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[2002] FCA 1498
plaintiff. The scheme was ordered to take effect; administration was to end when the administrator completed his clause 13 obligations or six months from the order, whichever came first; the requested...
Goldfields Medical Fund was in financial and management difficulty. Its administrator proposed transferring its contributors and relevant business to Healthguard, with arrangements to deal separately with remaining assets and creditor claims. French J concluded that the Court had power to approve the scheme and that the proposal reasonably protected contributors' interests. The Court approved it and allowed a limited extension for the administrator to complete the remaining work. It would not import the Corporations Act's review jurisdiction into this statutory administration, but it did allow affected people to seek directions or other relief under the Court's existing jurisdiction.
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This is French J's decision on an application by Peter Hedge, administrator of Goldfields Medical Fund Incorporated (GMF), for orders giving effect to a scheme transferring GMF's health insurance business to Healthguard Health Benefits Fund Limited. The judgment's heading identifies Hedge as the applicant, and the reasons address his application under the National Health Act 1953 (Cth). The scheme was approved on 29 November 2002, subject to ancillary orders.
GMF had operated from Kalgoorlie for more than 45 years. Over the two years before the administrator's appointment, its membership grew by more than 400 per cent, to approximately 70,000 contributors. More than half its members were then in Victoria, New South Wales and Queensland [5]–[7]. The administrator attributed that growth to uneconomic pricing decisions. His investigation also identified management and governance concerns, continuing losses and breaches of capital adequacy requirements [7].
The financial figures placed the proposed rescue in context. GMF's accounts for the year ending 30 June 2002 showed a loss of $8,309,386, compared with a profit of $4,838,854 in the prior year. Net assets had declined from $15,374,572 to $7,065,186. Although GMF remained solvent at that date, it was reported to be $4,550,000 below its capital adequacy requirement [8]. A later report as at 31 August 2002 showed solvency above the full solvency requirement but a capital position $3.399 million below the full capital adequacy basis [8].
The administrator recommended a merger with Healthguard. PHIAC considered the recommendation and concluded that it was in contributors' best interests. The administrator then applied to the Court for approval [9]. The proposed arrangement provided for contributors and the liabilities associated with their policies to transfer to Healthguard. It also provided for assets to be transferred, except amounts retained to meet GMF's remaining liabilities and other agreed assets. Healthguard undertook to maintain the Kalgoorlie operations and brand, offer new employment contracts to GMF staff, and accept transferred contributors on terms no less favourable than their existing policies [27].
The transaction was structured in two stages. At the effective date, an agreed base amount and the relevant liabilities would transfer. The administrator would then realise retained assets, meet the remaining liabilities and pay the resulting balance to Healthguard [29]. Among the retained assets were interests in contracts for three apartments at Mounts Bay Village, which were subject to a dispute. Healthguard also wished to avoid assuming liabilities whose extent was not yet known [29].
The Court had directed notice to contributors and public notice in newspapers. No contributor or other interested person entered an appearance by the deadline [2]–[3], [37]–[38]. The Australian Competition and Consumer Commission had been informed and invited to participate, but did not appear. French J noted that it had expressed no concern about anti-competitive effects [39], [50].
One proposed term presented a legal difficulty. The original deed purported to let creditors challenge the administrator's decisions in a court nominated by the administrator. French J had already observed that a deed could not itself confer jurisdiction or restrict the Court's jurisdiction [31]. The deed was amended before the hearing so that a creditor could bring a proceeding in a court of competent jurisdiction, rather than being bound to the administrator's choice [33]–[36].
The Court first considered whether its statutory role was constitutionally judicial. Under s 82XZE, the Federal Court could make orders giving effect to a proposed course of action, with those orders binding all persons. That function did not necessarily involve deciding existing rights in a dispute. Instead, the Court's order would bring rights and liabilities into existence [45]. French J nevertheless concluded that the function was sufficiently analogous to matters historically accepted as judicial, and therefore constituted a “matter” within Chapter III of the Constitution [46].
The reasoning drew on examples of judicial functions that may lack a conventional dispute between opposing parties. These included orders concerning the administration of assets or trusts, insolvency, company winding up and other statutory matters [42]–[44]. The judgment referred to authorities including R v Davison and Truth About Motorways. French J's point was not that every administrative or non-contentious function is judicial. Rather, the particular statutory function could be treated as judicial because of its analogy with recognised court functions [42]–[46].
The statutory approval test required the Court to ensure interested people had a proper opportunity to be heard and to consider whether the orders were, in all the circumstances, in contributors' interests [47]. The Court treated these as requirements for its own assessment. PHIAC's and the administrator's views were relevant, but not determinative: the Court could not simply adopt PHIAC's opinion [49].
Several features supported approval. The scheme offered continuity of health cover, transferred contributors with their associated policy liabilities, and was intended to put the business under established management and improve its capital position [27]–[28]. The administrator and PHIAC supported the proposal, and no contributor or other interested person opposed it after notice [37]–[38], [49]. The Court was satisfied that the scheme was a reasonable way to protect contributors, creditors and employees [50].
French J also considered public interest and competition. He identified reliable, secure and, where possible, continuous health insurance services as matters of wider public interest. The failure of a health fund could affect the community beyond its contributors and creditors [47]. In this case, the Court found no negative public-interest impact and no apparent avoidable concentration of market power [50].
The Court did not require the administrator to prove that this was the best imaginable arrangement. It was not the Court's function to design improvements or compare every possible alternative. Its role was to assess the proposed scheme against the statutory interest criterion, taking account of relevant views and circumstances [49].
Finally, the Court considered the additional orders. It accepted that s 447A of the Corporations Act, as applied through s 82XB of the National Health Act, could support an order extending the administration for the time needed to complete the second stage of the scheme [53]. However, it refused to apply Corporations Act s 1321. That section conferred jurisdiction to review specified decisions. The Court held that it could not use an order under s 447A, or another ancillary order, to import that jurisdiction into an administration governed by the National Health Act [54]–[55]. Instead, it made a review-related order grounded in the National Health Act and s 39B(1A) of the Judiciary Act [55].
