The Application of GMHBA Limited [2008] FCA 1360

REASONS FOR JUDGMENT 1 The applicant, GMHBA Limited, has agreed to purchase the health insurance business of Druids Friendly Society Limited ("Druids"), which is conducted in the form of a fund known as the Druids Health Benefits Fund. Druids is a life company, and a jointly regulated friendly society, within the meaning of the Life Insurance Act 1995 (Cth) ("the Act"), the result of which is that, pursuant to s 190(1A) of that Act, the Druids health insurance business may be transferred to the applicant only under a scheme confirmed by the court. In the present case, there is such a scheme, and I was informed by counsel for the applicant that Druids proposes to apply under s 193 of the Act for the confirmation of the scheme in about a fortnight. 2 The necessity for the applicant to make the present application has arisen because of the terms of s 191 of the Act, which are as follows: (1) In this section: affected policy owner means the owner of a policy that is referable to a statutory fund affected by a scheme. approved summary means a summary approved by APRA. (2) An application for confirmation of a scheme may not be made unless: (a) a copy of the scheme and any actuarial report on which the scheme is based have been given to APRA in accordance with the regulations; and (b) notice of intention to make the application has been published by the applicant in accordance with the regulations; and (c) an approved summary of the scheme has been given to every affected policy owner. (3) Without limiting the provision that may be made by the regulations for the purposes of paragraph (2)(b), the notice referred to in that paragraph must include, in relation to each company affected by the scheme, details of the place and time at which an affected policy owner may obtain a copy of the scheme. (4) An affected policy owner is entitled, on his or her request, to be provided by the company with one copy of the scheme free of charge. (5) The Court may dispense with the need for compliance with paragraph (2)(c) in relation to a particular scheme if it is satisfied that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that the paragraph be complied with. The applicant's concern is that its own policy owners (ie not the policy owners within the Druids fund) might be "affected policy owners" within the meaning of s 191, and that an approved summary of the scheme might have to be given to them as a precondition to Druids making a valid application for confirmation, as apparently required by par (c) of subs (2) thereof. For various reasons, to which I shall turn presently, the applicant proposes that it should be relieved of the obligation - if there is one - to provide such a summary to its own policy owners. 3 The application is made only by the applicant, and names no respondent. Druids is not a party to the application. At present, there is before the court no application for confirmation under s 193 of the Act. The relief sought in the application is - 1. A declaration that the policy owners of the Applicant are not "affected policy owners" for the purposes of s 191(2) of the Act; or 2. Alternatively, a declaration of dispensation from the requirements of s 191(2)(c) of the Act in respect of policy owners of the Applicant. When the application came on for hearing on 2 September 2008, I expressed concerns as to the jurisdictional basis thereof, and as to the appropriateness of the court granting remedies of the kind sought by the applicant in the circumstances which existed. In order to make sense of those concerns, and to provide an explanation for the way in which I propose to dispose of the application, it will be necessary to refer to some of the facts which, in affidavit form, were led in evidence before the court. 4 As I have said, the applicant proposes to acquire the whole of the health insurance business presently carried on by Druids. That will involve the assumption by the applicant of Druids' existing obligations towards its policy owners. If the scheme is confirmed and carried through as intended, the Druids policy owners would then become policy owners within the applicant's own health insurance fund. It is proposed that each of the Druids policies will be allocated to such of the applicant's insurance plans as most closely reflects the benefits for which that policy presently provides. This will, it seems, involve adjustments to the benefits to which Druids policy owners are presently entitled. There is no suggestion that those policy owners should not receive a summary of the scheme as required by s 191(2)(c) of the Act. 5 The present application, however, is concerned with the applicant's own existing policy owners. On the material before the court, it seems that their existing policies, and the benefits available under those policies, will be unaffected by the proposed acquisition. I presume that the rights and obligations of those policy owners are, subject to the Act and other possibly relevant legislation, a matter of contract between themselves and the applicant. It is not suggested that the terms of those contracts be altered in any way. But the applicant is concerned that those policy owners might come within the description of "affected policy owners" in s 191(1) of the Act, in the sense that they are owners of policies that are referable to a statutory fund affected by the scheme. 