Bailey v New South Wales Medical Defence Union Ltd [2002] NSWSC 516 | Case summary

2545/02 IN THE MATTER OF UNITED MEDICAL PROTECTION LTD (NO.4) 2543/02 IN THE MATTER OF AUSTRALASIAN MEDICAL INSURANCE LTD (NO.4) JUDGMENT (This version, made available to persons other than the parties, has been masked to exclude confidential information) HIS HONOUR: The applications 1 These reasons for judgment relate to two interlocutory applications by David John Frank Lombe, one in his capacity as provisional liquidator of United Medical Protection Limited (in provisional liquidation) ("UMP") and the other in his capacity as provisional liquidator of Australasian Medical Insurance Limited (in provisional liquidation) ("AMIL"). Mr Lombe was appointed provisional liquidator of these companies on 3 May 2002 by order of this Court: see Re United Medical Protection Limited [2002] NSWSC 413. Since that time, all of the directors of UMP have resigned. 2 At the hearing of the applications, senior and junior counsel appeared for the Commonwealth by leave. In accordance with procedures I suggested for the determination of Stage 1, senior and junior counsel also appeared, by leave, to represent the interests of the other unsecured creditors of the two companies. 3 The present applications arise out of the extended and continuing negotiations between Mr Lombe and the Government of the Commonwealth of Australia with respect to financial difficulties encountered by the UMP group, which provides medical indemnity insurance and litigation support services for a large number of medical practitioners, especially in New South Wales and Queensland. The Government's purposes are to provide a measure of financial support so that the doctors who are members of UMP will have sufficient protection to carry on their practices in the short term, and to assist in the development of adequate medical indemnity insurance arrangements for those doctors in the longer term. The first stage of the Government's intervention was contained in a media release by Senator Kay Patterson, Minister for Health. Senator Patterson's letter offered two commitments relating to the period between 29 April and 30 June 2002, namely: · to pay "any amount properly payable in respect of a claim in [that period] under a current or past policy"; and · with respect to claims for events that occur within that period, if the claim arises under a current policy or a policy that expires and is renewed during that period. 4 Paragraph (a) was developed into a "letter of comfort" which, notwithstanding that description, was intended by the Government to be legally binding on the Commonwealth if the offer it contained were to be accepted by Mr Lombe. Since some obligations of the Commonwealth under the agreement that would arise from Mr Lombe's acceptance might be discharged by performance more than three months after the agreement was entered into, Mr Lombe applied to this Court for approval of the agreement under s 477 (2B) of the Corporations Act, and he sought directions with respect to payments he planned to make if the Court's approval were to be given, under or by analogy with s 479 (3). After seeking and receiving clarification of some aspects of the Government's offer (Re United Medical Protection Limited (No 2) [2002] NSWSC 458), the Court made orders as sought by Mr Lombe: Re United Medical Protection Limited (No 3) [2002] NSWSC 488. Paragraph (b) was not directly the subject of any application for approval or directions, but I was informed from the bar table that the Government regards itself as bound by that part of the Minister's statement, and sees it as part of Stage 1. 5 The present applications relate to Stage 2. Following a media release by the Prime Minister on 31 May 2002, Senator Helen Coonan, the Minister for Revenue and Assistant Treasurer, has written another "letter of comfort" to Mr Lombe. By that letter the Government offers some financial support to enable Mr Lombe to renew the UMP group's insurance and assistance arrangements for doctors who are currently covered but whose cover will expire (unless renewed) during the period from 30 June to 3 November 2002. The renewed protection will extend only to 31 December 2002. The Prime Minister's announcement contains some proposals directed towards longer term solutions, and negotiations are continuing with a view to entry into a formal deed ("Stage 3") reflecting all aspects of the Government's commitments to the provisional liquidator and the companies (and, presumably, the members of UMP). 6 Mr Lombe seeks, with respect to both UMP and AMIL, orders under s 477 (2B) approving his entering into the Stage 2 arrangements, and directions under or by analogy with s 479 (3) with respect to certain steps he intends to take and not to take once the Stage 2 agreement has been made. He also seeks, in respect of UMP, an order under s 472 (3) varying the powers conferred upon him when he was appointed provisional liquidator. Business structure of the UMP group 7 UMP conducts business as a not-for-profit medical defence organisation. It is a company limited by guarantee, the members of which are medical practitioners and other health professionals. It is not an insurer under the Insurance Act 1973 (Cth). It derives its capital predominantly from annual membership subscriptions and calls made upon the members pursuant to clause 27 of UMP's Constitution. AMIL is a subsidiary of UMP. 8 As at 3 May 2002 UMP had approximately 38,000 members. About 33% were medical practitioners in general practice, and about 25% were specialist medical practitioners. 9 UMP provides three kinds of services to its members, namely assistance, practical advice, and various medico-legal support services. Its services are provided to members primarily in relation to claims for professional negligence. Additionally, UMP has an absolute discretion to provide legal assistance and indemnity to its members in relation to any such claims, pursuant to clauses 72 and 73 of its Constitution ("discretionary assistance"). 10 AMIL is an insurer under the Insurance Act 1973 (Cth). It writes insurance policies principally of two kinds: · medical and dental indemnity policies written on a "claims made" basis, which indemnify claims against medical practitioners (including dentists) to a limit of $5 million for any one claim and for the aggregate of all claims made during the period of insurance; · legal expenses policies written on a "claims made" basis, which offer supplementary protection to medical practitioners for legal and related expenses arising from events such as criminal prosecution, employment disputes and investigations into alleged inappropriate practice. 11 While the medical indemnity insurance policy is a "claims made" policy, it does not cover a claim arising out of an event that occurred prior to the member's "continuous membership period" - that is (approximately speaking), the policy does not respond unless the medical practitioner has been continuously a financial member of UMP from the time of the event giving rise to the claim until the time of notification of the claim. The policy requires notification to AMIL during the period of insurance, and does not cover claims or circumstances notified after the expiration of the policy irrespective of the date of the occurrence involved. However, provided notification is given as soon as reasonably practicable and before the period of insurance expires, then under s 40 (3) of the Insurance Contracts Act 1984 (Cth) the policy responds to a claim arising from a notified event even if the claim is not made until after the period of insurance has expired. 