CATCHWORDS

LIFE INSURANCE -  Transfer of life insurance business from one life insurance company to another - Application to Court for confirmation of scheme - Discussion of relevant statutory provisions  - Whether there was a failure to comply with regulations - Power of Court to dispense with certain compliance

STATUTORY INTERPRETATION - Life Insurance Act 1995 (Cth) ss 191(2)(b), 191(2)(c), 191(5), 193(2), 194

Life Insurance Act 1995 (Cth) ss 191, 193, 194

The Application of Advance Life Insurance Limited, Sheppard J., Federal Court of Australia, 18 February 1997, Unreported

THE APPLICATION OF ARMSTRONG JONES LIFE ASSURANCE LIMITED AND MERCANTILE MUTUAL LIFE INSURANCE COMPANY LIMITED

No. NG 114 of 1997

EMMETT   J

SYDNEY

21 APRIL 1997

MINUTES OF ORDER

THE COURT ORDERS THAT:

1.    Pursuant to Section 191(5) of the Life Insurance Act 1995, the need to comply with paragraph 2(c) of Section 191 of that Act in relation to the giving to policy owners of Mercantile Mutual Life Insurance Company Limited an approved summary of the scheme the subject of this application be dispensed with.

2.    Pursuant to Section 194 of the Life Insurance Act 1995, the scheme, being the document set out in the Schedule to this order, for the transfer of the life insurance business of Armstrong Jones Life Assurance Limited to Mercantile Mutual Life Insurance Company Limited be confirmed.

3.    The costs of the Insurance and Superannuation Commissioner in these proceedings be assessed or if assessment thereof cannot be agreed upon the same be taxed and when so taxed be paid by the Applicants to the Insurance and Superannuation Commissioner or to his solicitor.

4.    Exhibits be returned to the Solicitor for the Applicants.

NOTE:            Settlement and entry of orders is dealt with in Order 36 of the Federal Court                 Rules

EX TEMPORE REASONS FOR JUDGMENT

This is an application for an order pursuant to section 194 of the Life Insurance Act 1995 (Cth) (“the Act”) confirming a scheme involving the transfer by Armstrong Jones Life Assurance Limited to Mercantile Mutual Life Insurance Limited of the life insurance business of the former.  I have considered the terms of the scheme which is an annexure to the joint affidavit of Simon Solomon and Dave Waples, the actuaries appointed to consider the effect of the proposed transfer on the holders of policies of both companies. I have also considered the joint report of those deponents of 14 February 1997.  I am satisfied that the terms of the scheme, in the light of the contents of that report are such that the scheme should be confirmed by the court.

However in the course of the hearing of the application my attention has been drawn by counsel for the applicants to several matters which arise under the regulations made pursuant to Part 9 of the Life Insurance Act 1995. I shall deal with each of the matters separately.  I have in fact formed the conclusion that none of them constitutes an impediment to the making of an order under section 194. 

The first matter concerns compliance with regulation 9.02(2)(b).  Section 191(2)(b) provides that an application for confirmation of a scheme may not be made unless notice of intention to make the application has been published by the applicant in accordance with the regulations. Regulation 9.02(2)(b) provides that a notice of intention to make an application must give the address of each place at which a copy of the scheme may be obtained.  The notice in question specified a number of addresses, being one in each capital city of the Commonwealth.  However, two of the addresses were incorrect for reasons into which I do not think it is necessary for me to go although I have evidence before me to indicate that there was merely an oversight involved in the wrong statement of the addresses.

The scheme of regulation 9.02 involves the publication of the notice of intention in the Commonwealth Government Gazette and in one or more newspapers circulating in each state and territory in which there is a register of life policies that includes the relevant policy of an affected policy owner.  The notice must state that such a policy owner may get a copy of the scheme from the place and within the times and for the period set out in subregulation (4).