6 The applicant seeks an order under s 191(5) of the Act that the need for compliance with par (c) of subs (2) be dispensed with in the present circumstances. At the hearing of the application, I was not persuaded that the court ought to exercise the dispensation power for which subs (5) provides other than in the context of proceedings or proposed proceedings to which an applicant under s 193 is or would be a party. I do not consider that subs (5) provides, in effect, a free-standing procedure to which resort might be had in the absence of an actual or proposed application for confirmation. On the other hand, I recognise that the effect of subs (2) is that, without an approved summary having been given to every affected policy owner, an application for confirmation under s 193 would not be competent. The structure of s 191 in relevant respects appears to contemplate either the making of an application for dispensation by an intending applicant under s 193 before such an application is in fact made, or the grant of dispensation during the course of the hearing of an application under s 193, but with retrospective effect. 7 As indicated above, the applicant also sought a declaration that its own policy owners are not "affected policy owners" for the purposes of s 191(2) of the Act. I was not, and am not, persuaded that there is presently a "matter" within the meaning of s 39B of the Judiciary Act 1903 (Cth) such as would provide the court with jurisdiction to make such a declaration. There appears to be no controversy: Druids has apparently consented to the applicant making the present application and, inferentially, would support the making of a declaration of the kind that the applicant seeks. I am not persuaded that the application goes further than to seek from the court an advisory opinion, in advance of the event, as to whether the applicant's policy owners would fall within the definition in s 191(1) of the Act. If there were a dispute on the subject, the most obvious contradictors would be those policy owners themselves. It is not proposed, either by the applicant or, apparently, by Druids, that those policy owners should be notified of the present application. Neither would they be bound by a declaration in the terms which the applicant seeks. For that reason also I took the view that it would be quite irregular, to say the least, for the court to make a declaration in those terms. 8 After I expressed the concerns to which I have referred, counsel for the applicant took instructions, the result of which was that the applicant undertook either to join in an application under s 193 made by Druids on or before 1 October 2008, or to make its own such application on or before that date. The hearing then proceeded as one in which the applicant sought an order under s 191(5) of the Act as a necessary preliminary to proceedings which it proposed to commence, or to which it would be a party, under s 193. 9 The question which arises under s 191(5) of the Act is whether, "because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that [par (c) of subs (2)] be complied with". Relying upon the approach which has been taken by other members of the court in dealing with similar applications, counsel for the applicant submitted that dispensation should be granted for four reasons: (a) the absence of any material adverse effects of the proposed transfer on the applicant's policy owners; (b) the potential cost of the compliance with s 191(2)(c); (c) the alternative steps which had been taken, or which were proposed, to notify the applicant's policy owners of the proposed transfer; and (d) the position taken by the industry regulator, the Australian Prudential Regulation Authority ("APRA"). 10 On 11 August 2008, Mr Michael Howard, a fellow of the Institute of Actuaries of Australia, provided a report to the applicant concerning the proposed acquisition of the Druids health insurance business. In the executive summary of that report, Mr Howard said that he supported the proposed acquisition. He expressed the opinion that the likely future prospects of existing policy owners of the applicant would not be adversely affected by the acquisition and that, in all probability, future prospects would be enhanced. He saw the acquisition as providing the potential for achieving economies of scale, and as most likely leading to "a little more stability in claims experience, with a consequential small reduction in prudential capital requirements". In the body of his report, Mr Howard continued: In my opinion the likely future prospects of existing policyholders of GMHBA will not be adversely affected by the acquisition of the Druids health Fund. In all probability future prospects will be enhanced, with the quantum increase in policies providing the potential for economies of scale and most likely leading to a little more stability in claims experience, with a consequential beneficial impact on prudential capital requirements. In my opinion, the transfer is highly unlikely to have a detrimental impact on the premiums and benefits for GMHBA policyholders immediately after the restructure, over the first 36 months after the transfer date, nor anytime within the foreseeable future beyond 36 months after the transfer date. Since there will be no change to the contractual arrangements between the applicant and its policy owners, and since those policy owners will remain members of the same fund as presently, there is no reason to doubt the opinion expressed by Mr Howard. In the circumstances, I consider it unlikely that the applicant's existing policy owners would experience any adverse effects, either immediately or into the future, as a result of the proposed acquisition of the Druids health insurance business. 