Confirmation on the merits
28 The discretion to confirm the Scheme pursuant to s 194 is at large and is only confined by the purposes to be served by it in the context of the Act as a whole and Pt 9 in particular (Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 per Mason J at 39-40). The role of the Court is plainly not limited to supervising the various procedural steps to be taken, nor by any opinion that APRA cares to express. An important indication of the proper approach is the first object of the Act (s 3(1)):
"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".
(Re Royal & Sun Alliance Life Assurance Ltd (2000) 104 FCR 37 at [3]). Further, Parliament has indicated the importance of the role of the Court in Pt 9, by identifying it as one of six principal means of effecting the objects of the Act (s 3(2)).
29 The applicants submitted that the actuarial evidence established that there was no disadvantage to the interests of policy holders of either company, by virtue of the Scheme. The benefits and the manner in which they will be administered are substantially secure in all respects. In a general sense this may be accepted. The policies are being transferred from one safe statutory fund, with a solvent insurer, to another safe statutory fund with another solvent insurer. The changes to the policies are benign. Furthermore, within limits, MetLife could change its strategies and administration policies in the future without breach of contract provided prudential standards were met.
30 It is submitted that the approval of APRA is an important consideration. That may be accepted in the general way - in the usual case approval of, or lack of objection by, APRA would be a necessary, but not sufficient, condition for confirmation. The statute expressly gives APRA a role in relation to Pt 9 (eg, ss 191(1), 191(2a), 192 and 193(3)), in addition to its other supervisory responsibilities. That role has naturally been referred to in many of the authorities (eg Re Application of Commonwealth Life Ltd [2003] FCA 637 at [13]; Re MLC Lifetime Co Ltd and MLC Ltd (No 2) [2006] FCA 1367 at [14]). I shall return to the position of APRA in another respect later.
31 It was submitted that the interests of insurers should be respected as the development of a viable industry is an object of the Act. That is correct but the interests of policy holders are of primary concern. It was submitted that the lack of objection by the Trustee is of significance as it would have to closely scrutinise the transaction from the point of view of policy holders of MetLife and would be expected to have a good grip of the commercial issues involved. Again, in a general sense, that may be accepted, notwithstanding that it is a MetLife associate. However, some of its beneficiaries took a different view and were among the objectors.
32 All in all, I was satisfied of all relevant matters, apart from the difficulty occasioned by the existence of a body of objectors, although small, with sensible reasons for concern. The Scheme did not accommodate that problem in any respect. This was pointed out and the opportunity was afforded to the parties over some hours to deal with it. That opportunity was rejected. It is worth repeating what was said by counsel in that respect:
"In short, the prospect your Honour raised before the adjournment of the parties formulating some kind of opt-out procedure is not something which was attractive to the parties, and we certainly don't propound any such modification, and if your Honour were to impose it as a condition of the scheme, then we wouldn't accept the condition. So that would mean that the transfer simply fails, if that were an essential ingredient in your Honour's decision-making."
(Emphasis added.)
33 That approach fundamentally misunderstands what is at stake. The power granted by Pt 9 for the compulsory statutory novation of contracts of this type on a large scale is extraordinary. It amounts to compulsory acquisition by the transferee insurer. The only say that the policy holders have is through the Court process. There is no meeting and no vote. Accordingly, there is a system laid down to inform those affected of what is proposed so that their views may be heard by the Court. In my opinion, the objections raised by individual policy holders were legitimate upon their face and provided sensible reasons why a party may not wish to have a long-term contract with Challenger. One telling point was that MetLife policies had a low rate of return because of low risk. A transferred policy holder would be forced to accept the same rate of return with higher risk. The fact that an actuary may assess the risk as remote is not to the point. The existence of different annuity products in the market appealing to different customers makes the point of consumer choice.
34 I was, therefore, not prepared to approve the Scheme as it ignored those concerns and the proponents adopted a take it or leave it approach to the problem. I so ruled on 27 July 2007. I did not make orders immediately as I was to prepare reasons. In the following week the applicants sought reopening. The evidence to justify reopening explained the difficulties in proposing a solution in a few hours, but did not explain the blanket refusal to accept any condition, or the failure to seek an adjournment. Despite some misgivings, I granted the request to reopen.
35 I am now satisfied that the modifications to the Scheme that are proposed are appropriate and adequately meet the situation. The Scheme now contains an opt out facility limited to those MetLife policy holders and those beneficially entitled in respect of a policy held by the Trustee who had directly or indirectly indicated a substantive objection prior to the hearing and cannot redeem without penalty. It leaves those persons in substantially the same position as before, although the Social Security Amendment and the Taxation Amendment will be made to the contracts. I am also satisfied that appropriate notice has been given of those proposed modifications. The orders that are sought will be made.
36 I should mention the position of APRA. When the solicitor for APRA addressed on the substantive hearing, the applicants had rejected any opt out modification and no submissions were called for on that topic. Submissions were made today on behalf of APRA that put forward a cautious, indeed negative, view about an opt out mechanism. The principal concern appears to be the existence of "legacy products"; that is products closed to new business. Reference was made to a recent Treasury issues paper that touches upon that topic. APRA does not suggest that there is a particular problem in this case. APRA is keen that there should be no general opt out procedure adopted.
37 This is not the case to have that debate. The decision in principle concerning the need for an opt out arrangement in this case was made on the last occasion. I can see no particular problem with the remaining MetLife policy holders in this case once the modifications are approved. The role of the Court in exercising the discretion given to it by Parliament may well be different from the perception by the present administrators of APRA as to its role in the process. It is not surprising that there are different perspectives. APRA's underlying notion appears to be that the industry has priority over policy holders, at least where the insurers are solvent and prudential standards are met. That notion cannot limit the discretion of the Court. Otherwise, the Court would have a rubber stamp role under Pt 9, as all registered insurers are solvent and statutory funds are adequate if APRA is doing its job.
38 The only other point I make is that it is difficult for a court in situations like this where there is no contradictor. The transactions are large. The attention to detail by the parties is great. It is very difficult for a judge, without a contradictor, to fully assess the consequences and ramifications of all that is proposed. I have had great assistance from counsel in this case but that, of course, is not always a substitute for the critical eye of a contradictor. In some cases it may be appropriate for the Court to appoint a representative policy holder to act as contradictor. In the end, I did not think that that was necessary in the present case.
I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.