragraphs J[66]-J[75].

Appellant’s submissions

83    In addition to the submissions made pursuant to Ground 1, the appellant contends that AFCA erred in law in that it was legally unreasonable for AFCA to determine that the appellant pay compensation to Mr Teagle, despite the appellant’s reliance on the exclusion clause being found to be fair and reasonable (AB-C-63 at [41]). For this ground, the appellant specifically relies on the part of the Determination referred to as the Reversal Determination. The Reversal Determination provided Mr Teagle with an alternative path to compensation by substituting a determination that, if it were beyond the appellant’s power to pay compensation, then it would be unfair and unreasonable to rely on the exclusion to defeat the TPD claim in the circumstances, and that Mr Teagle should then be paid his TPD claim.

84    Further, it was submitted that there was no identification by AFCA of Mr Teagle’s legal or equitable right to be paid compensation when the decision to deny his claim had – prior to any Reversal Determination – been found to be fair and reasonable. The appellant accepts that it had the power to make an ex-gratia payment, but takes issue with the primary Judge’s finding in paragraph J[74] that:

… [the appellant] accepts that it has a discretion to make a payment “outside the terms of the policy”. There is no relevant error in AFCA having found that Resolution Life’s failure to do so was unfair or unreasonable”.

85    The appellant contends that the primary Judge’s reasoning “does not engage with the problem with AFCA’s reasoning” identified in the submissions (AB-C-63 at [44]).

86    Senior counsel for the appellant relied on the words of Halley J in Connor v Australian Financial Complaints Authority [2024] FCA 711 where his Honour said (at [86]):

Requiring AFCA not to make a decision that is contrary to the governing rules of a fund and the terms of a policy falls squarely within the rubric of making decisions that are not contrary to law. Such obligations are fundamentally different to requiring AFCA, when assessing whether a decision is fair and reasonable, to apply legal and equitable principles relevant to the determination of compensation for negligent misstatement and analogous torts.

Respondent’s submissions

87    The respondent submitted that there is no legislative or necessary requirement for a “legal or equitable right” to be established in order for AFCA to determine that a decision or conduct by a party to a superannuation complaint – including an insurer – was unreasonable or unfair (AB-C-64 at [21]).

88    It was submitted that the Court should review AFCA’s Determination “fairly and broadly rather than with an eye keenly attuned to the perception of error” – see Wan v BT Funds Management Limited [2020] 160 ACSR 81 at [120], [180] per Anastassiou J (and upheld on appeal in Wan v BT Funds Management Limited [2022] FCAFC 189 at [52]; QSuper Board v Australian Financial Complaints Authority Limited (2020) 267 FCR 97; [2020] FCAFC 55 at [89]) (AB-C-64 at [23]). Counsel for the respondent submitted that AFCA is not concerned with determining legal rights, rather, it is a body set up to be an informal tribunal in which the fairness and reasonableness of a decision which affects a person can be determined.

89    The respondent relied on a passage in Tratter v Aware Super [2024] FCAFC 36 at [64] where the Full Court said, after citing the proposition in the preceding paragraph:

This proposition is particularly apposite in the context of an appeal from a determination by AFCA made under s 1055 of the Corporations Act, given that AFCA’s determination as to the fairness and reasonableness of the Trustee’s decision inevitably involves a strong evaluative component that is essentially a matter for AFCA.

90    Counsel for the respondent submitted that there was “nothing irrational” about the Reversal Determination – AFCA had determined that Mr Teagle should either be paid the TPD benefit to which he would have been entitled but for the exclusion, or he should be compensated for the same amount, given the unfair and unreasonable failure to draw his attention to an opportunity to have the exclusion removed (AB-C-64 at [24]).

91    It was further submitted for AFCA that the alternative nature of the Determination (the Reversal Decision) was a pragmatic finding, given the overall context of AFCA’s findings and the fact that there was medical evidence before AFCA which pointed to the original injury giving rise to the exclusion, and the injury giving rise to the TPD claim, were unrelated. In those circumstances, it was submitted, AFCA’s Determination sought to provide a fair and reasonable outcome for Mr Teagle.