The judgment describes a regulatory framework changed by the Health Legislation Amendment Act (No 3) 1999. Before those changes, PHIAC's role was largely advisory, and the Minister held ultimate responsibility for matters such as registration and applications for judicial management or winding up [11]–[12]. The revised scheme strengthened PHIAC's independent regulatory role, introduced solvency and capital adequacy standards, and established an administration process [12]–[20].
Under the framework described in the reasons, an administrator investigates a fund and reports to PHIAC. If a scheme is recommended and PHIAC is satisfied that it is in contributors' best interests, PHIAC directs the administrator to apply to the Court. The Court then determines whether to make orders giving effect to the proposal [21]–[24]. The order can bind all persons and take effect despite the organisation's constitution or rules [24].
The decision clarifies how the Court understood its role within this framework. The Court had to make its own assessment of contributors' interests, while considering PHIAC's expertise and the administrator's assessment [49]. The decision also identifies the wider interests that may be relevant to that assessment, including creditors, employees and the public interest, even though contributors remain central to the express statutory test [47].
The judgment's constitutional analysis addresses the nature of the Court's approval function. It holds that the statutory role was sufficiently analogous to established judicial functions to fall within federal judicial power, even though the Court was not resolving a conventional dispute over pre-existing rights [45]–[46].
As to review of administrator decisions, the judgment does not say that Corporations Act s 1321 applied to this administration. It expressly rejects that proposed route because s 1321 confers jurisdiction [55]. The order made instead identifies a route for applications under the National Health Act and/or Judiciary Act s 39B(1A) [55]. The reasons do not describe later legislative changes or subsequent judicial treatment, so no further “after” position can be established from this judgment alone.
At [46], French J says the Court's statutory function was “sufficiently analogous” to historically accepted judicial matters to be a matter under Chapter III. In plain English, the absence of a conventional two-sided dispute did not prevent the Federal Court from exercising the approval jurisdiction Parliament had given it, because the function resembled recognised judicial tasks.
At [47], the judgment identifies the central approval requirements: interested persons must have an opportunity to be heard, and the proposal must be in contributors' interests. It adds that the Court should consider consequences for creditors, employees and the wider public interest. This frames approval as a broader evaluation, while keeping contributors' interests as the statutory centre.
At [49], French J says the Court must itself consider whether the scheme is in contributors' interests and cannot simply rely on PHIAC. In ordinary terms, regulatory support is important evidence, but the legal responsibility to decide remains with the Court. The same paragraph explains that the Court need not find the best possible deal or redesign the proposal.
At [50], the Court describes the scheme as a reasonable way of protecting contributors, creditors and employees. That conclusion rested on the financial and management concerns affecting GMF, the scheme's essential features, the lack of opposition and the absence of an identified negative public-interest impact.
At [55], the Court explains that s 1321 is not merely a provision regulating the administration; it “confers jurisdiction”. The practical distinction is that the Court could not create an application of that jurisdiction simply by making an order under a different statutory scheme. It instead relied on other jurisdictional sources identified in the order.
The decision is relevant where a statutory regime requires a court to approve a proposed arrangement affecting a regulated entity, particularly where an administrator and regulator recommend a transfer or merger intended to protect customers or contributors. Its discussion of s 82XZE is specifically tied to the National Health Act framework and should not be treated as a general test for every statutory scheme.
The constitutional reasoning may be relevant where a court is asked to perform a statutory approval function that does not resolve a traditional dispute between opposing parties. French J's analysis indicates that the function's historical analogies matter; absence of a conventional lis is not by itself conclusive [42]–[46].
The approval reasoning may also be relevant where a proposal affects a defined group whose interests the statute prioritises, while binding creditors, employees or other people as well. The case supports careful attention to notice, the opportunity to be heard, the decision-maker's independent assessment, and the scheme's effects beyond the statutory beneficiaries [47]–[50].
The jurisdiction point is relevant where a party seeks to apply a review provision from one statutory regime to a process governed by another. The judgment distinguishes rules that regulate administration from provisions that confer jurisdiction. It rejects using an ancillary order to transplant jurisdiction without statutory authority [54]–[55].
The judgment text lists cases French J cited in considering the constitutional character of the Court's function, including R v Davison, Huddart Parker & Co Pty Ltd v Moorehead, Federal Commissioner of Taxation v Munro, R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd, R v Quinn; Ex parte Consolidated Foods Corp, Pasini v United Mexican States, Truth About Motorways, Connolly v Connolly, Attorney-General (Commonwealth) v Schmidt and Marion's case [42]–[44].
Those authorities are used in this judgment to explain concepts including the constitutional “matter”, judicial functions without a conventional inter partes dispute, and functions that may be judicial when performed by a court but administrative when performed elsewhere [42]–[44]. They are not later treatments of Hedge. The supplied judgment contains no account of decisions after 29 November 2002 and does not state how later courts applied, followed, distinguished or criticised its reasoning. Accordingly, later treatment cannot be determined from this source.
The judgment does not establish how its constitutional reasoning would apply to every other statutory approval scheme. French J decided the issue by analogy with historically accepted judicial functions, but the reasons do not set out a universal test for all non-contentious statutory functions [42]–[46].
The decision also does not explore the precise limits of the alternative route for challenging administrator decisions. The order allows an affected person to apply under the National Health Act and/or s 39B(1A) of the Judiciary Act, but the reasons do not decide what forms of relief would be available in a particular dispute, what substantive grounds would apply, or how the application would interact with other statutory procedures [55].