11 Evidence before the court establishes that the likely cost of the production and distribution to the applicant's policy owners of the summary required by s 191(2)(c) would be in excess of $60,000. I do not believe that this circumstance goes to the matter of necessity under s 191(5), but, to the extent that the court retains a general discretion not to make an order under that subsection, I accept that, if otherwise the rights and interests of those policy owners are not compromised by their not receiving such a summary, the saving of $60,000 ought to be regarded as a legitimate circumstance in favour of the dispensation sought by the applicant. 12 The applicant has notified its policy owners of the proposed acquisition of the Druids health insurance business. As part of its quarterly newsletter in August 2008, the applicant sent to each of its policy owners an information brochure in the following terms: GMHBA's proposed acquisition of Druids health insurance business. Information for GMHBA Members GMHBA has entered into an agreement with Druids Friendly Society to acquire the Druids health insurance business. If regulatory and Federal Court approval is granted, the transfer will take place in October 2008. Why? There are many benefits for GMHBA entering into this arrangement. Druids have approximately 6,000 members that will become GMHBA members if the acquisition is approved. This opportunity allows GMHBA to grow by approximately 8% further strengthening our position within the industry. Why Druids? This decision has been carefully considered and there are strong synergies between GMHBA and Druids. Both are not-for-profit mutual organisations and we operate on the same cultural values. Will GMHBA remain a not-for-profit mutual organisation if the acquisition is approved? Yes. As announced in November 2007, GMHBA will remain a not-for-profit mutual organisation. This will not change if the acquisition of Druids health insurance business is approved by the Federal Court. Will my GMHBA membership change? No. The acquisition will not impact your health insurance benefits, premiums or service. Additionally, the notice required by s 191(2)(b) of the Act has been published in accordance with the regulations. The notice stated that a copy of the scheme would be available for a period of fifteen days following the date of publication of the notice at the office of Druids in North Melbourne, at the office of the applicant in Geelong, and at the office of the applicant's solicitors, or their agents, in each of Sydney, Brisbane, Canberra, Darwin, Perth, Adelaide and Hobart. The notice stated that any person who was a member of Druids or who held a health insurance policy with the applicant, might obtain a copy of the scheme, free of charge, during that fifteen-day period, by collecting it from one of those offices, by email (at an address stated), by downloading a copy of the scheme from the applicant's website, or by contacting Druids or the applicant by telephone (on telephone numbers which were stated). The notice was published in the Government Gazette on 27 August 2008, in The Australian, The Australian Financial Review, in The Melbourne Age, in the Canberra Times, in The Sydney Morning Herald, in the Northern Territory News, in the Adelaide Advertiser, in the Hobart Mercury and in The West Australian on 27 August 2008 and in the Brisbane Courier Mail today. In the circumstances, I consider that the applicant has taken all reasonable steps to bring the proposed acquisition to the notice of its policy owners, and to make a copy of the scheme available to those policy owners, to the extent that they may show an interest in such matters. 13 APRA has certain functions in connection with the proposed transfer of the Druids health insurance business to the applicant. It has approved the summary required by s 191(2)(c) of the Act. It has given the approvals required by reg 9.02(1) and 9.02(4)(b) of the Life Insurance Regulations. When it communicated those approvals to Druids, it included the following passage in its letter: I have no objection to GMHBA Limited applying for dispensation from the requirements of paragraph 191(2)(c) of the Life Insurance Act 1995 in respect of the requirement to mail information to existing GMHBA health fund members. In this regard I note the view of GMHBA's appointed actuary (at page 2 of his report) that the scheme is not likely to adversely affect the future prospects of existing policyholders of GMHBA and accept that the costs of any mail-out of scheme summaries to GMHBA policyowners ($60,000 based on the costing you have obtained) may not be warranted in these circumstances. 14 Having regard to the nature of the scheme, I am satisfied that it is not necessary for the applicant to comply with s 191(2)(c) of the Act in relation to its own policy owners. I shall make an order of dispensation accordingly. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.