FEDERAL COURT OF AUSTRALIA

Gordian Runoff Limited, in the matter of Gordian Runoff Limited [2012] FCA 1276

IN THE MATTER OF GORDIAN RUNOFF LIMITED (ABN 11 052 179 647)

THE COURT ORDERS THAT:

1.    Pursuant to Section 17C(5) of the Insurance Act 1973 (Cth) (the Act) the need for the Applicant to comply with Section 17C(2)(c) of the Act is dispensed with on condition that the Applicant complies with Orders 2 to 7 below.

2.    The Applicant must, prior to the date on which the scheme documents are to be made available for public inspection, cause a copy of the approved summary of the proposed scheme to be sent by pre-paid post to all persons identified, as at that date, as affected policyholders that have been identified from records and from the publicly available sources, as described in the affidavit of Lee Barson sworn in these proceedings on 2 November 2012, for which the Applicant has an address.

3.    The Applicant must, prior to the date on which the scheme documents are to be made available for public inspection, cause an advertisement approved by APRA providing notification of the proposed scheme to be placed in the following publications in addition to the Gazette and newspapers, approved by APRA in circulation in each State and Territory of Australia:

(a)    New South Wales – The Sydney Morning Herald;

(b)    Victoria – The Age;

(c)    Queensland – The Courier-Mail;

(d)    Western Australia – The West Australian;

(e)    South Australia – The Advertiser;

(f)    Tasmania – The Mercury;

(g)    Northern Territory – The Northern Territory News;

(h)    ACT – The Canberra Times;

(i)    National – The Australian Financial Review; and

(j)    International edition of the Financial Times.

4.    The Applicant also must, prior to the date on which the scheme documents are to be made available for public inspection, cause a copy of the:

(a)    proposed scheme;

(b)    summary of the proposed scheme; and

(c)    actuarial report from Ernst & Young

to be publicly available on Enstar Australia Limited’s website www.enstardivision3a.com.au/qbeawu.

5.    The Applicant must make a copy of the proposed scheme and any actuarial report upon which it is based available for inspection for a period of at least 15 business days (between the hours of 9:00 am and 5:00 pm Monday to Friday), prior to the date on which the proposed scheme is to be confirmed by the Court, at the locations approved by APRA under Prudential Standard GPS 410 in each State and Territory in which an affected policyholder resides.

6.    The Applicant must provide, upon request, to any policyholders that identify themselves as such, a copy of the approved summary of the scheme, free of charge.

7.    The Applicant is to pay the costs of the proceedings of APRA as agreed or assessed.

8.    The Applicant and APRA have liberty to apply on two clear days notice.

9.    Leave be granted to the Applicant to approach the Associate to Jacobson J for a date and time for the hearing of the application for confirmation of the scheme.

Note:    Settlement and entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF GORDIAN RUNOFF LIMITED (ABN 11 052 179 647)

REASONS FOR JUDGMENT

1    By an interlocutory application filed on 1 November 2012 the applicant, Gordian Runoff Limited (GRO), seeks, pursuant to s 17C(5) of the Insurance Act 1973 (Cth) (the Act), the Court’s dispensation with the need for compliance with s 17C(2)(c) of the Act in respect of a proposed scheme for the transfer to GRO by QBE Insurance (Australia) Limited (QIA) of part of the reinsurance pool business written by Australian World Underwriters Pty Limited (AWU) in the period 1967 to 1977.

2    In the principal proceeding GRO seeks an order for confirmation of the scheme (with or without modification) pursuant to s 17F of the Act. Section 17C(2)(c) of the Act provides that an application for confirmation may not be made unless, amongst other things, an approved summary of the scheme has been given to every affected policyholder.

Background

3    GRO is authorised under the Act to carry on a general insurance business in Australia. It is a member of the Enstar group of companies (the Enstar Group), of which Enstar Group Limited is the ultimate holding company. Enstar Australia Limited (Enstar Australia), another member of the Enstar Group, manages GRO’s portfolio.

4    The Australian Prudential Regulation Authority (APRA) has appeared on the hearing of the interlocutory application. It does not oppose the orders that are presently sought.

5    In each year from 1967 to 1977, AWU wrote reinsurance for international and Australian insurers and reinsurers that is referred to in the present application as “the AWU Pool Portfolio”. In 1999 QIA assumed the liabilities of three reinsurers of the AWU Pool Portfolio. The liabilities currently faced by the pool relate to long-tail asbestos, pollution and aggregate health hazard related product claims. Under the proposed scheme QIA will transfer its share of the liabilities and obligations in relation to the AWU Pool Portfolio to GRO.

6    The problem of immediate concern for GRO is that the addresses of all affected policyholders (as that term is understood in the context of s 17C of the Act: see Re Westport Insurance Corporation (No 2) (2010) 181 FCR 530 at [48]) are not known. GRO is concerned about its ability to comply with the requirement of s 17C(2)(c) of the Act to give “every” affected policyholder an approved summary of the scheme.