The creditor process was approved in the context of the amended deed and this unopposed application. The judgment does not decide how a court should assess a materially different notice process, a contested claim, or a scheme whose creditor consequences were less clearly protected. It does establish that creditors' interests matter because the order binds all persons, but the statutory focus remains on contributors [24], [47]–[50].
Finally, the Court's conclusion about competition was based on the evidence and circumstances before it, including the absence of an expressed ACCC concern and the apparent rescue of a failing fund [39], [50]. The judgment does not define a general competition test or decide how different market evidence would affect approval.
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(a) when the Applicant has completed all his obligations under cl 13 of the Deed; or (b) 6 months from the date of this order.
(a) cause to be published in a newspaper or newspapers circulating generally in each State and Territory of Australia in which GMF conducts business an advertisement substantially in the form of that set out in Schedule 3 of the Deed; and (b) send to each known creditor of GMF at their last known address a notice substantially in the form of that set out in Schedule 3 of the Deed. 5. That the 28 day period prescribed in paragraph 2.2 of Schedule 2 to the Deed be the date on or before which creditors of GMF are to prove their debts or claims against GMF in accordance with the terms of Schedule 2 and after which any unproved debts or claims will be forever extinguished. 6. Such further or other orders as the Court thinks fit. 7. The costs of the Application be the costs and expenses of the administration of GMF. 8. There be liberty to apply.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
BETWEEN: PETER HEDGE in his capacity as Administrator of the Goldfields Medical Fund Incorporated (Administrator Appointed)
REASONS FOR JUDGMENT ON APPLICATION TO GIVE EFFECT TO SCHEME OF ARRANGEMENT
Introduction 1 On 4 October 2002, Peter Hedge, the Administrator of The Goldfields Medical Fund Incorporated (Administrator Appointed) ("GMF") applied to the Court for an order that a proposed Scheme of Arrangement Deed dated 2 October 2002, between the GMF and Heathguard Health Benefits Fund Ltd ("Healthguard") be given effect in accordance with the terms of the Deed. 2 The application came on for directions on 18 October 2002, and on 23 October 2002 directions were made. Those directions provided, inter alia, for notice to be sent to each contributor of GMF, and for any contributor wishing to be heard to file an appearance by 20 November. It was also directed that notice of the application be given in the Australian Newspaper, the West Australian Newspaper and the Kalgoorlie Miner Newspaper, including a requirement that any interested person wishing to be heard file an appearance by no later than 20 November 2002. 3 No contributor or other interested person having entered an appearance, the application was, in accordance with the directions given, listed for hearing on 22 November 2002. Judgment on the application was reserved until today. 4 Although the factual background and statutory framework are set out in the reasons for decision given in connection with the directions of 23 October 2002, it is convenient to reproduce them here to the extent necessary for these reasons to be self-contained.
Factual Background 5 The GMF has conducted a health insurance business out of Kalgoorlie in Western Australia for over 45 years. It is a registered organisation under the National Health Act 1953 (Cth) ("the Act"). 6 On 28 November 2001, the Private Health Insurance Administration Council ("PHIAC"), a body corporate established under the Act with prudential regulatory functions, appointed Peter Hedge, a Chartered Accountant and Registered Liquidator, as an investigator under s 82R of the Act to investigate the affairs of GMF. The appointment was based on the following grounds: (a) Information provided to PHIAC by GMF's actuary and by GMF raised serious concerns about the reported level of claims, decreasing reserves, liquidity, the carrying value of assets and whether or not the management of the business of GMF was in conflict with the actuary's recommendations to preserve the financial stability of GMF; (b) PHIAC's review of financial information provided by GMF led PHIAC to suspect that GMF's reserves may, or may in the near future, become insufficient to satisfy the capital adequacy requirements under the Act; (c) PHIAC had been informed that GMF had lost several key executive staff including the Chief Executive Officer, the accountant and an experienced senior manager; (d) PHIAC suspected that GMF may not have experienced internal managers to effectively manage the operations of the Fund in the interests of contributors. Mr Hedge was appointed on 23 December 2001 as administrator of GMF under s 82XF of the Act. 7 Although GMF had been established and had operated for many years as a health insurer for contributors predominantly based in regional Western Australia, over the two years up to the appointment of Mr Hedge as investigator, the fund it conducted had grown by more than 400%. It now services approximately 70,000 contributors with more than 50% of its membership located in the States of Victoria, New South Wales and Queensland. Mr Hedge's examination of its business and affairs led him to conclude that what he described as "the phenomenal growth in membership of the GMF fund" was attributable to uneconomic pricing decisions that resulted in the fund breaching capital adequacy standards prescribed under the Act. His examination also disclosed inadequate management and corporate governance and continued substantial losses and breaches of the capital adequacy standards. 8 The audited financial statements of GMF for the year ended 30 June 2002 disclosed a net loss of $8,309,386 against a net profit in the preceding year of $4,838,854. While total revenue had increased by over $7 million, benefits expenses had increased by more than $17 million. Salaries and employee expenses had increased by $1 million and professional services expenses increased by about $1.2 million. Asset writedowns represented $1.695 million As at 30 June 2002, the balance sheet showed net assets of $7,065,186 against a net asset position in the previous year of $15,374,572. Notes to the financial statements indicated that although the Fund was solvent at 30 June 2002, it had breached its capital adequacy requirement as defined by PHIAC under the Act by $4,550,000. A subsequent report to PHIAC from GMF showed that as at 31 August 2002 GMF's solvency was $2.443 million in excess of the full solvency requirement. However its capital position was $3.399 million less than the full capital adequacy basis required by PHIAC. 9 On 12 September 2002, Mr Hedge provided PHIAC with a final report under s 82XZC of the Act. In that report he recommended, pursuant to s 82XZC(8)(a)(i) that the fund conducted by GMF be merged with the fund conducted by Healthguard in accordance with a Scheme of Arrangement Deed to be executed by Healthguard, GMF and Mr Hedge as administrator. PHIAC considered the report at a meeting of its board on 13 September 2002 and concluded that the course of action recommended by the administrator would be in the best interests of the contributors of the fund conducted by GMF. On 16 September, PHIAC announced that it had accepted the administrator's recommendation to merge the GMF fund with that conducted by Healthguard. It issued a statement to all GMF contributors on that date. It foreshadowed that the administrator would be seeking approval from this Court for the merger in accordance with procedures laid down by the Act. On 4 October 2002, an application was filed in this Court by Mr Hedge accordingly.