12 UMP's members have a choice as to whether they will take a medical indemnity policy, a legal expenses policy, both or neither. They pay an annual membership subscription to UMP, which varies depending on such matters as the field of medicine in which they practice and their risk profile. An additional amount is payable if the member requests a legal expenses policy, and the subscription fee is reduced if the member does not request a medical indemnity policy. The members may pay their annual subscription fee as a lump sum or by instalments in accordance with UMP's Constitution. They do not pay a separate premium to AMIL for the issue of their policies. As at 3 May 2002, at least 90% of UMP's members were insured with medical indemnity policies written by AMIL. 13 The discretionary assistance provided by UMP to members includes indemnity for claims exceeding $5 million or otherwise outside the scope of the insurance policies issued by AMIL, and occurrence-based coverage prior to a member's renewal in the 2001 year. The practice of the UMP board was to exercise its discretion to grant discretionary assistance of these kinds in respect of a claim made against a member, except in special circumstances (such as that the claim did not arise out of the member's professional practice, or that the member committed a criminal act in respect of the subject matter of the claim). If I make the orders that he seeks, Mr Lombe intends to make discretionary assistance available for claims notified up to 31 December 2002 by following the practice of the UMP board. 14 AMIL commenced issuing policies of insurance to UMP members in July 1997. It has in place various reinsurance arrangements with respect to layers of risk, but there is a substantial retained layer not reinsured. Since July 1997, there have been indemnity agreements in place between AMIL and UMP. Under those agreements AMIL issues medical indemnity policies to UMP's members, and indemnifies UMP for sums payable by UMP in making discretionary grants of assistance. In consideration of that indemnity, UMP pays AMIL an indemnity fee. The fee is calculated in advance for each year of indemnity. It is an estimate of the aggregate of: the working capital required by AMIL to meet its retained risk (that is, the risk not reinsured) for the relevant year; the amount of reinsurance premiums payable by AMIL for the year; and AMIL's anticipated administrative costs for the year. 15 The base indemnity fee for the year 2002 payable by UMP to AMIL is $X million. As at 3 May 2002 a total of $Y had been paid, leaving $Z million outstanding. Payment of the indemnity fee is made by UMP to AMIL as and when funds permit - that is, as subscriptions are received from members they are transferred to AMIL, cash flow permitting. The assessment is undertaken on a daily basis. 16 By deed dated the 15 June 2002 referred to as the "parental guarantee", UMP has indemnified AMIL against liability and costs incurred in connection with the proper operation of AMIL's business affairs. Membership 17 Clause 15 of UMP's Constitution provides, inter alia, that a legally qualified medical practitioner or a legally qualified dental practitioner registered in any State or Territory of Australia may, subject to the Constitution, become an ordinary member of the company. Clause 16 empowers the Board to make regulations prescribing the form of application for membership and the procedures for processing applications for membership or renewal of membership. By clause 13, ordinary members are required to guarantee the obligations of the company, and they are liable to meet calls for contribution of funds pursuant to clause 24 (this appears to be a misprint for clause 27). They are entitled to notices of meetings of members and to attend and vote at all meetings of members. There is another category of member called "affiliate members", comprising retired members and student members and a few other classes, who do not guarantee the obligations of the company and are not entitled to vote at meetings of members. 18 Renewal of membership normally takes place when the member completes and returns a "membership and insurance renewal" form sent to the member by UMP. The form sets out the member's annual subscription fee and offers payment by monthly or quarterly instalments. However, clause 17 of the Constitution makes provisions for automatic renewal of membership if the Board does not give notice of its intention to refuse to renew the membership. 19 Clause 17 is as follows: "Membership shall be from the date of admission to the end of the first anniversary of admission. Thereafter unless terminated pursuant to this Constitution, the Board or any committee of the Board authorised in that behalf shall be entitled in its absolute discretion and subject only to giving at least 14 days prior notice to the Member of its intention to do so to refuse to renew the membership of any Member with effect from the date on which the Member's current subscription expires (the "expiry date") and in such event at the end of the expiry date such Member shall cease to be a Member. If the Board or the committee of the Board authorised in that behalf does not refuse to renew the membership of the Member then, subject to this Constitution, membership shall be renewed for a further period of 12 months from the end of the expiry date. The Board or any committee of the Board authorised in that behalf shall not be required to give reasons for its decisions." 20 As a member's membership falls due for renewal, so to does any medical indemnity policy or legal expenses policy issued to the member by AMIL. XXXX memberships are due for renewal on 1 July 2002. Some hundreds of memberships are due for renewal on the first day of August, September, October and November, and a further YYYY memberships are due for renewal on 1 December 2002. The total is over 12,000. The effect of clause 17 is that, unless Mr Lombe exercises the Board's power to refuse to renew these memberships by giving each affected member at least 14 days prior notice of his intention to do so, the memberships are automatically renewed for a further period of 12 months. In the case of the memberships due for renewal on 1 July 2002, if Mr Lombe does not give notice by, in effect, the end of this week (today being Tuesday 11 June 2002), those memberships will be automatically renewed until 30 June 2003. 21 Since his appointment as provisional liquidator on 3 May 2002, Mr Lombe has not caused UMP to issue any notices of non-renewal of memberships or of expiry of insurance policies, and he has not taken any steps (such as by sending out membership and insurance renewal forms) to renew memberships and insurance policies as they have fallen due for renewal. He has taken this approach because, so far, only YYY memberships and policies have fallen due for renewal since his appointment, those memberships and policies falling due on 1 June 2002. As regards those YYY memberships and policies, the memberships have been automatically renewed under clause 17 of the Constitution and the insurance policies have been automatically "renewed" under s 58 of the Insurance Contracts Act 1984 (Cth) (subject to the provisions of that section, which I shall discuss below). 22 In his application as provisional liquidator of UMP Mr Lombe seeks to retain the powers conferred on the Board by clauses 15, 16 and 17. It appears to me that if Mr Lombe is to have those powers, he should also have the powers in clauses 13 (1) and 14 (1) (the latter with respect to affiliate members), since it appears that these are the clauses empowering the Company to classify a member as an ordinary or affiliate member. 23 By clause 20 each member is required to pay UMP annually a subscription of such amount, in such manner and at such date or dates as the Board may from time to time determine. Different rates may be prescribed for different classes of members or for individual members. Mr Lombe also applies to retain the Board's powers under clause 20. 24 Clauses 22-26 deal with cessation of membership. A member is entitled to resign upon giving 28 days notice in writing of his intention to do so. Membership automatically ceases in certain circumstances, such as where the member has been suspended from practice pursuant to the provisions of relevant legislation. In certain circumstances (such as where the Board forms the opinion that the member has been guilty of unsatisfactory professional conduct or conduct likely to bring discredit to the medical profession or lower its status) the Board may expel a member provided the special Board voting requirements of clause 23 (5) are satisfied and 14 days notice of the board meeting is given. Unless the Board otherwise determines under clause 24, an expelled member forfeits all rights and privileges of membership, including to any grants of assistance under clauses 69 to 77. Unless readmitted to membership, the expelled member will not be able to renew his or her insurance policy. 