Colonial Portfolio Services Ltd v APRA

REASONS FOR JUDGMENT 1 There is before the Court an application under subs 193(1) of the Life Insurance Act 1995 (Cth) ("the Act") for confirmation of a scheme under which part of the life insurance business of Royal & Sun Alliance Life Assurance Australia Limited ("RSALA") has been proposed to be transferred to Tyndall Life Insurance Company Limited ("Tyndall"). (Subsequently to the creation of that scheme, Tyndall changed its name to Royal & Sun Alliance Financial Services Limited, but it is convenient to continue to refer to the company for the purpose of these reasons for judgment as Tyndall.) As is permitted by subs 193(1) of the Act, both RSALA and Tyndall (each of which is registered under the Act) are the applicants on the application. Confirmation by this Court of the scheme is a condition precedent to the proposed transfer's occurring: see subs 190(1) of the Act. 2 Section 194 of the Act confers on the Court the power to do any one of three things on an application under subs 193(1) of the Act: first, confirm the scheme (par (a)); secondly, confirm the scheme subject to such modifications as it thinks appropriate (par (b)); and, thirdly, refuse to confirm the scheme (par (c)). 3 The Court's choice of which of the three powers conferred by s 194 of the Act to exercise must be made in light of the object of the Act, which, as expressed in subs 3(1) of the Act, is, "… to protect the interests of the owners and prospective owners of life insurance policies in a manner consistent with the continued development of a viable, competitive and innovative life insurance industry." Indeed, that the Court's choice under s 194 of the Act must be made in light of that object is emphasised by par 3(2)(f) of the Act, which identifies, as one of the principal means adopted for the object's achievement, "providing for the supervision of transfers … of life insurance business by the Court". The provision being referred to in par 3(2)(f) of the Act is obviously that made by Pt 9 of the Act, in which Part of the Act s 194, among other sections, is to be found. 4 The Act and the Life Insurance Regulations 1995 (Cth) ("the Regulations") impose certain procedural requirements in connection with the making of an application under s 193 of the Act and I have been favoured with much evidence relating to the applicants' compliance with those procedural requirements. 5 There are only two matters to which I find it necessary to refer in connection with the applicants' compliance with those procedural requirements. 6 The first is this: various provisions of the Act and Regulations refer to the taking of certain steps in connection with the "making" of the application for confirmation. For instance (and just focusing for the moment on the Act), subs 191(2) of the Act provides that "[a]n application for confirmation of a scheme may not be made unless" certain procedural steps have been taken; and subs 193(2) of the Act provides that "[a]n application for confirmation must be made in accordance with the regulations". 7 A question arises as to what the Parliament intended by its reference in those provisions to the "making" of an application. Was it referring to the filing of such an application or to its hearing by the Court? I add immediately that, if the former was meant, then it is plain that the applicants on the present application have failed significantly to comply with the procedural requirements imposed in connection with the making of an application under s 193 of the Act. For instance, all of the procedural steps required by subs 191(2) of the Act to be taken in connection with the making of an application were taken after the filing in this Court of the present application. 8 Unassisted by authority, I would have been inclined to conclude that the notion of the "making" of an application for confirmation of a scheme was intended to refer to the filing of such an application. 9 There is, however, authority which supports the conclusion that the notion was intended to refer instead to the hearing by the Court of an application for confirmation earlier filed. 10 In Re Armstrong Jones Life Assurance Limited (1997) 74 FCR 160, Emmett J was concerned, not with the Act itself, but with reg 9.03 of the Regulations, which provides that "an application to the Court for confirmation of a scheme may be made no earlier than whichever is the later of" two specified days. As to that provision, his Honour said (at 163), "I consider that, on its proper construction, reg 9.03 refers to the time at which the Court is moved for an order of confirmation of the scheme and not to the time when the form of application prescribed by the [Federal Court] Rules is filed with the registry." 11 I am by no means satisfied that his Honour's construction of reg 9.03 of the Regulations was plainly wrong, a satisfaction which alone would have induced me not to act on it, where applicable. Further, I can see no reason why his Honour's construction would be applicable only to reg 9.03 of the Regulations and not to the other relevant provisions of the Regulations and to the relevant provisions of the Act. 12 So construing the relevant provisions of the Act and Regulations, I conclude that there has not been a significant failure by the applicants in the present matter to comply with the procedural requirements imposed in connection with the making of an application under s 193 of the Act. 13 I should, however, add two final comments on this aspect of the matter. First, it may be that, while the legislation remains in its present form, it would be a safer course to be followed in future by applicants under s 193 of the Act for them to treat the notion of "making" an application for confirmation of a scheme as meaning the filing of such an application. Secondly, it would, it appears to me, be helpful if the Parliament could be persuaded to remove the ambiguity in the present provisions. 