The Amended Application 10 On the hearing of the application leave was sought to amend it in accordance with a Minute of Amended Application dated 21 November. The orders now sought are in the following terms: "1. Pursuant to section 82XZE of the National Health Act 1953 (the "Act") the scheme of arrangement set out in the Scheme of Arrangement Deed between Healthguard Health Benefits Fund Limited, Goldfields Medical Fund Incorporated (Administrator Appointed) ("GMF") and the Applicant dated 2 October 2002 (the "Deed") be given effect to in accordance with the terms of the Deed. 2. Pursuant to section 447A of the Corporations Act (as applied by section 82XB of the Act), the operation of section 82XZJ(3)(e) of the Act be varied and Part VIA of the Act operates so that, notwithstanding the order in paragraph 1, the administration of GMF ends on the earlier of: (a) when the Applicant has completed all his obligations under clause 13 of the Deed; or (b) 6 months from the date of this order.
Statutory Framework - The National Health Act - The Jurisdiction and Powers of the Court 23 The provisions of this Act to which reference has been made above, are to be found in Pt VIA - Conduct and Supervision of the Affairs of Registered Organisations. By s 82ZE, which is also in Pt VIA, it is provided: "The Federal Court of Australia has jurisdiction to hear and determine applications under this Part and to make any necessary orders in respect of those applications." 24 The present application is made under s 82XZE which provides, inter alia: "82XZE(1) If the Council informs the administrator that it is satisfied that a course of action of a kind specified in subparagraph 82XZC8(a)(i) is, in the circumstances, in the best interests of contributors to the fund concerned, the administrator must apply to the Court for an order or orders to give effect to the course of action. (2) On an application for such an order or orders: (a) the Council and any other person interested are entitled to be heard; and (b) the Court may make such order or orders in respect of the course of action the subject of the application as it considers to be, in all the circumstances, in the interests of persons who are contributors to the fund concerned. (3) An order under this section: (a) is binding on all persons; and (b) takes effect despite anything in the constitution or other rules of the registered organization concerned. (4) For the avoidance of doubt, an order of the Court is not required: (a) in order to give effect to a voluntary deed of arrangement - if the Council approves the execution of the deed; or (b) in order to effect a termination of an administration that is recommended under paragraph 82XZC(8)(b) - if the Council accepts the recommendation." 25 Reference should also be made to s 82XZI in subdivision 8 which applies s 447B of the Corporations Act 2001 as if the power there conferred to make application to the Court were a power conferred on PHIAC. The general provision, s 82XB, attracts the application of s 447A which appears in Division 13 of Part 5.3A of the Corporations Act 2001. That section confers power on the Court to make orders in relation to a company under administration with a view to executing a deed of company arrangement. Relevantly it provides: "447A(1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. (2) For example, if the Court is satisfied that the administration of a company should end: (a) because the company is solvent; or (b) because provisions of this Part are being abused; or (c) for some other reason; the Court may order under subsection (1) that the administration is to end. (3) An order may be made subject to conditions. (4) An order may be made on the application of: (a) the company; or (b) a creditor of the company; or (c) in the case of a company under administration - the administrator of the company; or (d) in the case of a company that has executed a deed of company arrangement - the deed's administrator; or (e) ASIC; or (f) any other interested person."
The Proposed Scheme of Arrangement - Overview 26 The Scheme of Arrangement Deed is executed between GMF, Healthguard and Mr Hedge. Recital H of the Deed describes it as setting out the terms on which the proposed transaction will, subject to PHIAC's approval under s 82XZD of the Act and the Court making orders in relation to the matter under s 82XZE of the Act and s 447A of the Corporations Act as applied by s 82XB of the Act, be effected by the parties. 27 The key aspects of the scheme of arrangement were described in Mr Hedge's affidavit of 3 October 2002. Subject to an amendment to the Deed which has been made subsequently, those key aspects are: (a) All GMF contributors will be transferred to Healthguard together with the liabilities associated with their policies. (b) The assets of GMF will be transferred to Healthguard, excluding amounts estimated to meet GMF's remaining liabilities and any other assets agreed by the parties. It is estimated that assets valued in excess of the estimated liabilities associated with the GMF contributors will be transferred to Healthguard at the time the GMF contributors are transferred. (c) The balance of assets held by GMF are to be realised and the proceeds used to discharge GMF's remaining outstanding liabilities. The balance of the proceeds will then be paid to Healthguard. (d) Healthguard undertakes, unless otherwise agreed by PHIAC, to maintain GMF's operations in Kalgoorlie, with trading continuing under the GMF brand. (e) All GMF staff will be offered new employment contracts. (f) Healthguard undertakes that at least two non-executive directors from the board of HBF and at least two non-executive directors residing in the Goldfields region will be appointed to the Healthguard board. (g) Healthguard will convert GMF's information technology systems to the "WHICS" health insurance management software system without adversely affecting the services to GMF contributors. (h) Healthguard will accept each GMF contributor on terms no less favourable than the GMF policy held by the GMF contributor. (i) Each GMF contributor that transfers to Healthguard will be deemed to have a continuous period of membership with Healthguard (including for the purposes of waiting periods). (j) Premiums payable by and benefits offered to each GMF contributor under policies held will remain unchanged until 31 March 2003 unless requested earlier by PHIAC for solvency or capital adequacy reasons. 28 Mr Hedge contended that the merger of the GMF fund with the Healthguard fund should provide GMF contributors with established, experienced and proven management and a board of directors which will enable it to meet PHIAC's requirements. The merger should also provide GMF contributors with a financially viable fund with improved capital reserves. He said he expected the merged fund to meet the prudential requirements under the Act. He stated his opinion that in all the circumstances the best interests of the contributors of GMF are served by merging the fund conducted by GMF with the fund conducted by Healthguard in accordance with the scheme of arrangement outlined in the deed. If the scheme of arrangement is not approved by the Court then, in Mr Hedge's opinion, the administration will continue subject to PHIAC and the Act. He believes the fund would continue to be in breach of its prudential requirements under the Act. Under these circumstances PHIAC had indicated that it is likely that it would not be in a position to renew the fund's registration and operating licence. 