Consideration of Grounds 1 and 2

Introduction

92    This appeal turns on issues of statutory construction. Cutting through the unnecessary parts of Division 3, and substituting NM Super for “the trustee” and the appellant for “the insurer”, the process of AFCA’s acceptance of, and determination of, Mr Teagle’s complaint must follow the below process:-

(a)    The complaint must be a “superannuation complaint”, in other words, it must be “a complaint … that [NM Super] has made a decision relating to [Mr Teagle] that is or was unfair or unreasonable” (s 1053(1)(a));

(b)    For the purposes of determining whether a decision has been made “for the purposes of [s 1053])” NM Super makes a decision if it makes, or fails to make, a decision (s 1053(5)).

(c)    Once a superannuation complaint has been made to AFCA, it may then join Resolution Life as “an insurer”, if it decides that Resolution Life should be a party to the superannuation complaint: (s 1054(1)(c));

(d)    AFCA may then make a determination of the superannuation complaint. In its determination, it has the powers, obligations, and discretions conferred on NM Super or other person who made “a decision to which the complaint relates”, or “engaged in conduct (including any act omission or representation) to which the complaint relates”: s 1055(1);

(e)    In its determination, AFCA must be satisfied that “a decision … in its operation in relation to” Mr Teagle, or conduct, is unfair or unreasonable: s 1055(4); and

(f)    In that determination, AFCA may, if so satisfied, vary or set aside the decision, or substitute its own decision. It may also remit the decision “to the person who made it for reconsideration”: (s 1055(6)).

93    The question to be determined is whether AFCA is confined in its determination under s 1055(4) to assessing the fairness and reasonableness of the decision which was the “gateway” or “trigger” for the superannuation complaint, or whether the words in 1055(4) “to which the complaint relates” is, in the context of the power to join Resolution Life as the insurer, a broader power to determine a decision which may not necessarily be the decision of NM Super which grounded the superannuation complaint, but is a decision “to which the complaint relates” which in its operation in relation to Mr Teagle was unfair or unreasonable.

94    As noted above, the primary Judge found (at J[48]-J[49]) that the question of whether Resolution Life’s decision (or failure to decide) fell within s 1053 of the Corporations Act was answered by the joinder of the appellant to the original superannuation complaint against NM Super. It was further held that on the basis of the analysis in [107] of Metlife, the joinder of Resolution Life to the complaint brought its decision (or failure to make a decision in this case) in as part of the superannuation complaint. Accordingly, once Resolution Life was joined, the primary judge held that AFCA could look at how “a decision” made by Resolution Life (being an “other person” referred to in s 1055(1)) who made “a decision to which the complaint relates”) was, in its operation in relation to Mr Teagle, not fair or reasonable in all the circumstances.

Ground 1

95    There is support for the primary Judge’s conclusion in the words of s 1054, in which AFCA may join an insurer (and it is not contested that Resolution Life was joined as an insurer pursuant to s 1054(1)(c)), “as a party to a superannuation complaint made under the AFCA scheme”.

96    Joinder of parties under the previous legislative scheme (see Superannuation (Resolution of Complaints) Act 1993 (Cth) under s 18 provided:

18  Parties to a complaint

 (1) The parties to a complaint under section 14 are:

 (a) the complainant; and

 (b) the trustee; and

 (c) if the subject matter of the complaint relates to a death benefit or a disability benefit under a contract of insurance between the trustee and an insurer and the Tribunal decides that the insurer should be a party to the complaint—the insurer;

…

97    The operation of s 1055(1) has not been looked at in any detail to date; the only decisions which deal with s 1055 are Metlife and a decision of McElwaine J in Sharma v H.E.S.T. Australia Ltd [2022] FCA 536 which deals with the section in the following way (at [30]):

Section 1053 specifies when a person may make a complaint pursuant to the scheme. For present purposes a complaint relating to superannuation may be made if the complaint is that the trustee of a regulated superannuation fund has made a decision relating to a member, or a former member, “that is or was unfair or unreasonable” …: s 1053(1)(a) ... A complaint of that character is a superannuation complaint: s 1053(3). Once a superannuation complaint is made, AFCA may join parties to the complaint, including an insurer (s 1054), may obtain information and documents by notice in writing to a person (s 1054A), may require attendance at a conciliation conference (s 1054B) and may give directions as to who may attend a meeting held by AFCA relating to the complaint (s 1054BA). AFCA is required to make a determination of a superannuation complaint as required by s 1055 (and his Honour then sets out s 1055).

