PrefSure Life Ltd v Tower Australia Ltd

ST ANDREW'S LIFE INSURANCE PTY LTD (ABN 98 105 176 243)

THE COLONIAL MUTUAL LIFE ASSURANCE SOCIETY LIMITED (ABN 12 004 021 809)

REASONS FOR JUDGMENT 1 This is the first return date of an application under section 194 of the Life Insurance Act 1995 (Cth) ("the Act") for confirmation of a scheme under Part 9 of the Act for the transfer and amalgamation of part of the life insurance business of St Andrew's Life Insurance Pty Ltd ("St Andrew's") with the life insurance business of The Colonial Mutual Life Assurance Society Limited ("Colonial Mutual"). 2 At today's hearing, St Andrew's and Colonial Mutual seek dispensation under section 191(5) of the Act from the requirements of section 191(2)(c) that an application for confirmation of the scheme may not be made unless an approved summary of the scheme has been given to every affected policy owner. I will refer later to the precise terms of the order for dispensation which is sought. 3 The background to the scheme is conveniently described in the report of the independent actuary, Mr Greg Martin. In summary, both St Andrew's and Colonial Mutual are wholly owned subsidiaries of the Commonwealth Bank of Australia ("CBA"), the business of St Andrew's having been acquired in December 2008 from HBOS Australia Pty Ltd. CBA has been integrating part of the St Andrew's business into certain businesses of CBA but it has now reached an agreement with the Bank of Queensland to sell part of the St Andrew's business to that bank. CBA will retain the other part of the business. 4 The transaction is to be implemented by transferring the scheme policies and associated assets from St Andrew's to Colonial Mutual via the scheme on or about 30 June 2010. CBA will then complete the sale to Bank of Queensland with St Andrew's retaining the business that Bank of Queensland proposes to acquire. Those policies are described as the remaining policies. 5 St Andrew's operates through three statutory funds known as SF1, SF2 and SF3. These statutory funds and the statutory funds operated by Colonial Mutual are described in the written outline of submissions provided to me by Mr Jackman SC who appears with Ms McCarthy for St Andrew's and Colonial Mutual. Mr Jackman's written submissions explain the scheme, and the principles to be applied on the present application. I will mark the submissions as MFI1. 6 Two applications for dispensation are made today. One by St Andrew's and the other by Colonial Mutual. St Andrew's seeks dispensation from the obligation to give an approved summary of the scheme to: · the remaining policyholders; and · the owners of policies issued by St Andrew's whose policies are to be transferred to Colonial Mutual but for whom: (i) St Andrew's has no record of a current mailing address at the date of the mail-out; or (ii) the mailing address noted in the records of St Andrew's has not been maintained by those policyholders as at or after the mail-out date. 7 Colonial Mutual seeks dispensation from the obligation to give an approved summary to owners of policies issues by Colonial Mutual. On one view, those persons are not "affected policyholders" but the application is made for more abundant precaution. 8 The power to dispense with compliance with section 191(2)(c) of the Act arises if the Court is satisfied that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary for an approved summary to be given to every affected policyholder. 9 It is well established that the Court's discretion to grant dispensation is a matter of considerable importance and the order should not be made as a matter of course or as an exercise in rubber stamping. The leading authorities are the decision of Sackville J in The Application of Commonwealth Life Ltd [2003] FCA 501 ("Commonwealth Life") at [8] and the decision of Gyles J in Challenger Life Ltd [2004] FCA 618 ("Challenger Life") at [3]. The authorities were summarised and referred to by Lindgren J in Re Westport Insurance Corporation [2009] FCA 1357 ("Re Westport") at [38]: The Court has said that the granting of a dispensation under s 17C(5) (or its analogue in the Life Insurance Act 1995 (Cth), s 191(5)) is a "matter of considerable importance and should not be regarded as a matter of course": Munich Reinsurance Company of Australasia Limited [2004] FCA 1391 at [4], per Tamberlin J. See also Challenger Life Limited [2004] FCA 618 (Challenger Life Limited) at [2]-[3], per Gyles J. This is because, as Sackville J stated in The Application of Commonwealth Life Ltd & Anor [2003] FCA 501 (Commonwealth Life Ltd) at [8]: Clearly enough, the policy underlying the statutory requirement … is to give every affected policyholder a summary of the scheme and, an opportunity, if he or she so desires, to make submissions to the Court in respect of any application for confirmation of the scheme. A right to be heard in relation to a proposed scheme may be of little value if a person does not know of the proposal. 10 In recognition of this, Mr Jackman has taken me in detail in his written submissions, and orally, to the salient parts of the scheme and the main parts of the joint actuarial report as well as the report of the independent actuary. 11 Mr Jackman has also taken me to the steps that have been adopted to bring the scheme to the attention of policyholders, the attitude of the Australian Prudential Regulation Authority ("APRA") to the scheme and to today's application, and the costs of mail-out if the orders for dispensation are not made. 12 The structure of the St Andrew's funds is explained in section 3 of the joint actuarial report. I do not need to set it out. There is a helpful table in section 3.2 of the report which shows the reserve position of the St Andrew's funds as at 31 December 2009. It is sufficient to say that each of the funds had an excess of assets over the necessary capital adequacy requirements. 