29 The scheme contemplated under the Deed involves a two step process for the transfer of GMF's net assets and liabilities to Healthguard. In the first step, which occurs on the "Effective Date", a defined "Base Amount" is paid to Healthguard when all liabilities of GMF for "Transferring Contributors" are transferred to Healthguard. In the second step, Mr Hedge would proceed to realise the "Balance Assets", discharge GMF's remaining liabilities and pay the "Realised Amount" to Healthguard. There are two principal reasons for structuring the scheme using this two step process. The first is that there are certain GMF assets designated "problem" assets which the parties consider would be better dealt with and realised by Mr Hedge as administrator, rather than transferred to Healthguard. These involve GMF's interests in contracts to purchase three apartments at Mounts Bay Village in Mounts Bay Road, Perth, WA. A dispute has arisen with the vendor under these contracts which will need to be settled by the courts if it cannot be resolved by agreement. The second reason is that Healthguard is reluctant to assume all the liabilities of GMF in circumstances where it could not determine the extent of those liabilities. Mr Hedge said he was informed by Healthguard that it was particularly concerned about presently unknown and unforeseen liabilities emerging and claims being made against the merged fund after the transfer. He believed a procedure established in cl 13.4 and Schedule 2 to the Deed would enable GMF's outstanding liabilities to be finally determined and discharged. This would achieve the finality and certainty necessary in the interests of the contributors of GMF and the merged fund. 30 There was a difficulty attending the proposed procedure with respect to resolution of outstanding liabilities. This was discussed in my reasons for judgment in the directions given on 23 October. Clause 13.4 of the Deed provides that: "The procedures for the Administrator satisfying the outstanding liabilities of GMF is as set out in Schedule 2." Schedule 2 provided for the administrator to create and "admit a list of admitted claims by creditors". Within one month of the Effective Date under the Deed, the administrator was, under Schedule 2, to place an advertisement in the form of that set out in Schedule 3, once in a newspaper or newspapers circulating generally in each State and Territory of Australia in which GMF conducts business and to send to each named creditor at their last address, a notice substantially in the form of that set out in Schedule 3. Such notice would require each creditor asserting a claim to notify the administrator in writing, within twenty eight days of the date of the advertisement, of the Asserted Claim. The administrator, under cl 2.6, was to determine whether all or part of an Asserted Claim should be entered on the Admitted List. There was provision under cl 2.10 for a creditor who received a notice from the administrator of the admission of none or all or part of a claim on the Admitted List to commence a "proceeding in a Court nominated by the Administrator appealing the Administrator's decision". Unless the creditor commenced such proceeding within a twenty one day period or any further period that the Court might allow, the administrator's decision would be final. 31 I observed in my previous reasons that cl 2.10 lacked statutory support. No deed can confer jurisdiction on the Court nor limit its jurisdiction. The Act does not in terms authorise applications to the Court to resolve questions relating to or arising out of the discharge of the scheme administrator's duties and powers. However it does authorise the Court to make orders "to give effect" to the relevant course of action (s 82XZE(1)) and to "make any necessary orders" in respect of applications under Pt VIA (s 82ZE). Under these provisions and s 23 of the Federal Court of Australia Act 1976 (Cth) the Court could reserve liberty to apply for such ancillary orders as are necessary to deal with disputes arising under the Deed. If there be jurisdiction to challenge a decision of the administrator, parties cannot be bound by the choice of court nominated by the administrator - see generally Minister for Health (Cth) v Trustees of the Ancient Order of Foresters Friendly Society in Queensland (1985) 10 FCR 27 (Pincus J). I observed at the directions hearing that it may be the case that the deed being made "binding on all persons" by virtue of s 82XZE(1) federal jurisdiction is also attracted in respect of disputes arising under the deed by virtue of s 39B(1A) of the Judiciary Act 1903 (Cth). I am satisfied that it is so attracted. I foreshadowed that this aspect of the Deed would require consideration when it came to the question of Court approval. It was doubtful that it could be approved if cl 2.10 remained in its original form. 32 A necessary aspect of the two stage process contemplated by the Deed was an extension of the administration for a further period of six months to allow Mr Hedge to complete his obligations under the Deed. Absent an order effecting such extension, the administration of GMF would come to an end, by virtue of s 82KZJ(3)(e), upon the Court making the orders sought in the application. It was for that reason that Mr Hedge sought the orders set out in par 2 of his application. In that respect he relied upon s 447A of the Corporations Act as applied by the Act. Amendment of the Deed 33 On 21 November 2002, the Scheme Deed was amended to deal with the difficulty raised by cl 2.10 and some other minor matters. The amendment was made pursuant to cl 22.1 of the Scheme Deed which provides: "This document can only be amended, supplemented, replaced or novated by another agreement signed by the parties." In terms that clause does not authorise amendment. Rather it imposes a requirement that amendment be by another written agreement. The Deed, evidencing an agreement however, there is no obstacle to the parties agreeing to amend it. I am satisfied that the terms of the amendment do not effect such a change in the Deed as to require further notice to be given to contributors or other interested persons. 