98    The appellant submitted in paragraph [28] of its written submissions that:

For the jurisdiction of AFCA to be enlivened, there must be a decision of the trustee under s 1053(1)(a). Once its power is enlivened, AFCA is empowered to deal with the decision of the trustee and any other related party joined to the complaint. The concern and focus is upon AFCA reviewing the decision: s 1055 speaks of “the decision” or “a decision”.

99    The appellant must show that the provisions of Division 3 restrict the jurisdiction of AFCA to a review only of the decision referred to in s 1053(1). For this submission to succeed, the words “a decision to which the complaint relates” (in s 1055(1)) or, later in that section, “the decision, in its operation to the complainant” (s 1055(4)) refer back to the words of s 1053(1) that “the trustee … made a decision relating to … a particular member”. In other words, where the word “decision” appears in Division 3, it is a reference to the decision which was the basis of a “superannuation complaint” (a defined term) in s 1053(1).

100    Were that the legislative intent, it would have been open to the legislature to define the relevant decision in s 1053(1) as “the decision” or some other term, rather than having a definition of “superannuation complaint” which includes “a decision” in sub-s 1053(1)(a), and other formulations of words elsewhere. Instead, the word “decision” is used in a number of different contexts (as noted in par [93] above). Importantly, the wording of s 1055(4) does not explicitly point back to the decision the subject of the superannuation complaint, but to “a decision … in its operation in relation to the complainant”. “A decision” is broader in its terms than the specific decision (or failure to make a decision) which is referred to in s 1053(1)(a).

101    Perhaps more definitively, the legislation gives AFCA the power to join an insurer to the complaint “as a party”. In order to join (in this case Resolution Life) as a party, it must give “the new party, and all of the existing parties to the complaint, written notice of the decision and of the reasons for the decision” (s 1054(2)). It may require each party to a superannuation complaint to attend a conciliation conference (s 1054B(1). And it may refer, on its own initiative or on the request of that party, a question of law to the Federal Court for decision.

102    As a party to the superannuation complaint, Resolution Life has rights, as well as obligations. It has the ability to appeal to the Federal Court on a question of law from a determination made by AFCA: s 1057. It has exercised that right as a party by appealing, first to the Federal Court, and then to this Court.

103    In the passage of Crocker at [21] referred to by counsel for the respondent in her submissions and set out in paragraph [79] above, Allsop J went on to say:

In carrying out this task the Tribunal was required to make a determination in accordance with subs 37(3). The Tribunal’s task was to decide for itself whether the Trustee’s decision and any decision of the Insurer was and is unfair or unreasonable.

And at [27]:

The task of the Tribunal and the meaning of the phrase “unfair or unreasonable” are inextricably intertwined and both are governed by the Act, and, especially, by s37. It is the decision of the Trustee, recognising its obligation to act in conformity with the governing rules of the fund, and the decision of the Insurer, recognising its obligation (and entitlement) to act in conformity with the terms of the relevant policy, which must be reviewed for unfairness or unreasonableness. The unfairness or unreasonableness must be of the decision (as expanded by s4) under, and in conformity with, the governing rules or the terms of the policy. It is not some other perceived (rightly or wrongly) unfairness or unreasonableness in and about the conduct of the fund.

104    In QSuper, the Full Court noted that a determination on a complaint under s 1055 “does not adjudicate upon existing legal rights”. No breach of any duty is required; AFCA must only:

“consider the operative effect of a trustee’s decisions in relation to the member and determine whether it ‘operates unfairly or unreasonably, or both’ in relation to a member. If it reaches the conclusion that it does, it will create new rights as between the parties for the purpose of removing the unfairness or unreasonableness”

(see [184] of QSuper).

