The scheme
38 A copy of the scheme was annexed to the originating application and a copy of it is annexed to these reasons. Its terms are reflected in a Portfolio Transfer Deed dated 14 April 2004 executed by SGIO, IAL and on behalf of the MAA.
39 The scheme is expressed to be subject to confirmation by the Court. The 'Transfer Date' referred to in the scheme is the date which is one business day after the date on which the scheme is confirmed by the Court. On the Transfer Date, SGIO is to transfer all CTP insurance policies under the New South Wales Acts of 1988 and 1989 referred to at [3] above, so that SGIO's rights and liabilities under them will be transferred to IAL, and either the 'Technical Reserves' of SGIO in respect of the policies will be paid to IAL, or SGIO will transfer to IAL 'Equivalent Assets', being readily realizable securities, or a combination of cash and such securities, agreed by IAL and SGIO, which have a market value on the Transfer Date equal to the amount of SGIO's Technical Reserves. There was expert evidence before me, referred to below, directed to establishing the appropriateness of the amount of the Technical Reserves to cover an insurer's potential liability under the policies to be transferred. On and from the Transfer Date, IAL is to indemnify and keep indemnified SGIO from and against all its obligations as insurer under the policies transferred, and SGIO is to be released and discharged from its obligations (actual or contingent) under those policies. IAL is to be substituted for SGIO as if IAL was, and at all times had been, a party to the policies.
40 All SGIO's reinsurance treaties and arrangements relating to the policies to be transferred are to be assigned to IAL as valid, effective and continuing agreements between IAL and the parties to those treaties and arrangements other than SGIO.
41 The Claims Management Contract between SGIO and IAL is to terminate with effect on and from the Transfer Date. As soon as practicable after the Transfer Date SGIO is to apply to the MAA for cancellation of its licence under the Motor Accidents Compensation Act 1999 (NSW).
The evidence
42 The affidavit evidence establishes as follows.
43 Paragraph 3 of Prudential Standard GPS 410 provides, relevantly, that any transfer of insurance business is subject to the Insurance Acquisitions and Takeovers Act 1991 (Cth). It suffices to say that on 23 September 2003, APRA made an 'unconditional go ahead decision' under that Act.
44 On 20 January 2004 the applicants' solicitors, Mallesons Stephen Jaques ('Mallesons'), sent to APRA a summary of the scheme, a proposed form of notice of the intention to apply for Court confirmation, and a draft report by Anthony Coleman, Actuary, dated 9 December 2003. On 29 January 2004 APRA approved the summary and notice of intention. On 4 February 2004, Mallesons sent to APRA a final copy of the scheme and a slightly amended final version of the scheme summary.
45 On 5 February 2004, copies of the scheme summary were sent to the affected policyholders (in view of orders 2 and 3 made on 23 December 2003, I will refer henceforth to the approximately 130 policyholders referred to at [9] above as 'the affected policyholders').
46 The notice of intention, in the form approved by APRA, was published in eleven newspapers, in all cases but one on 25 February 2004, and in the other case on 26 February 2004, and in the Commonwealth of Australia Government Gazette on 25 February 2004.
47 The notice of intention informed policyholders that they could obtain further details by contacting a telephone number specified in the notice. No policyholder telephoned that number.
48 On 26 February 2004, Mallesons purported to send to APRA an email attaching further documents. Those further documents were a slightly amended final version of Mr Coleman's report dated 25 February 2004, a further report by Mr Coleman dated 25 February 2004, a report by Conor O'Dowd of PricewaterhouseCoopers dated 5 May 2003, a further report by Mr O'Dowd dated 19 January 2004, and a letter from Mr O'Dowd to Nathan Rivett, an actuary who is supervised by Mr Coleman, dated 19 February 2004. Unbeknown to Mallesons, the email and documents were not transmitted to APRA because the email was wrongly addressed. The software the solicitors were using did not notify them that the email and accompanying documents had not reached the intended recipient. This mishap was not discovered until 25 March 2004. On the following day, 26 March 2004, Mallesons sent to APRA an email attaching the documents mentioned.