25 Mr Lombe does not apply to have the Board's powers under clauses 22-26. The directors having resigned, unless Mr Lombe is given those powers it will not be possible to expel a member for professional or discreditable misconduct so long as the provisional liquidation continues and the Board is not reconstituted. 26 Clause 27 empowers the Board to call upon the ordinary members, or any of them, to contribute funds for the purposes of the company "in circumstances which it considers to be urgent or exceptional". The Board may make calls payable by instalments, but the total amount of calls made on any member in any calendar year is not to exceed the annual subscription of the member. Mr Lombe does not seek to have the Board's power under clause 27. If his application is successful, no one will have the power to make calls on members during the provisional liquidation of the company. Policy renewal 27 As I have said, in the normal course a member receives a "membership and insurance renewal" form from UMP each year, and the member's medical indemnity insurance policy as well as his or her membership (and any legal expenses policy that the member has decided to take) is renewed when the application is completed, returned and processed. Under section 58 of the Insurance Contracts Act 1984 (Cth) there is an automatic "renewal" of an insurance policy issued by AMIL unless the insured has arranged alternative cover before the expiry date of the relevant policy. I have put the word "renewal" in quotation marks because s 58 has a special statutory effect which is not quite the same as renewal of an insurance policy by contract inter partes. 28 Medical indemnity insurance and legal expenses policies issued by AMIL are "renewable insurance cover" under contracts of general insurance for the purposes of s 58. Subsection 58 (2) states that no later than 14 days before the day on which renewable insurance cover expires, the insurer must give the insured a notice in writing informing him of the day on which and the time at which the cover will expire and whether the insurer is prepared to negotiate to renew or extend the cover. Subsection 58 (3) states: "(3) Where: (a) an insurer has failed to comply with subsection (2); and (b) before the original contract expired, the insured had not obtained from some other insurer insurance cover to replace that provided by the original contract; then, by force of this section, there exists between the parties to the original contract a contract of insurance that provides insurance cover as provided by the original contract, except that the cover provided is in respect of the period that: (c) commences immediately after the insurance cover provided by the original contract expires; and (d) expires, unless the contract is sooner cancelled, at: (i) the expiration of a period equal to the period during which insurance cover was provided by the original contract; or (ii) the time when the insured obtains from some other insurer insurance cover to replace that provided by the original contract; whichever is the earlier." 29 Subsection 58 (4) states that no premium is payable except where a claim is made under the contract, in which case the subsection sets out a formula for the calculation of the premium. 30 As I have said, Mr Lombe has not taken any steps to renew insurance policies as they fall due for renewal, and he has not issued any s 58 expiry notices. Consequently the 911 members whose policies were due for renewal on 1 June 2002 have the benefit of the statutory insurance arrangements specified by s 58 (3) and (4) of the Insurance Contracts Act 1984 (Cth). The XXXX members whose policies are due for renewal on 1 July 2002 will be in the same position unless Mr Lombe gives them notices under s 58 (2), effectively, by the end of this week. Government protection in Stage 1 31 After my orders made on 24 May 2002, Mr Lombe accepted the Government's offer in respect of Stage 1, and started to process the payment of claims. Paragraph (a) of the Stage 1 arrangements provides Government protection in respect of money falling due during the period from 29 April to 30 June 2002, for payment of an insured claim. One would expect the event leading to the claim to have occurred well before that period, and the claim to have been made and notified well before that period, although the Government's commitment literally applies if the claim is made or notified and/or the event occurs during the period, as long as payment of the claim also falls due during the period. 32 As I see it, paragraph (a) of Stage 1 is relatively self-contained, and has no implications for Stage 2. I am not sure that the same can be said of paragraph (b) of Stage 1. 33 Paragraph (b) of Stage 1 provides Government protection where an event leading to a claim occurs in the period from 29 April to 30 June 2002, regardless of whether the claim is made or notified within that period, and regardless of when payment of the claim falls due. The protection is available as long as any claim arising from the event is covered by a current policy or a policy that expires and is renewed during that period. 34 The protection is not available if the event occurred before 29 April 2002 or after 30 June 2002. Subject to one exception, where the event occurred before 29 April 2002, the member must rely on his or her insurance arrangements with AMIL, and access to any discretionary assistance provided by UMP. The member is an unsecured creditor of AMIL in respect of any insurance claim he or she may have under a medical indemnity insurance or legal expenses policy, and if AMIL is unable to meet the claim then the member has effectively no recourse but to lodge a proof of debt in AMIL's eventual winding up. The exception occurs where the claim has become payable during the period from 29 April to 30 June 2002, in which case the member receives full payment of the claim because of the Government's protection under paragraph (a) of Stage 1. 35 Where an event which leads to a claim occurs after 30 June 2002, or a claim is made or becomes payable after 30 June 2002 with respect to an event occurring before 29 April, no part of the Government's protection in Stage 1 is available. The member's protection depends upon his or her insurance policies and membership rights, and therefore on the continuing ability of AMIL and UMP to discharge their respective obligations and on the willingness of the provisional liquidator to renew memberships and policies which have fallen due for renewal. Stage 2 is intended to provide Government support of a kind that will enable the provisional liquidator to renew memberships, and to renew policies up to 31 December 2002. 36 Paragraph (b) has not yet been refined into any more precise form than the Minister's media release. However, the protection offered by paragraph (b) appears to extend to the YYY members whose memberships and policies expired on 31 May 2002, because their memberships were automatically renewed under clause 17 of the Constitution and their policies were automatically "renewed" under s 58 of the Insurance Contracts Act 1984 (Cth). Possibly a measure of doubt arises because the media release speaks of the policy expiring and being renewed, whereas for the YYY members the position is as specified in s 58 and may not properly be described as a "renewal" for the purposes of the media release. It is desirable for the Government to confirm that the protection of paragraph (b) of Stage 1 extends to those YYY members. 