105    QSuper was a case around the decisions of a trustee; the passage quoted should not in our view be read to as confining AFCA’s consideration merely to trustees’ decisions. Rather, it demonstrates that AFCA’s role is to look at a superannuation complaint and determine whether decisions in relation to that complaint operate unfairly or unreasonably.

106    In our view, the argument of the appellant - that AFCA was restricted to reviewing only the decisions of NM Super as the decision which grounded the complaint by Mr Teagle as a “superannuation complaint” - is not correct. The legislative intention – as underlined by the explanatory material and in particular the Hermione Example – is to provide a consumer, who may not (and in this case did not) understand the complexity of the identity and relationship of the parties who provided superannuation services and TPD products within that superannuation, a “one-stop shop” to review decisions which, in their operation in relation to the consumer, were unfair and unreasonable.

107    Put simply, the joinder of the insurer as a party must be for a purpose. That purpose is broader than merely allowing the insurer to make submissions as to the correctness of the trustee’s decisions or to assist AFCA with provision of documents; once the insurer is a party, and the decision in its operation in relation to Mr Teagle was found by AFCA to be unfair or unreasonable, AFCA has jurisdiction in relation to that decision. This Court does not, in this appeal, have the power to substitute its own decision as to whether that decision was in fact fair and reasonable or otherwise; our task is to determine whether AFCA was within its jurisdiction to review the appellant’s failure to make the particular decision that it did.

108    By joining Resolution Life as a party, AFCA gained jurisdiction, within the original superannuation complaint, to review the operation of the decisions made within the context of the superannuation complaint, and to determine whether they were, in relation to the failure to compensate Mr Teagle for his TPD claim, unfair or unreasonable.

109    Ground 1 does not succeed.

Ground 2

110    The finding on Ground 1 makes Ground 2 strictly unnecessary to decide, given that the alternative route of the AFCA determination was not required for compensation to be paid to Mr Teagle. However, and if we are wrong on the interpretation of Division 3 as it affects Ground 1, it seems to us that AFCA was indeed within its jurisdiction in determining that if Mr Teagle did not receive compensation by way of the ex gratia payment, then the decision not to pay the TPD claim by the appellant was, despite the exclusion clause, not fair and reasonable in the circumstances. The “circumstances”, it must be inferred, include the failure by Resolution Life to signpost the availability of a review.

111    “Legal unreasonableness” of a decision must be determined in the context of the decision being taken. The legislation is the source of the decision-making process, and accordingly, if there is little in the legislation itself to guide the decision-maker, then the question is whether, in this case, AFCA made a decision inconsistent with the powers given to it under Division 3 (see, in a different context, NBMZ v Minister for Immigration and Border Protection [2014] FCAFC 38).

112    Here, the statute has, as noted above, a purpose of setting up an informal complaints mechanism, not focused on legal rights, but on fairness and reasonableness. The determination of AFCA can be construed as finding that where Mr Teagle had not been given the information required to enable him an opportunity to seek a review of the exclusion, it was unfair and unreasonable of the appellant not to do so. While there is some initial attraction in the contention that a decision which is found to be fair and reasonable in one context but unfair and unreasonable in another must be legally unreasonable, or beyond AFCA’s jurisdiction, when it is examined in the light of “did Mr Teagle receive compensation on an unfairly, or unreasonably, unexamined exclusion?” then that attraction fades.

113    This view is underlined by the fact that Resolution Life did (as noted in J[74]) have a discretion to make a payment “outside the terms of the policy” which would include an ex gratia payment, or compensation equivalent to a TPD payment.

114    Ground 2 is not made out.

Ground 4

115    Ground 4 of the appeal, as narrowed in argument, contends that AFCA fell into legal error in finding that the scope of the insurer’s implied duty extended to a duty to signpost a right to seek a review of the exclusion clause. This was found by AFCA to be a breach of the duty of utmost good faith.