49 From 9.00 am to 5.00 pm every day (except weekends and Public Holidays) between 2 March and 26 March 2004 inclusive in New South Wales and Queensland, and between 3 March and 26 March 2004 inclusive in every other Australian State and Territory, copies of the scheme, the notice of intention to apply, the summary of the scheme, the Portfolio Transfer Deed, the report and the supplementary report of Mr Coleman, both dated 25 February 2004, the 5 May 2003 and 19 January 2004 reports and the letter dated 19 February 2004 of Mr O'Dowd, were available for public inspection in every State and Territory at the locations which were advertised in the notice of intention. No one attended to inspect any of the documents, except for one person who attended the Queensland address.
50 There are in evidence audited statements of the financial positions of IAL and SGIO as at 30 June 2003. IAL had net assets as at that date of $3,413,400,000, and IAL Group had assets of $4,069,600,000. As at the same date, SGIO had net assets of $158,547,000 and SGIO Insurance Group had assets of $167,244,000. A Standard & Poor's rating of IAL as at 25 July 2003 was recorded as 'AA/Stable'.
51 A standard form of letter addressed to each policyholder and a leaflet containing a summary of the scheme, for the benefit of policyholders, was posted to the registered owners (at the time of claim) of the vehicles involved in claims notified in respect of SGIO NSW CTP policies issued between 1 March 1998 and 4 October 2000, that had not been resolved (by payment by SGIO, by court order or in any other manner). None of these 'policyholder mail packs' was returned marked 'Return to Sender' or words to that effect. There was a similar mail out of a pro forma letter and summary of the scheme to claimants. Two of the claimant mail packs were returned marked 'Return to Sender' or words to that effect. Another address was found for one of these, and on 9 March 2004 a claimant mail pack was then sent to that address. In respect of the other returned claimant mail pack, an up to date address could not be found until 15 April 2004, when a Canadian address was found for the claimant. On that date a claimant mail pack was sent to that address.
52 I will summarise the evidence of Mr O'Dowd and Mr Coleman under 'Discretion' at [66] to [76] below.
Procedural requirements
53 In relation to s 17C(2)(c), as noted above a scheme summary was sent to APRA for approval on 20 January 2004 and was approved by it on 29 January 2004. The form of the scheme summary which was dispatched on 5 February 2004 differed only to the extent that it added ABN numbers for SGIO and IAL. In fact, on 4 February 2004 Mallesons emailed APRA advising that the ABN numbers had been inserted and that the mail out would commence shortly. I regard order 3 made on 23 December 2003 as having been complied with.
54 I turn next to par 17C(2)(a) which requires that a copy of the scheme and of any actuarial report on which it is based have been given to APRA 'in accordance with prudential standards'. Paragraphs 4 and 5 of Prudential Standard GPS 410 were set out at [12] above. Paragraph 5 has given rise to a difficulty. Whereas par 4, in substance repeats the requirement of s 17C(2)(a), par 5 goes further. It requires that a copy of the scheme and any actuarial reports on which the scheme is based be provided to APRA before:
'(a) the relevant notice of intention to apply to the Court for confirmation of the scheme is published; and
(b) the summary of the scheme (approved by APRA) has been given to each affected policyholder.'
55 The scheme summary approved by APRA was sent to affected policyholders as early as 5 February 2004. A draft of Mr Coleman's main actuarial report was provided to APRA on 20 January 2004. That date preceded both the giving of the approved summary to affected policyholders on 5 February 2004 and the publication on 25 and 26 February 2004 of the notice of intention to apply.
