SGIC General Insurance Limited [2004] FCA 1639

REASONS FOR JUDGMENT Introduction: 1 On 3 December 2004 I made orders under s 17F(1) of the Insurance Act 1973 (Cth) ("the Insurance Act") confirming a scheme of arrangement ("the insurance scheme") under which the insurance business of the applicants is to be transferred to Insurance Australia Ltd ("IAL"). 2 Assets and liabilities not transferred to IAL under the insurance scheme are to be transferred under members' schemes of arrangements which I also confirmed on 3 December 2004. The effect of the insurance scheme is that the whole of the insurance business conducted by the applicants, and the assets and liabilities pertaining thereto, save for a claims management agreement to which SGIC General Insurance Ltd is a party, will be transferred to IAL. 3 The orders which I made on 3 December 2004 in the insurance scheme include orders under s 17F(2) of the Insurance Act for transfer to IAL of the benefit of reinsurance treaties and agreements entered into by the applicants. 4 This judgement contains my reasons for the orders made on 3 December 2004. The Legislation 5 The insurance scheme was governed by the provisions of Division 3A of the Insurance Act. A similar, but less extensive scheme, under which SGIO Insurance Ltd's compulsory third party business in New South Wales was transferred to IAL, was confirmed by Lindgren J earlier this year; see Insurance Australia Ltd [2004] FCA 524 ("Insurance Australia Ltd"). 6 The relevant provisions of Division 3A were set out by his Honour at [10] and it is is unnecessary to repeat them. 7 The Australian Prudential Regulation Authority ("APRA") has determined prudential standards, pursuant to s 32 of the Insurance Act, which are contained in Prudential Standard GPS 410 ("GPS 410"). The relevant paragraphs of GPS 410 were set out by Lindgren J at [12] - [15] and I will not repeat them. 8 The insurance scheme was a "trigger proposal" under the Insurance Acquisitions and Takeovers Act 1991 (Cth) ("the Acquisitions Act") and I will set out the relevant sections. 9 Section 5(1) of the Acquisitions Act contains a definition of matters taken to be contrary to the public interest. Section 5(1) is as follows:- "(1) For the purposes of the application of this Act to an Australian‑registered insurance company, a particular matter is taken to be contrary to the public interest if it is: (a) likely to adversely affect the prudential conduct of the affairs of the company; or (b) likely to result in an unsuitable person being in a position of influence over the company; or (c) likely to unduly concentrate economic power in the Australian general insurance industry, in the Australian life insurance industry or in the Australian financial system; or (d) contrary to the national interest." 10 Section 36 of the Acquisitions Act sets out transactions which constitute trigger proposals. Section 36(d) and (e) apply to the insurance scheme. Those paragraphs are as follows:- "(d) all of the following conditions are satisfied: (i) one or more persons propose to acquire any or all of the interests, rights or benefits of an Australian‑registered insurance company under one or more contracts of insurance where the company is the insurer; (ii) the company is authorised under the Insurance Act 1973 to carry on insurance business; (iii) the sum of: (A) any reduction in the company's unearned premiums provision resulting from the acquisition; and (B) if the persons or their associates have acquired any or all of the interests, rights or benefits of the company under one or more contracts of insurance where the company is the insurer, being acquisitions that occurred in the 12‑month period before the date of the proposed acquisition referred to in subparagraph (i) - the total of any reductions in the company's unearned premiums provision resulting from those acquisitions; is 15% or more of the company's book unearned premiums provision as at that date; (e) all of the following conditions are satisfied: (i) one or more persons propose to acquire any or all of the interests, rights or benefits of an Australian‑registered insurance company under one or more contracts of insurance where the company is the insurer; (ii) the company is authorised under the Insurance Act 1973 to carry on insurance business; (iii) the sum of: (A) any reduction in the company's outstanding claims provision resulting from the acquisition; and (B) if the persons or their associates have acquired any or all of the interests, rights or benefits of the company under one or more contracts of insurance where the company is the insurer, being acquisitions that occurred in the 12‑month period before the date of the proposed acquisition referred to in subparagraph (i) - the total of any reductions in the company's outstanding claims provision resulting from those acquisitions; is 15% or more of the company's book outstanding claims provision as at that date; the proposal is a trigger proposal for the purposes of this Part." 11 The effect of s 38 of the Acquisitions Act is that a person who proposes to carry out a trigger proposal must give notice to the Minister in the prescribed form stating the person's intention to acquire the assets, interests, rights or benefits or to enter into the arrangement. I will not set out the terms of s 38. By operation of s19A of the Act Interpretation Act 1901 (Cth) and the Administrative Arrangements Order (Cth), "the minister" is the Federal Treasurer. 12 Section 41 of the Acquisitions Act provides that the Minister may give a conditional or unconditional "go-ahead decision". Section 41 provides, relevantly:- "(1) The Minister may make a decision (in this Part called a go‑ahead decision) that the Commonwealth Government has no objection to a trigger proposal, either: (a) unconditionally; or (b) so long as the person concerned complies with such conditions as the Minister considers are necessary in order that the proposal, if carried out, will not be contrary to the public interest. (2) If the Minister makes a go‑ahead decision, the person must be given written advice of the decision, and of the conditions (if any) applicable to the decision, before the end of 10 days after the day on which the decision is made. …" 13 Section 65(1) of the Acquisitions Act provides that the Minister may, by signed instrument, formulate "decision-making principles" to be complied with in making a go-ahead decision. Under s 65(2), the Minister is bound to comply with any relevant decision-making principles. 