Appellant’s submissions

116    The appellant limited this ground to a complaint that the primary judge noted, in dealing in paragraph J[90] with the asserted breach of the duty by the appellant, that “the duty of utmost good faith will usually require something more than passivity” (see CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1 at [257]) (AB-C-63 at [50]). It was submitted that this principle did not support the imposition of a duty of the kind identified by AFCA; in any event, the breach relied on by AFCA and the primary judge was an omission or a failure to decide (AB-C-63 at [50]).

117    Further, it was submitted that AFCA’s reliance in the Determination on QSuper was inappropriate, given that QSuper dealt with duties of a trustee, not an insurer, which played into the issue of good faith. Senior counsel for the appellant however conceded that the categories of insurers’ duties of good faith were “well and truly open”.

Respondent’s submissions

118    In response, counsel for the respondent submitted that insurers are required to do more than just sit on their hands – relying on CGU Insurance Ltd at [257] as cited by the primary Judge – and referred the Court to the evidence in Part C of the Appeal Book to the effect that the initial injury giving rise to the exclusion, and the injury that gave rise to the TPD claim some 18 years later, were entirely unrelated.

Consideration of Ground 4

119    In CGU Insurance Ltd, Callinan and Heydon JJ (in agreeing with Gleeson CJ and Crennan J), said (at [257]-[258]):

… the sort of conduct that might constitute an absence of utmost good faith may have elements in common with an absence of clean hands according to equitable doctrine which requires that a plaintiff seeking relief not himself be guilty of tainted relevant conduct. We have referred to the doctrine of clean hands because, as with another equitable doctrine, that he who seeks equity must do equity, it invokes notions of reciprocity which are of relevance here. That is not to say that conduct falling short of actual impropriety might not constitute an absence of utmost good faith of the kind which the Insurance Act demands. Something less than that might well do so. Utmost good faith will usually require something more than passivity: it will usually require affirmative or positive action on the part of a person owing a duty of it. It is not necessary, however for the purposes of this case, to attempt any comprehensive definition of the duty, or to canvass the ranges of conduct which might fall within, or outside s 13 of the Insurance Act.

We have already foreshadowed that in our opinion the conduct of the appellant did leave something to be desired. It does seem to us that there was certainly a degree of opportunism on the part of the appellant in dealing with the claims against the respondent by the investors. …

120    At [15], Gleeson CJ and Crennan J had identified that the duty owed by an insurer to an insured may require an insurer to “act with due regard to the legitimate interests of an insured, as well as to its own interests” (citing Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 31 per Stephen J).

121    AFCA regarded the failure of Resolution Life to advise Mr Teagle of the opportunity to request a review of the exclusion from TPD cover as being a departure from “commercial standards of decency and fairness” (AB-C-64 at [30]).

122    This part of Ground 4 was not, apparently, canvassed in detail at the hearing. The primary judge noted at [90] that, after summarising the above position from CGU Insurance Ltd:

… AFCA reasoned that the insurer should have advised Mr Teagle of the opportunity to request a review of the exclusion from his TPD cover. There is no apparent error in that reasoning.

123    AFCA’s duty is to determine whether a decision or conduct in relation to the complainant is fair and reasonable (s 1055(2)). If so, it may take the steps open to it in s 1055(6) in order to place the complainant, as nearly as practicable, in such a position that the unfairness or unreasonableness no longer exists.

124    We agree with the submissions of the respondent as summarised in paragraph [79]-[80] above, that AFCA’s role is to determine fairness and reasonableness, and that its reasons should be read fairly and broadly. There is much to be said for the approach of the Full Court in Tratter v Aware Super [2024] FCAFC 36 at [64] where the task of determining whether a decision or conduct was fair and reasonable was noted to have “a strong evaluative component that is essentially a matter for AFCA”.

125    Like the primary Judge, we see no error in AFCA’s approach. Ground 4 is not made out.

Orders

126    The appeal is dismissed. The appellant is to pay the costs of the third respondent as agreed or assessed.

Associate:

Dated:    1 November 2024