37 I am not sure of the position under paragraph (b) of the XXXX members whose memberships and policies expire at the end of 30 June 2002, subject to renewal as from 1 June 2002. The Government's commitment to those members under paragraph (b) of Stage 1 should be clarified before the Court makes a decision on the provisional liquidator's applications. This is because, if the Court's approval is given, the provisional liquidator intends to terminate the memberships and policies of all of those members, subject to their applying for new short-term policies operative until 31 December 2002. Human nature being what it is, some of those members (though perhaps only a small number) will probably not apply at all, or in time. Will the Government's Stage 1 protection in respect of events occurring during the period from 29 April to 30 June 2002 apply to a member whose membership is extinguished and whose policy expires on 30 June 2002 as a result of Mr Lombe's actions pursuant to the Court's orders? I expect an affirmative answer because the policy remains in operation up to midnight on 30 June 2002, but I think clarification is needed. Government protection in Stage 2 38 Negotiations are continuing between Mr Lombe and representatives of the Government to finalise a deed of indemnity to be entered into, subject to Court approval, between the Commonwealth, UMP, AMIL and Mr Lombe to document the Commonwealth's commitments referred to in media releases by Senator Coonan on 30 April 2002, Senator Patterson on 1 May 2002 and the Prime Minister on 31 May 2002. In the meantime, it has become necessary to give urgent attention to the position of the members whose memberships and policies fall due for renewal in the near future, especially the XXXX members whose memberships and policies fall due for renewal on 1 July 2002. 39 The Prime Minister's media release dated 31 May 2002 dealt with three matters. The first matter, the most relevant to the present applications, was an enhancement of the "guarantee" made in Senator Patterson's media release of 1 May 2002. The second matter was the announcement of the Government's intention to establish a scheme to fund currently unfunded IBNRs. The government proposes, under this scheme, that the Commonwealth will assume liability for all unreported incidents that occurred under claims incurred policies, where there has not been adequate provisioning for these liabilities, and it will then recoup this liability from members of the relevant medical defence organisations (including bodies such as UMP) over an extended period, spreading payments so as to make them affordable. The third matter was a longer-term strategy intended to make medical indemnity insurance a more viable commercial product. Elements of the strategy include tort law reform to contain the cost of claims, improved claims management, and possible direct financial support to ensure premium affordability for doctors undertaking higher risk specialties. 40 The part of the media release most relevant to the present applications is as follows: "Enhancement of guarantee The existing government guarantee only covers payments for claims finalised between 29 April and 30 June 2002, and incidents that occurred between 29 April and 30 June 2002. The Government will offer a guarantee to the provisional liquidator of UMP/AMIL to enable him to: · meet claims notified in the period 29 April to 31 December 2002 under an existing (or renewed) claims made policy; · renew policies on a claims made basis for the period until 31 December 2002; and · continue to meet claims that were notified before 29 April 2002 and properly payable in the period 1 July 2002 to 31 December 2002 (this is an extension of the existing guarantee that was accepted by the NSW Supreme Court last week)." 41 Consistently with the approach taken in Stage 1, the Government has provided a "letter of comfort" with respect to Stage 2, evidently intended to cover some of the matters under the heading "Enhancement of guarantee" in the Prime Minister's media release. I should say at once that the word "guarantee" seems to me to be inappropriate and at least potentially misleading, when one analyses the nature of the Government's commitments under the letter. I think the word "guarantee" should be avoided. 42 The letter, dated 7 June 2002, was signed by Senator Coonan in her capacity as Minister for Revenue and Assistant Treasurer. It is plain on the face of the letter that the Minister intends the Commonwealth to be legally bound by its terms if the offer contained in the letter is accepted by Mr Lombe. My decision in respect of the Stage 1 arrangements assumed that the Minister had the power to bind the Commonwealth to the arrangements, but it seems to me on reflection that this question should be explored a little further. I shall direct the Commonwealth to make written submissions identifying the legal basis for the Minister's power to bind the Commonwealth of Australia contractually to the terms of such a letter of comfort. Those submissions should be in a suitable form to be annexed to the Court's reasons for judgment dealing with the present applications. 43 The letter of comfort is directed to Mr Lombe and is headed "further letter of comfort" followed by the names of the two companies. Although the letter is directed to Mr Lombe without any particular designation, it is reasonably clear as a matter of construction that the letter constitutes an offer to each of the two companies in provisional liquidation as well as to Mr Lombe in his capacity as their provisional liquidator. One notes, for example, that the Commonwealth's offer is expressed to be in consideration of Mr Lombe doing certain things that he can only validly do on behalf of one of the companies, such as renewing memberships and renewing policies, and that some of the Commonwealth's promises (such as the indemnities in paragraph 1) are offered to the companies rather than their provisional liquidator. Therefore (assuming that the Minister has the power to bind the Commonwealth contractually) Mr Lombe's acceptance of the offer contained in the letter will give rise to a contract between the Commonwealth, the two companies, and Mr Lombe as their provisional liquidator. 44 The letter of comfort (which is much more complicated than the letter of comfort for Stage 1) contains · a "purpose" clause (clause 8), · clauses offering indemnities by the Commonwealth (paragraphs 1, 2 and 5 (a)), · clauses offering loans by the Commonwealth in certain circumstances (clauses 5(b), 6 and 7), · a clause governing the Commonwealth's ability to prove as a creditor in a winding up of either company (clause 4), · clauses imposing obligations on Mr Lombe or one or both of the companies (the consideration referred to in paragraph 1, and paragraphs 3 and 10), · a personal indemnity clause for Mr Lombe (clause 9), and · a definition clause (paragraph 11). 45 One of the matters of concern to me on the present applications is to ensure that the arrangements are reasonably plain and comprehensible. That involves construing the letter of comfort. Since the letter is intended to reflect an agreement in principle, later to be reduced to a more formal agreement, the Court ought not to expect that every issue is addressed and every ambiguity is removed. On the other hand, the Court short not give its approval under s 477 (2B), nor issue directions to the provisional liquidator, if the terms of the arrangements are unclear on matters of real importance. 46 I have struggled with the drafting of the letter. I have decided that the best way of dealing with my doubts about the meaning of the Commonwealth's offer is to set out what I consider to be the effects of the various provisions, rather than to require the Commonwealth to clarify every matter upon which I have doubts. I shall require clarification only when it seems to me to be absolutely necessary. I intend to publish these reasons for judgment at 8.30am on Tuesday 11 June 2002, and resume later in the day after counsel and their clients have had the opportunity to consider and respond to the points that I am raising. If my construction of the letter does not reflect the Commonwealth's intention in any way, I shall expect counsel for the Commonwealth to draw my attention to my misunderstandings. My approval of the provisional liquidator entering into the arrangements set out in the letter, if I eventually give it, will be based on my understanding of the meaning of the letter. The purpose clause 47 Paragraph 8 of the letter states: "The purpose of this further letter of comfort is to enable you as provisional liquidator of UMP and AMIL to undertake and conduct the New Business on the basis that Properly Payable amounts will be paid in full as in when they fall due for payment and on the basis that no creditor in a winding-up of UMP and/or AMIL will be prejudiced thereby. This letter is to be construed so as to give effect to that purpose." 48 I explored the question of prejudice to other unsecured creditors when I considered the Minister's letter of comfort for Stage 1, as modified by the Commonwealth's statement tendered at the hearing. Broadly speaking, the letter of comfort for Stage 2 proposes similar arrangements, although this time what is proposed is the conduct of business operations by renewal of policies and the provision of discretionary assistance, rather than simply the payment of identified claims that have fallen due for payment. Counsel representing the interests of the unsecured creditors have informed the Court, just as they did in respect of the Stage 1 letter of comfort, that as far as they can tell no creditors will be worse off under the arrangements proposed in Stage 2 than they would be if the arrangements were not implemented; indeed, the ability of the companies to continue to trade may make other creditors better off than they otherwise would be. In reaching their conclusion, counsel have obviously relied on the terms of paragraph 8 and its overriding effect on the construction of other paragraphs of the letter. In accepting their conclusion, I also rely specifically on paragraph 8. 49 If one traces through the statutory provisions concerning the recovery of unfair preference payments (notably ss 588 FA, 588 FC, 588 FE, 588 FF and 588 FG), it can be seen that there is a plausible argument for treating the full payment of claims under policies and for discretionary assistance pursuant to Stage 2 as unfair preferences, if the company making the payment is insolvent at the time when the payment is made and subsequently a winding up order is made. Any such payment will necessarily be within the time limits set by s 588 FE (2), which began when the applications to wind up the companies were made on 3 May 2002 and would end when the winding up order is made. If the liquidator of the company were to make application for orders under s 588 FF (1) for recovery of the preferential payments, the question would arise whether the Court's discretion with respect to the making of orders under that section extends to a discretion to make an order for recovery even if it is satisfied that the transaction in question is voidable. To the extent that such a discretion exists, it would be proper for the Court to take into account that full payment to some unsecured creditors was made pursuant to arrangements between the provisional liquidator and the Government negotiated in the public interest, and expressly on the basis that other unsecured creditors would not be prejudiced by the payments. That consideration would lead the Court to decline relief. 50 In a sense, the unsecured creditors who do not receive full payment under the arrangements are "prejudiced" if proceedings for recovery of the full payments made under the arrangements fail because of such discretionary considerations. But in my opinion that is not a true prejudice, and is not the kind of prejudice referred to in paragraph 8. Denial of recovery of the full payments as unfair preferences does no more than to exclude from the benefit of the arrangements some creditors who were never intended to participate in those benefits. Their position is protected by arrangements designed to ensure that they are no worse off than they would have been if the Government's assistance to the creditors who benefit from the arrangements had not taken place. 51 If the provisional liquidator accepts the Government's offer, the Commonwealth's promises to each company contained in the letter will be assets of their respective companies, available for the benefit of the creditors of that company generally, if the company is wound up. The indemnity clauses (paragraphs 1, 2 and 5 (a)) 52 Paragraph 1 describes as "the New Business" the renewal of policies issued by AMIL up to 31 December 2002 and the renewal of memberships of UMP on terms that discretionary assistance will be available only for claims notified on or before 31 December 2002. 53 The indemnity operates "in the event that UMP and/or AMIL are/is wound up and there are insufficient assets at that time to pay each creditor of UMP and AMIL 100 cents in the $1". I think these words apply if both UMP and AMIL are wound up and at that time there are insufficient assets in the case of one or both of the companies to pay fully the creditors of the company whose assets are insufficient. It appears also to operate if only one of the two companies is wound up and there are insufficient assets at that time to pay fully each creditor of the company in liquidation. If only one of the companies is wound up the assets of the other company are not to be taken into account in order to decide whether there are insufficient assets to pay each creditor of the company in liquidation. Nor are the debts owing to creditors of the company not in liquidation to be taken into account. 54 When that condition is satisfied, the Commonwealth indemnifies both companies in respect of any net loss "suffered by UMP and/or AMIL as a result of the conduct of the New Business". An indemnity operates only in respect of the loss of the indemnified party. Therefore I think the effect of this provision is that the Commonwealth indemnifies UMP in respect of any net loss suffered by UMP as a result of the conduct of the New Business, and it also indemnifies AMIL in respect of any net loss suffered by AMIL as a result of the conduct of the New Business. No change of wording of this part of paragraph 1 is required unless my construction does not reflect the drafter's intention. 55 The matters listed in sub-paragraphs (a) to (e) of paragraph 1 seem to require that the net loss be calculated on a "consolidated" basis, by reference to income and expenditure by both companies. Thus, the subscription fees and charges in paragraph (a) will be payable to UMP, while the reinsurance recoveries in paragraph (c) will be payable to AMIL. Some of the "Properly Payable amounts" (a defined expression) are payable by AMIL in response to claims on policies issued by it, while others are for discretionary assistance granted by UMP. If the "net loss" is to be calculated on a whole-of-business basis without distinguishing the separate income and expenditure of each of the two companies, then something must be done to apportion that net loss to each of the companies so as to make meaningful the Commonwealth's indemnity to each company in respect of any net loss suffered by that company as a separate entity. This is a matter that needs to be clarified. 56 The "net loss" appears to be a net loss for a period beginning when the provisional liquidator commences to conduct the New Business and ending when a winding up order is made. It appears to be assumed that the liquidator will not continue to conduct the New Business after that time. 57 Paragraph 1 gives a list of matters to be included when the net loss is calculated, without purporting to be exhaustive. However, the net loss does not include any loss of memberships flowing from the fact that the arrangements permit the provisional liquidator to offer insurance for only six months rather than a full year. 58 Paragraph 2 (a) contains an indemnity by the Commonwealth "in respect of any expenses reasonably incurred in carrying on the business of UMP and AMIL additional to the expenses which would have been incurred if an order for the winding up of UMP and AMIL had been made on 30 June 2002 and the New Business had not been undertaken". Again, as with paragraph 1, the indemnity on its proper construction appears to extend to UMP in respect of expenses incurred by that company, and to AMIL in respect of its expenses incurred by it. It appears that expenses incurred by AMIL are governed by the indemnity to that company, notwithstanding the "parental guarantee" given by UMP. 59 It seems that the words "expenses reasonably incurred" extend to all additional business expenditure by the respective companies, including payment of claims on policies and the cost of providing discretionary assistance, notwithstanding that in paragraph 1 (e) the same words have a more restrictive meaning. 