14 Decision-making principles were formulated by the then Treasurer, Mr John Dawkins, in IDM 1/1992. They were published in the Commonwealth Gazette No. S94, 3 April 1992, and became effective on 4 April 1992. 15 One of the decision-making principles is that in considering whether a proposal is contrary to the national interest the Minister must have regard to the factors set out in [6] of IDM 1/1992 as follows:- "(a) whether the proposal could adversely affect the stability and strength of the Australian general insurance industry, the Australian life insurance industry, or the Australian financial system; and (b) whether the proposal could adversely affect the interests of policy holders of an Australian-registered insurance company; and (c) whether the proposal is contrary to Australia's foreign investment policy; and (d) all other matters that the Minister considers relevant." 16 The other decision-making principles deal with whether a person is "fit and proper" and whether the proposal is likely to unduly concentrate economic power. 17 Under s 69 of the Acquisitions Act, the Minister may, by signed instrument delegate all of his or her powers under the Acquisitions Act, other than the power to make decision-making principles, to APRA. The steps to be taken in a scheme under the Insurance Act 18 I set out below a list of the steps in a scheme under Division 3A of the Insurance Act which I have taken from Mr Oakes SC's submissions. The list is as follows:- - A deed is prepared between the transferor and transferee compamies, called in this case a 'transfer deed'. - A draft scheme is prepared. - A draft scheme summary is prepared. - A draft 'notice of intention' is prepared. - An internal actuarial report is prepared. - These documents are all 'given' to APRA under s 17C(2)(a) and GPS 410 at [4] and [5]. - APRA approves the scheme summary under s17C(1) and GPS 410 at [8]; the notice of intention under GPS 410 at [9], and the proposed newspapers for publication of the 'notice of intention' under GPS 410 at [9(b)]. - An independent actuarial report may be required by APRA: s 17D(1). - An application is made to APRA for a 'go-ahead decision' under the Insurance Act if the proposal constitutes a 'trigger proposal'. - An application is made to the Federal Court for confirmation of the scheme, with an initial hearing for dispensation orders under s 17C(5). APRA has standing to appear on the confirmation hearing: s 17E(3). - 'Affected policyholders' are notified by being sent the 'approved summary' referred to in s 17C(5). They do not receive the long form of the documents as with a Corporations Act2001 (Cth) scheme. - There is no meeting of 'affected policyholders' to consider the scheme. - The 15 day public inspection period needs to run: s 17C(3), GPS 410 at [16] and [17]. - The 'notice of intention' is advertised as required by s 17C(2)(b) and GPS 410 at [7]. - There needs to be compliance with GPS 410 published under s 32 of the Insurance Act: s 17E(2). - The confirmation application is made under s 17E. - The confirmation orders are made under s 17F. - After confirming the scheme, documents are required to be provided to APRA by the receiving insurer: s171 and GPS410 at [18]-[20]. 19 On the evidence before me, I am satisfied that with the exception of the final step, each of the steps set out above has been taken, including, as I have said, the confirmation orders under s 17F of the Insurance Act. As to the final step, I do not have evidence before me to confirm this has occurred. However, it is not a formality and does not concern the court. 20 Notices of the trigger proposal were given to APRA pursuant to s 38(b) of the Acquisitions Act of the trigger proposal. On 30 September 2004, APRA wrote to Ms Helen Burnside of Insurance Australia Group informing her that go-ahead decisions had been made by Mr Chapman of APRA, as a delegate of the Treasurer, and that the decisions were unconditional. Issues which arose at the confirmation hearing 21 Mr Patrick Mullins, of Western Australia, filed a written submission opposing confirmation of the scheme. He is the trustee of an estate which holds a policy issued by one of the applicants. 22 Mr Mullins submitted that it was contrary to the public interest for the assets of a Western Australian company to be transferred to a company which carried on business in Sydney and also for a substantial Western Australian company to lose its corporate existence. He also submitted that the policy holders of SGIO Insurance Ltd should vote on whether to approve the scheme. 23 However, the question of whether the insurance scheme is in the public interest was considered by APRA when the go-ahead decision was made. The matters raised by Mr Mullins as public interest considerations do not fall within the categories stated in the decision-making principles: IDM 1/1992 at [6]. Even if they do , APRA has already considered and ruled on them in the go-ahead decision. 24 As to the submission that a meeting of policy holders should be held, I cannot take this into account because the Insurance Act makes no provision for such a meeting. 25 There were two other objectors who complained that the summary which was provided to them gave the date of the confirmation hearing in the Federal Court but not the place. However, I was satisfied that the objectors would have been able to find out this information, either through the advertisement of the hearing or through enquiries made during the public inspection provided under GPS 410 at [16]. I note that Mr Mullins had no difficulty in locating the Court. It seems to me that the other objectors could have, if they wished, attended in person or provided written submissions to the Court. 26 The orders which I made under s 17F(2) for the transfer of the benefit of the reinsurance contracts, and associated orders, are in substance in the same terms as those made by Lindgren J in Insurance Australia Ltd. 27 There was evidence before me that the reinsurers had been notified of the insurance scheme and that no objection was received. 28 There was also evidence in the present proceedings that all of the reinsurance contracts are governed by Australian law. As Lindgren J observed at [80], s 17G of the Insurance Act provides that when a scheme is confirmed it becomes binding "on all persons". This is in very wide terms. However, against the possibility that this provision may not be wide enough to bind the reinsurers, the applicants sought special orders under s 17F(2). Lindgren J thought it was appropriate to make such orders. I take the same approach. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.