14 I said above that there were two matters to which I found it necessary to refer in connection with the procedural requirements which the Act and the Regulations impose in connection with the making of an application under s 193 of the Act. 15 The second matter is this: subreg 9.02(4) of the Regulations requires that a copy of the scheme, confirmation of which by the Court is being sought, must be open for public inspection for a period of at least fifteen days at certain places, while subreg 9.02(1) of the Regulations requires that an applicant to the Court for confirmation of a scheme must publish a notice of intention to make the application, including in certain newspapers. Subregulation 9.02(3) of the Regulations provides that the notice of intention to make the application under subreg 9.02(1) of the Regulations must be published before the scheme is released for public inspection under subreg 9.02(4) of the Regulations. 16 In the present case, the applicants did not comply with subreg 9.02(3) of the Regulations. That occurred because, due to the fault of certain newspapers in the Australian Capital Territory and Victoria, publication in those two law areas occurred later than had been intended. However, it is appropriate to mention immediately that the evidence before me establishes that a copy of the scheme was open for public inspection in those two law areas, not merely for a period of fifteen days (the minimum required by subreg 9.02(4) of the Regulations), but for a period which included at least fifteen days from the date of publication by the errant newspapers. 17 A question arises as to the significance of the applicants' non-compliance with subreg 9.02(3) of the Regulations. In particular, is it fatal to the success of the present application? 18 In Re Armstrong Jones Life Assurance Limited, Emmett J dealt (at 162) with that precise question and expressed the view that failure to comply with subreg 9.02(3) of the Regulations was not fatal to an application under s 193 of the Act, although it was relevant to the exercise of the Court's discretion under s 194 of the Act. I will adopt the same approach in the present matter. 19 I turn now to the question of the exercise of that discretion. 20 The first thing to be said about the scheme of which confirmation is presently being sought is that it was founded on an actuarial report prepared by Messrs Mike Swerdlin and Dennis Fox, each of whom was the appointed actuary of one of the two applicants. 21 I have considered the terms of that report for present purposes. I have also considered the terms of an opinion prepared by another actuary, Mr Robert Glading. Mr Glading prepared his opinion as the result of a request by RSALA to provide an independent opinion on the Swerdlin-Fox report. 22 I am satisfied from my consideration of the Swerdlin-Fox report and of the Glading opinion that the interests of the owners and prospective owners of life insurance policies issued both by RSALA and Tyndall are protected by the terms of the scheme. Given the provisions of s 3 of the Act, to which I have already referred, it is apparent that my having such satisfaction is fundamental to my exercise of discretion. 23 My satisfaction that the interests of the owners and prospective owners of life insurance policies issued both by RSALA and Tyndall are protected by the terms of the scheme is reinforced by my knowledge of the conduct in the present application of the Australian Prudential Regulation Authority ("APRA"), an authority which, as its constitutive statute (the Australian Prudential Regulation Authority Act 1998 (Cth)) says (see subs 8(1)), "is established for the purpose of regulating bodies in the financial sector in accordance with other laws of the Commonwealth that provide for prudential regulation or for retirement income standards". 24 It is apparent from the provisions of the Act and the Regulations that APRA is a significant participant in the process of confirmation of schemes. First, par 191(2)(a) of the Act provides that an application for confirmation of a scheme may not be made unless a copy of the scheme and any actuarial report on which the scheme is based have been given to APRA. Subsection 192(1) of the Act further provides that when a copy of a scheme has been given to APRA, it may arrange for an independent actuary to make a report on the scheme. Secondly, par 191(2)(b) of the Act provides that an application for confirmation of a scheme may not be made unless notice of intention to make the application has been published by the applicant in accordance with the regulations. Subregulation 9.02(1) of the Regulations then provides that the form of the applicant's notice of intention, as well as certain newspapers in which the notice is to be published, must be approved by APRA. Thirdly, par 9.02(4)(b) of the Regulations provides for the approval by APRA of a location other than an office of an applicant at which a copy of the scheme is to be open for public inspection. Fourthly, par 191(2)(c) of the Act provides that an application for confirmation of a scheme may not be made unless a summary of the scheme approved by APRA has been given to every affected policy owner. Finally, subs 193(3) of the Act provides that APRA is entitled to be heard on an application for confirmation of a scheme. 25 In The Application of Advance Life Insurance Limited (FCA, 18 February 1997, unreported), Sheppard J decided to confirm a scheme. At the time of his Honour's decision, those functions now conferred on APRA by the Act and the Regulations were instead conferred on the Insurance and Superannuation Commissioner. Sheppard J said (at 16-18), "I am satisfied by the actuarial evidence that the scheme will operate in the best interests of the policyholders of Advance Life. I am strengthened in that view by the fact that the Commissioner himself, although he could have placed actuarial evidence before the Court if he had thought it appropriate (see s.192), has decided not to do so. I have assumed that that is because the Commissioner is satisfied with the accuracy of the actuarial evidence which there is. I count that as a very important circumstance because I have relied on the Commissioner to have made an appropriate investigation of the matter. I would have expected him, if he had thought the position otherwise, to have placed evidence before the Court. … … [T]he Court is a court. It conducts its business as a court. It has no power to call its own evidence. It relies on a person such as the Commissioner, especially in the absence of any representation by policyholders, to do his part in protecting them from what might prove, in a different set of circumstances, to be a disadvantageous move." 26 Then, in Re Armstrong Jones Life Assurance Limited, Emmett J referred (at 163) to its seeming to be the assumption in the legislation that "the interests of policy owners are likely to be attended to on their behalf by the Commissioner". 