Subregulation (4) provides that a copy of the scheme must be open for public inspection from 9 am until 5 pm every day (except weekends and public holidays) for a period of at least 15 days at an office of the applicant or another location approved by the Commissioner in each state and territory in which there is a register of life policies that includes the relevant policy of an affected policy owner.  The evidence before me indicates that the only places in which there are registers of life policies for either of the companies involved are New South Wales and Victoria. The wrong addresses were in respect of offices in Canberra and in Launceston in Tasmania. 

The object of regulation 9.02(2)(b) is to ensure that any policy owner is informed of a place in his or her state or territory where a copy of the scheme may be obtained.  The obligation imposed on a company is not to make copies of the scheme available in every state or territory but only in those states or territories where there is a register of life policies. I do not consider that there is a failure to comply with regulation 9.02(2)(b) by reason of a failure to specify correctly an address where copies of the scheme could in fact be obtained in circumstances where there is no obligation for the company to make the scheme available at that address.  I consider therefore that there has been no failure to comply with regulation 9.02(2)(b) in the circumstances. 

Ms Booth, solicitor for the Insurance and Superannuation Commissioner, appeared pursuant to section 193(3) of the Act. Ms Booth indicated to the court that the Commissioner took the view that there had been no failure to comply with the regulations but that it was a matter for the court to consider in deciding whether or not to confirm the scheme that a wrong address had been shown in the notice. I do not consider that the incorrect statement of addresses would affect my exercise of discretion in favour of the applicants.

I should indicate that I consider that it is relevant to the exercise of discretion, that the evidence shows that, in relation to each of the addresses where the scheme was made available, not one policy owner attended to inspect a copy of the scheme.  In any event, if I had come to a different conclusion as to whether there had been compliance with regulation 9.02(2)(b), my provisional view would have been that it would have been open to me to confirm the scheme notwithstanding the failure to comply. 

Section 191(2)(b) provides that an application for confirmation may not be made unless notice of intention has been published in accordance with the regulations and section 193(2) provides that an application for confirmation must be made in accordance with the regulations. Nevertheless, I do not regard those provisions as being conditions precedent to the existence of jurisdiction for the court to confirm a scheme.  Of course, failure to comply with the regulations may well be a very significant matter for the court in deciding whether or not to confirm a scheme in the exercise of any discretion which may arise under section 194, but it would not be fatal.

The second matter to which my attention was drawn concerned the operation of regulation 9.02(3) which provides that the notice of intention to make an application must be published before the scheme is released for public inspection under sub-regulation (4). The evidence showed that the scheme was open for public inspection in most places as from 4 March 1997 but that, in relation to the Northern Territory, the notice was not in fact published until 25 March 1997.

However, as I said a moment ago, the only States in which there is a register of life policies are New South Wales and Victoria and there is no register in the Northern Territory.  Accordingly, in my view, there was no failure to comply with regulation 9.02(3) since the notice was published on 4 March 1997 in the newspapers circulating in New South Wales and Victoria and in the Government Gazette. That publication occurred early in the day on 4 March and the documents were not available for public inspection under 9.02(4) until after 9.00 am. In any event, as I have said above, I would not have regarded the failure to comply with regulation 9.02(3) in the respect that I have identified as being fatal to the application.

The next matter to which my attention was drawn relates to compliance with regulation 9.03(1) which provides that, for the purpose of section 193(2) of the Act, an application to the Court for confirmation of a scheme may be made no earlier than whichever is the later of:

(a)        the day after the day in which the period referred to in regulation 9.02(4) ends; or

(b)        unless the court dispenses with the need for compliance with paragraph 191(2)(c) of the Act - 15 days after the approved summary of the scheme has been given to every affected policy owner under that paragraph.

I will come shortly to the application to dispense with the compliance with paragraph 191(2)(c). The requirement of regulation 9.03(1)(a), therefore, is that the application to the court must be made no earlier than the day after the day on which the period referred to in sub-regulation 9.02(4) ends.  That period began on 4 March 1997 and, bearing in mind that weekends and public holidays were excluded, did not expire until after the filing of the application with the registry of the Federal Court as is contemplated by Order 65 Rule 1 of the Federal Court Rules.  Nevertheless, when this matter came before me, the period of 15 days excluding weekends and public holidays, had expired.