60 Paragraph 2 (a) provides an indemnity for the extra expenses involved in carrying on the New Business. It seems that this indemnity is subsidiary to the indemnity in paragraph 1, in the sense that an expense is to be taken into account in calculating the net loss for the purposes of paragraph 1 even though the company incurring that expense is protected by the indemnity given by paragraph 2 (a). If a particular expense falling within the description in paragraph 2 (a) is taken into account for the purpose of calculating a net loss which the Commonwealth meets under paragraph 1, that particular expense is not covered by the indemnity in paragraph 2 (a), otherwise there would be "double-dipping". If the Commonwealth meets a particular expense under paragraph 2 (a) and later pays a net loss calculated in a manner which includes that expense, the Commonwealth may have the right of set off or recoupment to recover its payment of the particular expense. 61 The indemnity in paragraph 2 (a) is apparently not subject to the condition with respect to insufficient assets on winding up that applies to the indemnity in paragraph 1. It seems to be available whether or not the companies or either of them are wound up. 62 However, the indemnity in paragraph 2 (a) is subject to a compound condition, namely the condition that the reasonably incurred expenses are additional to the expenses that would have been incurred if an order for winding up of both companies had been made on 30 June 2002 and the New Business had not been undertaken. Presumably the hypothesis envisaged by those words is that on 30 June 2002 a liquidator is appointed to both companies after the provisional liquidator has given notices under clause 17 of UMP's Constitution and s 58 of the Insurance Contracts Act so that no renewed memberships or policies arise after 30 June. Effectively, the liquidator would not continue to carry on any business. It appears that claims under policies current on 30 June, and claims under policies that have expired before 30 June, would not be covered by the indemnity because they would not be additional expenses within the wording of paragraph 2 (a), but claims arising out of policies renewed after 30 June 2002 would be covered by the indemnity. The indemnity would also cover expenses for reinsurance premiums if the reinsurance policy would have come to an end upon the making of an order for winding up. 63 Paragraph 5 (a) says that "notwithstanding the existence of the indemnity in 1 above, where you or a subsequent liquidator have Sufficient Assets in UMP and/or AMIL (as the case may be) to meet a Properly Payable amount, you or the subsequent liquidator (as the case may be) will pay that amount out of the assets of UMP and/or AMIL (as the case may be)." 64 If this subparagraph purports to bind a subsequent liquidator of one of the companies to use the company's assets to make full payment of an amount due to an unsecured creditor when there are insufficient assets to meet the claims of unsecured creditors generally, it seems, to that extent, to be unlawful and ineffective. 65 Paragraph 5 (a) is expressed to operate notwithstanding the existence of the indemnity in paragraph 1, but it makes no reference to the indemnity in paragraph 2 (a). It seems that the expenses to which paragraph 2 (a) refers include Properly Payable amounts. It seems to me probable that clause 5 (a) operates to oblige the provisional liquidator to pay a Properly Payable amount out of the assets of the relevant company if there are Sufficient Assets (a defined expression), notwithstanding the availability of the Commonwealth indemnity under paragraph 2 (a). Of course, payment under paragraph 5 (a) does not diminish the indemnities in paragraphs 1 and 2 (a), which remain available to permit the provisional liquidator to recoup from the Commonwealth the payment made to the claimants, to the extent that the circumstances fall within the terms of either of the indemnities. 66 Paragraph 2 (b) provides an indemnity to certain creditors of the companies rather than to the companies or their provisional liquidator. It applies where a person who is a creditor of UMP or AMIL as at the date of acceptance of the letter is prejudiced in any winding up of UMP or AMIL, the Commonwealth agreeing subject to receiving a direction from the liquidator to pay such amount to the creditor as is necessary to avoid that prejudice. The indemnity is confined to prejudice arising "by reason of the combination of payments being made under 5 (a) below and the operation of section 562 A of the Corporations Act 2001". What seems to be envisaged is the situation in which a claimant for a Properly Payable amount receives payment in full out of the assets of one of the companies, and subsequently the proceeds of reinsurance come into the hands of the liquidator in circumstances where the Court chooses not to make those proceeds available to all creditors who claim amounts under insurance policies, exercising its discretion under s 562 A (4): cf Butterell v The Douglas Group Pty Ltd (2000) 35 ACSR 398. Loans by the Commonwealth 67 Paragraph 5 (b) provides that if the provisional liquidator or a subsequent liquidator is of the opinion that UMP or AMIL, as the case may be, does not have Sufficient Assets to meet a Properly Payable amount, and demonstrates to the Commonwealth that this is the case, the Commonwealth will make an interest-free loan to the relevant company of a sum equivalent to that Properly Payable amount, and the company must use that sum solely for that purpose. 68 By paragraph 6, where the provisional liquidator or a subsequent liquidator has in fact made a payment to meet a Properly Payable amount and it is later determined that there are not Sufficient Assets in the relevant company, the Commonwealth will make an interest-free loan to ensure that there are Sufficient Assets. However, the total amount of all loans made under paragraph 6 is not to exceed the total amount paid to meet Properly Payable amounts under paragraph 5 (a). 69 Paragraph 5 (a) is expressed to apply only where there are Sufficient Assets, but paragraph 6 makes it clear that paragraph 5 (a) also applies where there are not in fact Sufficient Assets but the provisional liquidator believed that there were when he made the payment. Subject to that point, it seems to me that paragraphs 5 (b) and 6 do not raise any problems. They are the same in concept as the loan arrangements in Stage 1, which were clarified during the hearing of the applications for approval of the Stage 1 arrangements. Proofs of debt by the Commonwealth 70 Paragraph 4 of the letter states that in any winding up of either company, the Commonwealth will not prove as a creditor in respect of any payment made in satisfaction of its indemnity obligations in paragraphs 1 and 2, but it will be entitled to prove in respect of any loans made before the winding up of the company in accordance with paragraph 5 (b) or 6. Again, these provisions reflect clarifications made during the hearing of the applications for approval of the Stage 1 arrangements, and in their clarified form they do not seem to me to raise any problems. The provisional liquidator's obligations 71 The consideration for the indemnity in paragraph 1 is that the provisional liquidator will renew policies issued by AMIL up to 31 December 2002, and will renew memberships of UMP on terms that discretionary assistance will only be considered for members in respect of liability for claims notified on or prior to 31 December 2002. The content of those obligations is made clear by the terms of the applications presently before the Court. The Court can infer, since the Commonwealth is present at the hearing, that it will regard the steps outlined in the provisional liquidator's affidavit and exhibits as supplying the consideration to which paragraph 1 refers. 72 By paragraph 3, the provisional liquidator agrees to ensure that subscription fees and other charges to members of UMP in respect of any renewed period of membership or renewed policy are calculated on a commercial basis and will not, in any event, be less than the amount which was determined to be payable by the relevant class of members immediately prior to 29 April 2002. The provisional liquidator has explained in his affidavit how he proposes to calculate subscription fees and other charges. The Commonwealth has not objected to his proposed course of action. The Court can infer that the Commonwealth regards the provisional liquidator's proposed course of action as generally satisfying the requirements of paragraph 3. 