7    The steps taken by GRO to identify affected policyholders and their addresses are set out in an affidavit of Lee Barson sworn 2 November 2012, which has been read on this application. Mr Barson is the Assumed Reinsurance & Ceded Reinsurance Manager of Enstar Australia. His evidence is that GRO has analysed reports referred to by him as “the December 1980 Report”, “the Guy Carpenter United Kingdom Report” and “the Cedant Pool Company Listing”.

8    The December 1980 Report was prepared in 1981 by the Sydney office of Guy Carpenter which managed, at the relevant time, the records concerning the AWU Pool Portfolio. This report is a list of transactional data that includes cedant and treaty information.

9    The Guy Carpenter United Kingdom Report is a list of all “claims active” treaties in the AWU Pool Portfolio. This list is based on records in relation to the AWU Pool Portfolio that were transferred in 1999 from the Sydney office of Guy Carpenter to its United Kingdom office. The records for policies that were not “claims active” remained with the Sydney office.

10    The Cedant Pool Company Listing was created by Enstar Australia. It is a list of some of the members of other pools that were reinsured by the AWU pool.

11    Information from each of these three documents has been merged by Enstar Australia into a document referred to by Mr Barson as “the Consolidated AWU Pool List”. After the removal of “duplicate” entries, this list shows 975 unique cedants.

12    Enstar Australia has identified 171 cedants on the list that are owned by a Lloyd’s Syndicate known as Equitas Limited. It is proposed that only one copy of the approved summary of the scheme be given to Equitas Limited.

13    Enstar Australia has taken steps to verify the current addresses of the remaining cedants identified in the Consolidated AWU Pool List by conducting internet searches using the Australian Securities and Investments Commission’s website and, more generally, using the Google search engine. The results of those searches can be summarised as follows:

(a)    774 current addresses for cedants have been identified;

(b)    11 cedants have been identified as members of a finalised scheme of arrangement or to have been liquidated or to have ceased trading; and

(c)    65 cedants’ addresses could not be identified due to ambiguity or lack of information to appropriately identify the cedant.

14    GRO seeks dispensation in respect of the requirement of s 17C(2)(c), on conditions. Those conditions, in broad terms, are that it be required to cause a copy of the approved summary of the scheme to be given to all affected policyholders whose addresses have been identified as described in Mr Barson’s affidavit and that it be required to take certain additional steps, the aim of which is to provide notice of the scheme to those affected policyholders whose addresses cannot be so identified. Those steps are:

(a)    the placement of an advertisement in a number of identified newspapers in a form approved by APRA giving notice of the proposed scheme;

(b)    making available on Enstar Australia’s website (www.enstardivision3a.com.au/qbeawu) the proposed scheme, the approved summary of the scheme, and the actuarial report to be relied upon in support of the application for confirmation of the scheme; and

(c)    making available for inspection, at locations approved by APRA, copies of the proposed scheme and actuarial report for a period of at least 15 business days before the date on which the Court will be moved to confirm the scheme.

15    It is proposed that the applicant be ordered to provide a copy of the approved summary of the scheme free of charge to any policyholder who requests that summary.

Consideration

16    Although the discretion to grant dispensation pursuant to s 17C(5) of the Act is a general one, the Court should not approach its consideration of that matter as if dispensation should be granted simply as a matter of course: Munich Reinsurance Company of Australasia Limited [2004] FCA 1391 at [4]. Bearing that injunction in mind, I am satisfied that, in all the circumstances of the present case, it is appropriate to grant the conditional dispensation that GRO now seeks.

17    In that connection it is proposed that a copy of the approved summary of the scheme will be sent to every affected policyholder with a known address that has been revealed by the records available to GRO. The evidence satisfies me that reasonable steps have been taken to obtain independent verification of the addresses of those policyholders. I should note, in that regard, that where more than one address has been revealed for a cedant, and it cannot be determined which of those addresses is more current and correct, then both addresses will be used by GRO to send the approved summary of the scheme to that cedant.

18    The practical problem facing GRO is how to give notice of the scheme to each of those policyholders for whom it does not have a current address, despite the searches it has carried out, and thus comply with the absolute requirement of s 17C(2)(c) of the Act to give notice to every affected policyholder. It is that circumstance that makes dispensation appropriate in the present case. In my view the additional steps proposed by GRO to give notice of the scheme to those affected policyholders who cannot be directly notified are reasonable and adequate for that purpose. In coming to this conclusion I take into account the fact that APRA does not oppose the conditional dispensation that is sought.

Disposition

19    Orders should be made substantially as sought by GRO.

Associate:

Dated:    16 November 2012