I consider that, on its proper construction, regulation 9.03 refers to the time at which the court is moved for an order of confirmation of the scheme and not to the time when the form of application prescribed by the Rules is filed with the registry.  Accordingly, regulation 9.03(1) has been complied with.

Connected with that question is another matter to which my attention was drawn.  In dealing with an application under section 193 of the Act, Sheppard J in The Application of Advance Life Insurance Limited, Federal Court of Australia, 18 February 1997, Unreported, made some observations concerning the desirability of policy owners being informed of the proposed application to the court. In his reasons for judgment, Sheppard J observed that notice to policy holders of the assignee company was dispensed with by an order of the court but notice had to be given to the assignor policy holders.  A letter was prepared dated 20 January 1997 and signed by the national manager policy administration of the assignee.  There was included with that letter the summary required by the regulations and the Act.  Towards the end of that summary was a statement that any person who, in the court's opinion, was likely to be affected was entitled to be heard by the court on the application of the scheme's confirmation.

Sheppard J raised the undesirability of including a notice of that kind at the end of a document which, although consisting of only four pages, was complex, especially to people who may not be well educated or well versed in financial affairs. Sheppard J considered that, if that statement was to be made, and he considered that it should have been, it should have been included in the letter itself so that it would have appeared prominently to enable policy holders to understand that if they were troubled about the matter they could come to the court. Sheppard J considered that the way in which they were given that notice was an unfortunate aspect of the matter although he did not think it was appropriate to say any more about it except that he thought, in future, care should be taken to see that notices of that kind appear in a prominent place in the documentation which is sent to policyholders. 

I would not dissent from anything that his Honour said in that regard.  However, in the present case, there was a similar statement made to policyholders, in that the covering letter to policyholders made no mention of the possibility of appearing when the matter came before the court, although the summary approved by the Commissioner did have a statement similar to that which was the subject of comment by Sheppard J.

No criticism could be directed at the present applicants for their failure to comply with the policy advocated by Sheppard J since the documentation was well under way when Sheppard J gave his reasons.  Accordingly, I would not regard the failure to comply with that policy as something which would prevent my making an order in this case.  One is of course comforted by the fact that there is no obligation under the Regulations or the Act for policyholders to be told that they have an entitlement to attend in court.  That is perhaps contrary to the provisions of the earlier legislation. The assumption seems to be that, because the Commissioner is entitled to be heard on an application, the interests of policy owners are likely to be attended to on their behalf by the Commissioner. 

The final matter which calls for consideration is an application pursuant to section 191(5) of the Act.  Section 191(2)(c) provides that an application for confirmation of a scheme may not be made unless an approved summary of the scheme has been given to every affected policy owner. Section 191(5) provides that 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 scheme presently under consideration involves an amalgamation of the business of a much smaller life company with the business of a considerably larger life company.  The actuarial report which has been prepared indicates that the surplus of the Mercantile Mutual Fund as a percentage of policyholders liabilities is fractionally greater than the surplus as such a percentage in relation to the relevant funds of Armstrong Jones. Having regard to the difference in the sizes of the two funds, I am satisfied that the very minor subsidisation that would flow from the amalgamation is not such as to justify the considerable expense of sending to all Mercantile Mutual policy holders the summary approved by the Commissioner. The evidence showed that the cost of complying with that requirement would be some hundreds of thousands of dollars. 

In the circumstances I am satisfied that I should make an order under section 194 confirming the scheme.

I certify that this and the preceding seven pages are a true copy of the Reasons for Judgment of his Honour Justice Emmett.

Associate:

Date:                   21 April 1997

Appearances:  

Counsel for the applicant:                      L.S. Einstein

Solicitor for the applicant:                      Middletons Moore & Bevins

Counsel for the respondent:                   -

Solicitor for the respondent:                  Insurance and Superannuation Commissioner

Heard:              21 April 1997

Place:               Sydney

Decision:          21 April 1997