73 By paragraph 10, the provisional liquidator agrees not to renew memberships of UMP or policies issued by AMIL in respect of members who ordinarily practice outside Australia. As far as I can see, Mr Lombe's affidavit does not cover paragraph 10. He should supply a supplementary affidavit briefly outlining the measures he has taken or will take to ensure that renewed memberships or policies are not issued in respect of members who ordinarily practice outside Australia. He should also acknowledge his understanding that the arrangements offered by the further letter of comfort do not extend to claims in respect of such members or to claims made or incidents occurring outside Australia. The indemnity to the provisional liquidator 74 By paragraph 9 the Commonwealth agrees to indemnify the provisional liquidator personally for all civil liabilities he may incur as a consequence of causing UMP and/or AMIL to undertake and conduct the New Business pursuant to or as contemplated by the letter of comfort. Negligent or fraudulent conduct or conduct in bad faith are excluded. The extent of the provisional liquidator's indemnity is principally a matter for negotiation between him and the Commonwealth, although it is appropriate to disclose the arrangements to the Court The relationship between the further letter of comfort and the Prime Minister's media release 75 As I have explained, the further letter of comfort does not purport to implement any of the matters announced by the Prime Minister except matters under the heading "Enhancement of guarantee". As I understand the letter, it does no more than to give flesh to the second dot point under that heading in the Prime Minister's statement, namely that the Government would offer a guarantee to the provisional liquidator to enable him to renew policies on a claims made basis for the period until 31 December 2002. 76 The letter does not do anything to assist Mr Lombe to meet claims notified in the period 29 April to 31 December 2002 under an existing policy, although it does so where the policy is renewed pursuant to the arrangements in the letter. Claims under existing policies are not covered by the letter because the letter is generally confined to Properly Payable amounts, defined by reference to the New Business of renewing policies and memberships. 77 Nor does the letter assist Mr Lombe to continue to meet claims that were notified before 29 April 2002 and become properly payable in the period from 1 July 2002 to 31 December 2002. Those claims would have arisen under policies in existence at the appropriate time before 29 April 2002. It would be a relatively simple matter for the Minister to write another letter to Mr Lombe offering to extend the arrangements set out in the letters of 22 and 23 May 2002 as modified by the Commonwealth's statement to the Court on 24 May 2002, so that those arrangements are extended to amounts that become properly payable in the period from 1 July to 31 December 2002. As far as the evidence reveals, however, no such offer has yet been extended to Mr Lombe in implementation of the Prime Minister's statement, and the applications presently before me are confined to the arrangements set out in the Minister's letter of 7 June 2002. Mr Lombe's attitude 78 Mr Lombe has taken the view that, in the absence of appropriate undertakings from the Commonwealth, the renewal of memberships and insurance policies has the potential to result in prejudice to unsecured creditors of UMP and AMIL, to the extent that the subscription payments and reinsurance recoveries in respect of those renewals would be insufficient to meet: (a) claims made under the renewed policies and memberships; (b) any additional reinsurance premiums which may be payable by way of adjustment to the existing premiums; and (c) the costs of renewing the memberships and policies and administering claims made in respect of the renewed memberships and policies. 79 Mr Lombe's position is that in the absence of the further commitments proffered by the Government on behalf of the Commonwealth in relation to payment of claims, he would not be in a position to renew memberships or policies. I presume that in such circumstances, he would regard it as necessary to give notices under clause 17 of the Constitution and s 58 (2) of the Insurance Contracts Act so as to bring the relevant memberships and policies to an end. His evidence is that if the Court does not approve his entering into the arrangements proposed by the Government, he seeks directions as to whether he should take immediate steps to issue notices under clause 17 and s 58 (2) in respect of the XXXX members whose memberships are due for renewal on 1 July 2002. 80 Mr Lombe would prefer, however, to accept the Government's offer in Stage 2 and to give members whose memberships and policies come up for renewal the opportunity to renew their memberships on the basis that medical indemnity insurance cover will be available until 31 December 2002. He believes that the Government's offer in Stage 2 is in the best interests of AMIL, UMP, their creditors and UMP's members because: (a) AMIL insurance policies can be renewed on the basis that the payment of any claims made under the renewed policies will be guaranteed by the Commonwealth; (b) as claims are made under the renewed AMIL policies, UMP's IBNRs (incurred but not reported claims) will be reduced; (c) in the event of a subsequent winding up of UMP and AMIL, the Commonwealth will indemnify UMP and AMIL for any net loss incurred as a consequence of the renewed policies and memberships; (d) creditors will not be prejudiced by the interim proposal; and (e) the interim proposal is a precursor to a more formal and extensive indemnity from the Commonwealth, under which some classes of existing creditors will have certainty that their claims will be paid in full. Approval under s 477 (2B) 81 I referred briefly to the case law governing the exercise of the Court's discretion under s 477 (2B) to approve the liquidator entering into an agreement in my revised reasons for judgment in Re United Medical Protection Ltd (No 3). It is unnecessary to revisit the cases. I was persuaded then that the part of the Stage 1 arrangements coming before the Court should be approved on grounds relating to the interests of the companies and their creditors and contributories, and the public interest generally. 82 The Stage 2 arrangements reflected in the further letter of comfort are more complicated, but the principles governing approval are essentially the same. Provided that my understanding of the proper construction of the letter of comfort is confirmed to be correct, and the matters which I have asked to be given further consideration are satisfactorily dealt with, I shall make an order approving the arrangements, incorporating such amplification as I may receive, under s 477 (2B). The provisional liquidator's powers under UMP's constitution 83 The orders made by the Court in urgent circumstances on 3 May 2002 purported to give the provisional liquidator of UMP the powers conferred by the Constitution of UMP on the Board. The Board's constitutional powers are of two kinds. First, there are the powers conferred pursuant to the "statutory contract" operating under s 140 of the Corporations Act. Secondly, some of the provisions which give the Board powers relate to special contracts arising out of or in connection with memberships, such as the arrangements for membership fees to reflect the cost of insurance policies, the arrangements in clauses 69-77 with respect to discretionary assistance and other matters, and perhaps also the power to make calls on members under clause 27: generally as to special contracts, see Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399; Ding v Sylvania Waterways Ltd (1999) 46 NSWLR 424. 