56 Mr O'Dowd wrote to Mr Rivett, who is supervised by Mr Coleman, on 19 February 2004. On 26 February 2004 Mallesons attempted to email to APRA the final version of Mr Coleman's main report, Mr Coleman's supplementary report, the two reports by Mr O'Dowd and the letter from Mr O'Dowd to Mr Rivett dated 19 February 2004. Subparagraph 5(b) of Prudential Standard GPS 410 had the effect, however, that Mr Coleman's main and supplementary reports were required to be provided to APRA before 5 February 2004, the date when the approved summary of the scheme was given to each affected policyholder. As noted earlier, due to an email addressing error, the documents were not received by APRA until 26 March 2004.
57 The applicants point out that:
- the draft dated 9 December 2003 of Mr Coleman's main report sent to APRA on 20 January 2004 was not materially different from the final version of that report dated 25 February 2004 provided to APRA on 26 March 2004 (see [68] below);
- the non-provision of Mr Coleman's two reports to APRA by email on 26 February 2004 was inadvertent, not deliberate;
- it is not suggested that either the scheme summary or the notice of intention approved by APRA on 29 January 2004 was rendered inappropriate by the documents which were finally provided to APRA on 26 March 2004 (see [59] - [60] below).
58 Even if, however, the email of 26 February 2004 and its attachments had been transmitted to the correct email address on that date, par 5 of Prudential Standard GPS 410 would not have been complied with. Most of the publishing of the notice of intention had occurred on 25 February 2004, but, more importantly, the summary of the scheme had been given to the affected policyholders on 5 February 2004. Both dates precede 26 February 2004. Nonetheless, I am satisfied that the non-compliance was due to oversight.
59 Importantly, the copy of the scheme had been provided to APRA on 4 February 2004, and a draft of Mr Coleman's main actuarial report had been provided to APRA on 20 January 2004, from which the final version and the supplementary report did not substantially differ (see [71] and [74] below).
60 Further, importantly, APRA submits that the non-compliance did not cause affected policyholders any prejudice, and did not prevent APRA from properly considering the effect of the scheme on policyholders' interests. APRA considered the final version of Mr Coleman's main report and his supplementary report, both of which it received on 26 March 2004, and was satisfied that they had no effect on its approval of the scheme summary or of the notice of intention. Moreover, they did not cause APRA to raise any objection to the Court's confirming the scheme.
61 Does the Court have power, in the circumstances outlined above, to confirm the scheme?
62 Section 17C(2)(a) was not complied with because a copy of any actuarial reports on which the scheme is based (namely, Mr Coleman's final main report and his supplementary report) were not given to APRA in accordance with the prudential standards. In Armstrong Jones, Emmett J considered that analogous provisions in the Life Insurance Act 1995 were not conditions precedent to the existence of jurisdiction in the Court to confirm a scheme. His Honour said:
'Section 191(2)(b) [the equivalent to s 17C(2)(b) of the Act] provides that an application for confirmation may not be made unless notice of intention has been published in accordance with the regulations and s 193(2) [the equivalent to s 17E(2) of the Act] provides that an application for confirmation must be made in accordance with the regulations. Nevertheless, I do not regard those provisions as being conditions precedent to the existence of jurisdiction for the court to confirm a scheme. Of course, failure to comply with the regulations may well be a very significant matter for the court in deciding whether or not to confirm a scheme in the exercise of any discretion which may arise under s 194 [the equivalent of s 17F(1) of the Act], but it would not be fatal.' (my emphasis)
63 In Royal & Sun Alliance, Katz J adopted the same approach (at [16] - [18]). I am not satisfied that that approach was plainly wrong and therefore, although with some doubt, I will adopt it.
64 I turn next to s 17C(2)(b), to which pars 7 to 11 of Prudential Standard GPS 410 relate. These paragraphs were complied with. The applicants secured APRA's approval of both the summary of the scheme and the form of the notice of intention on 29 January 2004. Publication of the notice of intention occurred on 25 and 26 February 2004. That was before the scheme was released for public inspection on 2 March 2004.
65 Senior counsel for the applicants took me to other paragraphs of Prudential Standard GPS 410 which I have not set out earlier. I am satisfied that they were also complied with.