34 The Amendment Deed begins with an interpretation clause which adopts the definitions in the Scheme Deed (cl 1.2) save for terms defined in cl 1.1. The term "authorisation" is defined in cl 1.1 deleting par (b) of the Scheme Deed definition which incorporates the expiry of a period within which anything could be prohibited or restricted by law if a Government Agency were to act in any way within that period. The Amendment Deed also includes reference to the Corporations Act in its definition section and to the original Scheme Deed. A number of mutual representations and warranties set out in cl 17.1 of the Scheme Deed are replicated in cl 3.1 of the Amendment Deed subject to a change in the terms of the representation in cl 17.1(c) as to the legal enforceability of the agreement. The change involves a qualification by reference to limitations upon the enforceability of the Deed by equitable principles and laws affecting creditors' rights generally. There is provision for the giving of notices under the Amendment Deed (cl 4) and a repetition in cl 5 of the provision relating to the governing law of the Deed which appears in cl 24.1 of the Scheme Deed. 35 The substantive amendments to the Scheme Deed then follow in a schedule to the Amendment Deed. They are to take effect from 2 October 2002. The first amendment changes the transfer time from 8am to 5pm on 29 November 2002. The time for offers of employment to be made by Healthguard to each employee of GMF pursuant to cl 10.1 of the Scheme Deed is extended from one week to two weeks after lodgement of the first of the documents required in order to obtain Court Approval. There is a change of name of the person at the administrator's office for the purpose of correspondence. 36 Importantly for present purposes, pars 2.9 and 2.10 of Schedule 2 to the Scheme Deed are changed. Schedule 2 to the Scheme Deed sets out, as noted earlier, the procedures by which the administrator will ascertain the balance of GMF's liabilities which includes the admission of creditors and their claims. In the Scheme Deed cls 2.9 and 2.10 are in the following terms: "2.9 Administrator's Notices under this Paragraph Any notice by the Administrator under this paragraph must: (a) be in writing; (b) include an explanation of the Administrator's decision as reflected in the notice; (c) inform the recipient of its rights under paragraph 2.10; and (d) nominate a court in which any proceeding by the recipient is to be commenced. 2.10 Declaration of Court A Creditor who receives a notice from the Administrator under paragraph 2.9 may, within 21 days of the date of the notice or any further time the Court allows, commence a proceeding in a Court nominated by the Administrator appealing the Administrator's decision. Unless the Creditor commences a proceeding under this paragraph within that 21 day period, or any further period the Court allows, the Administrator's decision will be final." As a result of the amendments these clauses will now read as follows: "2.9 Administrator's Notices under this Paragraph Any notice by the Administrator under this paragraph must: (a) be in writing; (b) include an explanation of the Administrator's decision as reflected in the notice; (c) inform the recipient of its rights under paragraph 2.10. 2.10 Declaration of Court A Creditor who receives notice from the Administrator under paragraph 2.9 may, within 21 days of the date of the notice or any further time the Court allows, in a court of competent jurisdiction: (a) if s 1321 of the Corporations Act applies to the Scheme, appeal against the Administrator's decision under that section as applied; or (b) commence a proceeding disputing the Administrator's decision. Unless the Creditor commences a proceeding under this paragraph within that 21 day period, or any further period the Court allows, the Administrator's decision is final." There is provision under the existing terms of Schedule 2 of the Scheme Deed for the administrator to enter a claim on or to amend the Admitted List of Claims as appropriate in accordance with any notice served by him under par 2.9 or any order of the Court under par 2.10. Clause 2.12 makes provision for payment to the creditor or repayment by the creditor to the administrator as the case may be. Clause 2.13 seeks to apply Corporations Regulations 5.6.40 to 5.6.47 and 5.6.49 to the scheme as if the references therein to the liquidator were references to the administrator. Moreover, Subdivisions A, B, C and E of Division 6 of Part 5.6 of the Corporations Act are said to apply to claims made under the scheme as if reference to the liquidator were references to the administrator and references to the winding up were references to the scheme with such other modifications as are necessary to give effect to the scheme. It may be noted that the application of these provisions by cl 2.14 is in terms contractual but given binding effect by virtue of the operation of s 82XZE(1). 37 Mr Hedge exhibited the Amendment Deed to his third supplementary affidavit sworn 21 November 2002. In addition, he deposed to his compliance with the directions given on 23 October 2002. Prior to 30 October 2002 he caused to be sent to each contributor of GMF by normal prepaid post a notice in the form annexed to the affidavit and a copy of the application. A copy of the notice was also posted on the GMF website. A copy of the Explanatory Statement accompanied the notices sent to contributors. In addition, the affidavit exhibited copies of public notices advertised in the Australian Newspaper, the West Australian Newspaper and the Kalgoorlie Miner Newspaper on 29 October 2002. 38 By close of business on 20 November 2002 no notice of appearance had been lodged by any contributor of GMF or by any other interested person wishing to be heard in the proceedings. 39 In relation to competition issues, Mr Hedge's solicitors, Messrs. Blake Dawson Waldron, sent a letter to the Australian Competition and Consumer Commission ("ACCC") on 9 October 2002 informing the ACCC of the proposed merger and inviting the ACCC, should it have any view it might wish to express about the merger, to participate in the proposed Court approval pursuant to s 82XZE of the Act. The letter set out an explanation of the substance of the merger and the reasons for it. At the time of swearing the affidavit, the ACCC had not filed or served any notice of appearance in the proceedings. 40 Mr Hedge also disclosed in his affidavit that on 23 September 2002 and 2 October 2002 he was served with notices issued by the ACCC under ss 19, 30 and 32A of the Australian Securities and Investment Commission Act. These notices were in connection with inquiries the ACCC was making with respect to representations said to have been made by GMF prior to his appointment as administrator to the effect that GMF members who prepaid their premium would be protected from increases in premiums during the prepaid period. He exhibited copies of the notices to his affidavit and asserted that he had complied with them. The Jurisdiction of the Court 41 No issue was raised concerning the Court's jurisdiction which is perhaps not surprising given the absence of any contradictor. The statutory source of that jurisdiction, s 82ZE, is set out above. There is a question whether, in respect of applications of the kind contemplated by s 82XZE(1), the jurisdiction is of the kind which the Parliament is authorised to confer upon the Court pursuant to s 76 of the Constitution. On the face of