84 The Court's orders of 3 May 2002 proceeded on the underlying premise that the Court has jurisdiction under the Corporations Act to grant power to a provisional liquidator to exercise the powers of the board of directors arising under both the statutory contract and special contracts provided for in the corporate constitution. Counsel for the provisional liquidator has submitted that the Court had the jurisdiction to make those orders and that it was appropriate to do so. However, counsel submitted that it was appropriate to revisit the question, since the present applications require the Court to consider again the exercise by the provisional liquidator of powers which but for the Court order would be vested solely in the Board, relating in part to special contracts. 85 In my opinion the Court has the power, when making orders for the appointment of a provisional liquidator, to vest in him or her any relevant powers of the board of directors of the company, including powers arising under the company's constitution with respect to special contracts. Section 472 (3) (b) says that a liquidator appointed provisionally has such functions and powers as the Court specifies in the order appointing him or her. In the present case, it was important to ensure that the provisional liquidator had all the powers necessary for him to continue to conduct the business of UMP. An important part of the business of UMP related to special contracts between the company and its members for the provision of discretionary assistance. In conducting the business of UMP, the Board was empowered to make calls on members, and it seemed to me at the time when I made the orders of 3 May 2002 that the provisional liquidator's powers should not be so restricted as to exclude the possibility of making a further call. 86 I reach my conclusion as to the Court's jurisdiction in reliance on the express and ample wording of s 472 (3) (b), which confers upon the Court a power in fact exercised by the Court on 3 May 2002. I accept that in the absence of an appropriate order, a provisional liquidator may well not have the power to exercise powers conferred on the board of directors of the company by its constitution in respect of special contracts. Counsel for the provisional liquidator valiantly submitted that the special contract arising under the Constitution of UMP with respect to the provision of insurance benefits contains an implied term, under which the Board's powers would pass to a provisional liquidator if one were appointed. I doubt that there is any such implied term, but it is unnecessary for me to decide the point, in view of my opinion as to the amplitude of s 472 (3) (b). The fact that the Court's order varies the special contract under the corporate constitution by empowering someone other than the board of directors to exercise constitutional power is of no significance to the scope of the Court's power. Provisional liquidation necessarily alters the rights of contributories, and there is no good reason for regarding rights arising under a special contract established by the corporate constitution as especially inviolate. 87 Counsel referred me to the decision of McLelland CJ in Eq in Butterell v Docker Smith Pty Ltd (1997) 41 NSWLR 129. In that case his Honour held that the liquidator of a company was not entitled to exercise powers conferred by its constitution on its board of directors for the levying of subscriptions. He rejected a submission that the special contract arising under the corporate constitution contained an implied term authorising a provisional liquidator to exercise the board's powers. The case is relevant to that extent, but it provides no direct guidance in the present circumstances. The question for his Honour was whether there was any implied power for the liquidator to act in the absence of an express conferral of statutory power or an implied term in the special contract, and he held that there was no such power. Here, the provisional liquidator's power is derived from an express conferral of power by the Court, and in turn the Court's power to make such an order is expressly given by s 472 (3) (b). 88 Counsel for the provisional liquidator submitted that although the Court had jurisdiction to make the orders it made on 3 May 2002, it should now revise those orders so as to limit the provisional liquidator's powers to those he needs immediately for the purpose of implementing Stage 2. I have accordingly been invited to vary the orders made on 3 May 2002, nunc pro tunc, so as to confine the provisional liquidator's powers to those conferred on the Board by clauses 15-17, 20 and 69-77 of the Constitution of UMP. 89 I have some specific problems with doing so, as well as a general problem. Specifically, it seems to me undesirable to exclude from the ambit of the provisional liquidator's powers the powers of expulsion of members found in clause 23 of the Constitution. That would mean, as I have said, that no-one would be in a position to deal with the membership of medical practitioners who have engaged in unprofessional or disgraceful conduct, since all directors of UMP have resigned. Nor does it seem to me that I should totally remove the possibility that anyone might validly cause calls to be made on members of UMP during the course of the provisional liquidation. While it is unlikely that the provisional liquidator will have occasion to make a call, I am not persuaded that the possibility of doing so should be suspended. 90 My general problem is that, as I see it, the various discretions of the Board under the Constitution of UMP are interlocking discretions permitting the person charged with the responsibility of carrying on the businesses of UMP and AMIL to consider all appropriate courses of action, having regard to the special and peculiar natures of the businesses concerned. It seems to me undesirable to restrict the range of matters to be considered in reaching appropriate business solutions by limiting the provisional liquidator's discretions, especially given that the Stage 2 arrangements involve the continuation of substantial business activities. 91 I am prepared to receive further submissions as to why the provisional liquidator's powers should be reduced, but at present I am not inclined to do so. Next steps 92 Mr Lombe has given evidence of what he intends to do if the Court makes the orders sought in his applications. First, he will determine the annual subscription fees for members whose memberships are about to fall due for renewal, consistently with the past practice of UMP. As regards the XXXX members whose memberships and policies are due to expire on 30 June 2002, his intention is that by midday on Wednesday 12 June 2002 he will cause AMIL and UMP to send a letter to each member substantially in the form of the draft supplied to the Court. As soon as practicable thereafter, he will cause AMIL and UMP to send the relevant member the appropriate membership renewal package. The membership renewal package will offer the member an insurance policy or policies to commence immediately after the time of expiration of the member's former policy or policies, ending at 11:59pm on 31 December 2002. Obviously the subscription fee will take into account that the insurance cover will not be for the full year of renewed membership. 93 The letter to the XXXX members due for renewal on 1 July 2002 will give a notification under s 58 (2) of the Insurance Contracts Act, with a view to preventing the statutory "renewal" under that section to take place. It will invite the member to fill out a new application form for insurance to expire on 31 December 2002. It will also give a notice under clause 17 of the Constitution of UMP that the provisional liquidator has decided to refuse to renew membership. It will say, however, that the provisional liquidator will withdraw that notice if the member agrees by signing and returning a duplicate of the letter that so long as the company is in provisional liquidation, the member will have no entitlement to discretionary assistance under clauses 72 and 73 of the Constitution as from 1 January 2003. A similar letter will be sent to other members whose policies and memberships have not been renewed.

Bailey v New South Wales Medical Defence Union Ltd

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (6)

Cited By (7)