13 The scheme policies which are to be transferred to Colonial Mutual have liabilities in the order of $33 million. They are to be transferred with the associated assets to much larger funds conducted by Colonial Mutual. It is fair to say, as Mr Jackman has pointed out, that the St Andrew's policies which are to be transferred are a "drop in the ocean" of the much larger business of Colonial Mutual. 14 Subject to one exception, there are no amendments to the terms of the scheme policies. The exception is to the investment linked scheme policies in SF2 and SF3. The amendment will enable Colonial Mutual to close or remove any of the existing St Andrew's investment portfolios and to switch scheme policyholders' investments to the nearest equivalent portfolio, provided that the appointed actuary considers the switch to be in the interests of affected policyholders. The reasons for this are explained in para 3.3 of Mr Martin's report. 15 The conclusions in the joint actuarial report are set out at para 8.2 as follows: We have examined the proposed basis for the amalgamation of the Scheme Policies with CMLA. As a result of our investigation we have concluded that, should the amalgamation proceed on the basis set out in this report: - The security of benefits of Scheme Policies will be maintained and there will be no adverse effect on CMLA Policyholders. - The security of benefits of CMLA Policyholders will be maintained and there will be no adverse effect on CMLA Policyholders. - The security of benefits of the Remaining Policyholders will be maintained and there will be no adverse effect on Remaining Policyholders. - The policy amendment on investment linked business that allows CMLA to close and switch unviable investment portfolios is in the collective interest of investment linked Scheme Policyholders. - Other than the above change, there will be no change in the contractual rights of Scheme Policyholders. - The Scheme will cause no change to the reasonable expectations of Scheme Policyholders and CMLA Policyholders. - Each Statutory Fund of CMLA will continue to meet the capital requirements of the Life Insurance Act 1995. 16 The relevant conclusions of the joint actuarial report are confirmed in the report of Mr Martin, as independent actuary. 17 In a letter dated 22 April 2010, APRA advises that it has no objection to the application for dispensation. However, APRA has requested that St Andrew's and Colonial Mutual consider giving notice of the scheme to remaining policy owners by way of a brief letter. 18 Mr Jackman submitted that this course is unnecessary. He pointed out that steps along those lines were taken in Re GMHBA Ltd [2008] FCA 1360, but in that case the company distributed a quarterly newsletter to policyholders. Here no such newsletter is distributed by the parties so that the same opportunity is not available. 19 Ultimately, Mr Claxton who appears for APRA, did not press for the letter to be sent out to remaining policyholders as a condition of the dispensation order. 20 The considerations which have been taken into account in granting dispensation orders are stated in a number of authorities which are referred to in the written submissions. They include Commonwealth Life at [7] - [10], Challenger Life at [5], Re GIO Personal Investment Services Ltd [2000] FCA 1871 at [14] - [17], PrefSure Life Ltd v Tower Australia Ltd [2007] FCA 480 at [13] and Re Armstrong Jones Life Assurance (1997) 74 FCR 160 at 164. 21 I am satisfied in accordance with the considerations referred to in those authorities that it is appropriate to grant dispensation in respect of the remaining policyholders. The evidence of the cost of a mail-out to them is that the approximate cost would be in the order of $194,000. This is not warranted in the light of the matters referred to in the written submissions and in the authorities to which I have referred. I note that St Andrew's and Colonial Mutual have widely and prominently advertised the notice of intention to apply to the Court. Also, copies of the scheme and the approved scheme summary will be available on the Web as well as at the offices of the companies. A dedicated customer service line will also be provided. 22 There are 96 policy holders out of 2738 scheme policy holders for whom St Andrew's does not have current mailing details. St Andrew's has established procedures for dealing with returned mail. In the event that it appears in the course of the mail-out that there are other shareholders who are not contactable, the same procedures will be adopted for them. I am satisfied, for the reasons stated in the written submissions and, in particular, because of the contents of the actuarial reports and APRA's letter, that it is appropriate to exercise my power to dispense with notification to uncontactable policy holders in the terms that are sought on the present application. 23 There is authority for the proposition that the Colonial Mutual policy holders are not "affected" within the meaning of section 191(2)(c): see Re MetLife Insurance Ltd [2007] FCA 937 at [6] per Gyles J; see also Re Westport at [16]. 24 Nevertheless, upon the assumption that the Colonial Mutual policy owners are "affected", I would grant dispensation for the reasons stated in the written submissions. In my view, the estimated cost of approximately $1.26 million of the mail-out to those policy holders is not warranted for the reasons mentioned in the written submissions, in particular, because of the conclusions reached in the joint actuarial report and the independent actuary's report. 25 I therefore propose to make orders in terms of the draft short minutes submitted to me today. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson .