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.