it an application under s 82XZE(1) for "an order or orders to give effect to the course of action" proposed by the administrator and approved by PHIAC does not have the character of a justiciable controversy which is an important element of the concept of "matter" in respect of which federal jurisdiction may be defined or invested under Chapter III. 42 That concern may be raised in respect of many kinds of orders made by courts exercising federal jurisdiction such as sequestration orders upon a debtor's petition or the approval of schemes of arrangement under the Corporations Act. Such orders have however long been accepted as judicial in character. R v Davison (1954) 90 CLR 353 concerned the constitutional inability of the Parliament validly to confer a judicial function upon a Registrar in Bankruptcy who was not a court for the purposes of Chapter III of the Constitution. It concerned a sequestration order made upon a debtor's petition. Dixon CJ and McTiernan J observed that, for a very long time, voluntary sequestration "had been the subject of judicial order" (365). That was not to say that it could not also be done administratively. In considering the nature of the judicial power their Honours referred to the element emphasised by Griffith CJ in Huddart Parker & Co Pty Ltd v Moorehead (1909) 8 CLR 330 "that a controversy should exist between subject or between the Crown and a subject" (at 368). They referred also to the element emphasised by Palles CB in R v Local Government Board (1902) 2 IR 349, that the exercise of judicial power involved the determination of existing rights as distinct from the creation of new ones. They then observed (at 368): "It may be said of each of these various elements that it is entirely lacking from many proceedings falling within the jurisdiction of various courts of justice in English law. In the administration of assets or of trusts the Court of Chancery made many orders involving no lis inter partes, no adjudication of rights and sometimes self-executing. Orders relating to the maintenance and guardianship of infants, the exercise of a power of sale by way of family arrangement and the consent to the marriage of a ward of court are all conceived as forming part of the exercise of judicial power as understood in the tradition of English law." Other examples they cited included the administration of enemy property, declarations of legitimacy, orders involved in winding up of companies and the grant of probate of wills or letters of administration. 43 That is not to say that such functions are uniquely judicial. Some things when done by a court have a judicial character but when done by an authority other than a court are administrative in nature. These are sometimes referred to as chameleon functions - Federal Commissioner of Taxation v Munro (1926) 38 CLR 153 at 175-9 (Isaacs J). See also R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 361 at 373 (Kitto J); R v Quinn; Ex parte Consolidated Foods Corp (1977) 138 CLR 1 at 6 (Gibbs J) and 9 (Jacobs J). A recent consideration, by the High Court, of functions bearing this dual character is to be found in Pasini v United Mexican States (2001) 187 ALR 409 at 412-414 and 424-427. 44 In Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (1999) 200 CLR 591, Gummow J discussed the scope of the judicial power in the context of a challenge to provisions of the Trade Practices Act 1974 (Cth) authorising any person to seek declaratory or other relief in respect of contraventions of the Act notwithstanding that such person had suffered no loss or damage and had no special interest. Supporting the validity of the provisions, his Honour referred (at 631) to the passage cited above from the joint judgment in R v Davison. He noted that following those observations the Parliament enacted s 92 of the Marriage Act 1961 conferring federal jurisdiction with respect to the making of declarations of legitimacy which were held to be within the authority of the Parliament in Connolly v Connolly (1966) 115 CLR 166 at 168. His Honour also referred to the jurisdiction conferred upon the High Court with respect to the administration of enemy property under the Trading with the Enemy Act 1939 (Cth) - Attorney-General (Commonwealth) v Schmidt (1961) 105 CLR 361 at 370. The welfare of the child of a marriage could also be a "matter" arising under the Family Law Act 1975 (Cth) - Secretary, Department of Health and Community Services v JWB and SMB (Marion's case) (1992) 175 CLR 218. 45 The jurisdiction conferred on this Court by s 82ZE of the Act in its application to the present proceedings does not involve the ascertainment by the Court of existing rights and liabilities in a dispute between subjects or between subjects and the Crown. Rather, by virtue of the order made by the Court, the proposed Deed is made binding upon all persons. The rights and liabilities which come into existence do so by virtue of the statute and by virtue of the Court's order. The Court must consider that the orders it makes in respect of the course of action the subject of the application are "… in all the circumstances in the interests of persons who are contributors to the fund concerned" (s 82XZE(1)(b)). It must also have regard to the effect of its orders upon other persons bound by them. 46 The jurisdiction conferred by s 82ZE in relation to applications which it encompasses under s 82XZE is novel. It is entirely a creature of statute. The character of the function it confers upon the Court is, however, sufficiently analogous to matters which have historically been accepted as judicial that it is properly regarded as a matter for the purposes of Chapter III. The Court, in my opinion, has jurisdiction to hear and determine the application. Criteria for Orders 47 Before the Court can make an order pursuant to s 82XZE, in respect of the implementation of the proposed scheme of arrangement, it must be satisfied of the following matters: 1. That a proper opportunity has been provided for PHIAC and any other interested person to be heard on the application (s 82XZE(2)(a)). 