27 Most recently, in Colonial Portfolio Services Ltd v APRA (2000) 11 ANZ Insurance Cases ¶90-103 (FCA), Mathews J, in confirming a scheme, said (at 86,136, [28]), "It is relevant to note that APRA, which operates as something of a watchdog in relation to transfers under Part 9 of the Act, had no objection to the confirmation of the scheme. Nor did APRA arrange for an actuarial report on the scheme, as it is entitled to do under s 192 of the Act. It can be inferred that APRA regarded the reports furnished by the applicants as adequate." 28 The approach taken by Sheppard J to the conduct of the Commissioner in the case before him and by Mathews J to the conduct of APRA in the case before her is appropriate here. In the present case, APRA did not arrange for an independent actuary to make a written report on the scheme. It did appear before me today by a legal representative for the purpose of the hearing of the scheme confirmation application, as it was entitled to do under subs 193(3) of the Act, but its representative assured me that APRA had no objection to the confirmation of the scheme, either (I should add) in its original form or in a form in which it is proposed to be modified. 29 Having thus far referred to the actuarial evidence and to APRA's conduct in the matter, it is appropriate to record here that the publicity given to the scheme did, so far as I am aware, provoke an expression of concern about their future situation by two only among the hundreds of thousands of policy owners who would be affected by the proposed transfer, those two being a husband and wife who together owned a single policy. They sought from RSALA an assurance that it would indemnify them if Tyndall, after any transfer, failed to fulfil its obligations to them, in default of which assurance they informed RSALA that "we shall do what is necessary to protect our interests". RSALA did not provide that assurance. 30 Following the failure of RSALA to provide that assurance, the individuals concerned transmitted to this Court a document which they intended should be received by me as a submission on the present application. Counsel for the applicants very helpfully tendered a copy of that document in order to ensure that its contents were properly before me for the purpose of making my decision. 31 I have read that document, together with other material prepared by those individuals which was already part of the affidavit material before the Court. 32 Nothing which I have seen in any of the materials before me in relation to the situation of those individuals causes me to doubt that their interests, just as those of all of the other policy owners, are protected by the terms of the scheme. 33 Against the actuarial evidence and the conduct of APRA to which I have referred above must be placed the applicants' breach of reg 9.02(3) of the Regulations. Since, as I have already mentioned ([16] above), that non-compliance was due to the fault of others and a copy of the scheme was open for public inspection in the Australian Capital Territory and Victoria for a period which included at least fifteen days from the date of publication by the errant newspapers, I do not consider it appropriate to withhold my confirmation of the scheme merely by reason of that breach. 34 There are two final matters with which I should deal. 35 First, I have already mentioned that par 194(b) of the Act permits confirmation of a scheme to occur subject to such modifications as the Court thinks appropriate. The applicants have sought that I should confirm the scheme subject to certain modifications. As presented to me at the outset of the hearing today, those modifications related to one matter only. The scheme presently provides generally that it takes effect on 29 June 2000. The applicants desired that I should confirm the scheme subject to its being modified to include material intended to emphasise that RSALA policies entered into between 30 June 2000 and the date of confirmation were also to be transferred to Tyndall. I am prepared to confirm the scheme subject to those modifications. 36 The second matter with which I should deal is this: at the outset of the hearing today, the applicants offered an undertaking to the Court, which would have taken the following form: "If it becomes apparent that the retrospective change to the terms of any transferring policy adversely affects the policy owner, [Tyndall] undertakes to ensure that the proposed retrospective change will be limited to the extent necessary to ensure that there is no such adverse effect, or other steps will be taken to ensure that the policy owner is no worse off." 37 During the course of submissions by the applicants, I expressed some doubt as to the efficacy of the undertaking which was proposed to be given to the Court and, in those circumstances, the applicants sought the confirmation of the scheme subject to a further modification of it. That modification was, in effect, to insert a term into the scheme equivalent to the undertaking which had at first been offered. 38 APRA's representative assured me, after taking express instructions on the matter, that it had no objection to the confirmation of the scheme as at first proposed to be modified simply by reason of the further proposed modification. 39 With those two final matters dealt with, I am therefore prepared, in all the circumstances, to confirm the scheme subject to modifications of the type which I have already mentioned. I will make orders in accordance with the proposed orders handed up by the applicants. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katz.