2. That the orders proposed are, in all the circumstances, in the interests of persons who are contributors to the Fund (82XZE(2)(b)). In addition the Court can and, in my opinion, should have regard to the effect of the proposed orders upon the interests of creditors of the Fund and, to the extent that it may be apparent, the wider public interest. The position of creditors is not expressly referred to in s 82XZE(1) but, given their right to be heard as "interested persons" and the binding effect of the orders "on all persons", it is appropriate that their position be considered. It is also appropriate that the effect of the scheme upon employees of GMF be considered, although their interests are subordinate to the interests of contributors. The wider public interest resides in ensuring the reliability, security and, where possible, continuity of services in medical health insurance funds. The failure of a medical health insurance fund has the potential to impose a burden upon the community that extends beyond the interests of its contributors and creditors. On the other hand, the question whether a scheme involves adverse impacts upon the public interest by virtue of anti-competitive effects, may also be relevant. Whether the Orders Sought Should be Made 48 The directions made on 23 October 2002 were intended to ensure that interested persons had an opportunity to be heard on the application. The interests primarily affected are those of contributors and individual notices were sent to them. Those of the creditors are substantially protected under the Deed by the proposed arrangements for dealing with outstanding liabilities. Given the changeability of the list of creditors, and the fact that GMF is not insolvent and unlikely, if the scheme is implemented, to become insolvent, it was appropriate to direct notice of the application by advertisement in three newspapers, local, state and national, and this has been done. I am satisfied therefore that reasonable steps have been taken to bring the application to the attention of creditors. I am also satisfied that PHIAC is aware of the application. 49 In considering the merits of the application the Court must form its own view of the proposed course of action in respect of which orders are sought under s 82XZE. It must itself consider that the scheme proposed is in the interests of persons who are contributors to the Fund concerned. It is not sufficient for the Court simply to rely upon the opinion of PHIAC to that effect. Nevertheless the Court may have regard to the fact that the administrator and the regulator both consider the scheme to be in the interests of the contributors. PHIAC has the relevant statutory responsibility, expertise and resources to enable weight to be given to its views. The same may be said, albeit in the context of the financial aspects of the proposal, about the opinion of the administrator. The fact that there has been no appearance to oppose the application is also relevant. It is not the function of the Court in considering the proposed scheme to suggest changes or improvements that might yield a better outcome from the point of view of contributors or creditors. It is not the responsibility of the Court to be satisfied that the proposed arrangement is the best of all possible arrangements that might be made. 50 I am satisfied, having regard to the current concerns about the operation of the GMF and the essential elements of the scheme, that it represents a reasonable way of properly protecting the interests of contributors, creditors and employees of the GMF and that orders should be made to give effect to it. There is no negative impact on the public interest. The ACCC has expressed no concern about anti-competitive effects and, on the face of it, the proposal which involves the rescue of what appears to be a failing Fund, involves no avoidable concentration of power in any relevant market. 51 Subject to consideration of the mechanism for dealing with disputed claims by creditors, I am prepared to make the orders proposed in par 1 of the amended application. Ancillary Orders 52 There is a number of ancillary orders sought in the amended application which relate to the second stage of the scheme concerning the extension of the administration and the handling of outstanding creditor claims. 53 I consider that the powers of the Court under s 447A of the Corporations Act, which is applied to the administration of registered organisations by virtue of s 82XB of the Act, extend to authorise the order proposed in par 2 of the amended application. The extension of the administration is a necessary and desirable measure in order to enable that aspect of the scheme concerning resolution of outstanding liabilities to be implemented. 54 The third order in the amended application seeks to attract the application, to the scheme administration, of s 1321 of the Corporations Act which is in the following terms: "A person aggrieved by any act, omission or decision of: (a) a person administering a compromise, arrangement or scheme referred to in Part 5; or (b) a receiver, or a receiver and manager, of property of a corporation; or (c) an administrator of a company; or (ca) an administrator of a deed of company arrangement executed by a company; or (d) a liquidator or provisional liquidator of a company; may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit." 55 That section confers jurisdiction upon the Court under the Corporations Act in respect of matters arising, inter alia, in receiverships, administrations and company liquidations. It provides a species of review into the decisions of administrators, receivers and liquidators in the original jurisdiction of the Court notwithstanding the reference in the section to an "appeal to the Court". I am not satisfied that it is open to the Court, by operation of s 447A or otherwise by ancillary orders, to attract a jurisdiction conferred in respect of matters under the Corporations Act to matters arising in the administration of a scheme under the Act. It is submitted for Mr Hedge that the Court has power under that provision, as applied by s 82XB, to make an order varying the operation of Part VIA of the Act "… so that the administration of GMF is regulated also by s 1321 of the Act." But s 1321 of the Corporations Act is not merely a regulatory provision. It confers jurisdiction. In my opinion, I cannot make the order sought under par 3 and I decline to do so. I am however prepared to make an order which in my opinion will create an appropriate mechanism reliant upon the jurisdiction conferred on the Court under the Act and under the Judiciary Act. The order will be in the following terms: 3. Any person affected by a decision of the Administrator under the Deed given effect to by these orders may apply to the Court pursuant to its jurisdiction under the Act and/or under s 39B(1A) of the Judiciary Act 1903 for such directions or other relief as the Court thinks fit provided that such application is made within 21 days of the Administrator's decision or such further period as the Court allows. 56 The other orders proposed in the application are, in my opinion, appropriate and within power and will be made accordingly. I certify that the preceding fifty six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.
Minister for Health (Cth)
Trustees of the Ancient Order of Foresters Friendly Society in Queensland
(1985) 10 FCR 27
(1954) 90 CLR 353
(1909) 8 CLR 330
(1926) 38 CLR 153
(1970) 123 CLR 361
(1977) 138 CLR 1
(2001) 187 ALR 409
(1999) 200 CLR 591
The scheme was ordered to take effect; administration was to end when the administrator completed his clause 13 obligations or six months from the order, whichever came first; the requested application of Corporations Act s 1321 was refused, but affected persons could seek directions or other relief; creditor notices and a 28-day proof-of-claims period were ordered, and application costs were made costs of the administration.
(1966) 115 CLR 166
(1961) 105 CLR 361
(1992) 175 CLR 218
(1902) 2 IR 349