FEDERAL COURT OF AUSTRALIA
NSD 1617 of 2016
Date of judgment:
Life Insurance Act 1995 (Cth)
GIO Personal Investment Services Ltd and AMP Life Ltd  FCA 1871
Gordian Runoff Limited, in the matter of Gordian Runoff Limited (No 2)  FCA 687
HDI-Gerling Australia Insurance Company Pty Limited, in the matter of HDI-Gerling Australia Insurance Company Pty Limited  FCA 505
Munich Reinsurance Company of Australasia Ltd  FCA 1391
The Application of Commonwealth Life Ltd & Anor  FCA 501
Westport Insurance Corporation, in the matter of Westport Insurance Corporation  FCA 1357
New South Wales
National Practice Area:
Commercial and Corporations
Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs:
Solicitor for the Applicant:
HWL Ebsworth Lawyers
Solicitor for the Australian Prudential Regulation Authority:
Mr T Paraskevas, Australian Prudential Regulation Authority
DATE OF ORDER:
THE COURT ORDERS THAT:
1. Pursuant to s 17C(5) of the Insurance Act 1973 (Cth) (the Act), the need for the applicant to comply with s 17C(2)(c) of the Act be dispensed with on condition that the applicant complies with Orders 2, 3, 4, 5, 6 and 7 below.
2. The applicant, 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 for which the applicant has an address.
3. The applicant, prior to the date on which the scheme documents are to be made available for public inspection, cause the notice of intention of the proposed scheme, as approved by APRA, to be published in the following newspapers approved by APRA in circulation in each state and territory of Australia, in addition to the Gazette:
(i) New South Wales – The Sydney Morning Herald;
(ii) Victoria - The Age;
(iii) Queensland - The Courier-Mail;
(iv) Western Australia - The West Australian;
(v) South Australia - The Advertiser;
(vi) Tasmania - The Mercury;
(vii) Northern Territory - The Northern Territory News; and
(viii) ACT - The Canberra Times;
4. The applicant, prior to the date on which the scheme documents are to be made available for public inspection and after the notice of intention is published, cause a copy of:
(a) proposed scheme;
(b) summary of the proposed scheme;
(c) notice of intention; and
(d) actuarial report of Rick Shaw of Deloitte dated 27 June 2016
to be publically available on the applicant's website: www.enstardivision3a.com.au/Longgrove
5. The applicant make a copy of the proposed scheme, summary of the proposed scheme, notice of intention and actuarial report 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 of Australia in which an affected policyholder resides.
6. The applicant provide, upon request, to any policyholders that identify themselves as such, a copy of all scheme documents, free of charge.
7. The applicant pay APRA's costs of the interlocutory application filed on 20 September 2016 as agreed or assessed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
1 Gordian RunOff Ltd (Gordian) has made an application pursuant to Division 3A of Part III of the Insurance Act 1973 (Cth) (the Act) for confirmation of a proposed scheme involving the transfer to Gordian of all the general insurance business of Long Grove Insurance Company Ltd (Long Grove).
2 By interlocutory application filed on 20 September 2016, the applicant seeks orders under s 17C(5) of the Act for dispensation from the need for full compliance with s 17C(2)(c) of the Act. The purpose of the application arises from the fact that the records available to Gordian, coupled with online searches undertaken by it, have proven insufficient to identify every affected policyholder to be notified of the proposed transfer.
3 The application is supported by the affidavit of Mr Vu Pham, Manager of Actuarial Services of Enstar Australia Ltd (Enstar Australia), sworn 28 September 2016 and the affidavit of Ms Sandra O’Sullivan, Chief Executive and Financial Officer of Enstar Australia, sworn 28 September 2016.
4 Gordian is an Australian corporation and member of a corporate group headed by the Bermuda based Enstar Group Limited. Gordian is authorised by the Australian Prudential Regulation Authority (APRA) to carry on general runoff insurance business in Australia. It has acquired a number of runoff portfolios by way of transfer of scheme pursuant to the Act, most recently including Poseidon Co Pty Ltd: see Gordian Runoff Limited, in the matter of Gordian Runoff Limited (No 2)  FCA 687.
5 Long Grove, like Gordian, is a corporation authorised by APRA to carry on general insurance runoff business in Australia. The ultimate parent company of Long Grove is Lumbermens Mutual Casualty Company, which entered into runoff in 2003 and was placed into liquidation in May 2013. Before Long Grove’s own entry into runoff in September 1998, it wrote public and products liability policies and property policies (fire and industrial special risks) for schools, churches, shopping centres, office buildings and residential homes for around 25 years. The majority of policies were written in the 1980s. Long Grove is a corporation without staff, its management being contracted out to QBE Insurance (Australia) Ltd .
6 The last open claim on a Long Grove policy was closed in 2005, and only four claims have been reported since 2000. The applicant acknowledges, however, the possibility of long tail claims attaching to Long Grove policies, for example as a result of the significant reporting delays associated with latent medical conditions, work-related injuries and child abuse claims.
7 It is against that background that I consider the question of dispensation. The substantive hearing of the application later in the year will provide the opportunity for the Court to consider the impact of the transfer of scheme on policyholders of both the transferor and transferee companies in light of the actuarial evidence, and obtain a closer understanding of Long Grove’s records of claims, reserved claims and incurred but not reported claims and any patterns that may emerge in relation to them.
Relevant LEGAL framework
8 Under s 17C of the Act, the applicant is required to take various steps before an application for confirmation by the Court of the transfer or amalgamation of an insurance scheme. That section relevantly provides:
(1) In this section:
"affected policyholder " means the holder of a policy 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 prudential standards; and
(b) notice of intention to make the application has been published by the applicant in accordance with the prudential standards; and
(c) an approved summary of the scheme has been given to every affected policyholder.
(3) Without limiting the provision that may be made by the prudential standards for the purposes of paragraph (2)(b), the notice referred to in that paragraph must include, in relation to each body corporate affected by the scheme, details of the place and time at which an affected policyholder may obtain a copy of the scheme.
(4) An affected policyholder is entitled, on the person's request, to be provided by the company with one copy of the scheme free of charge.
(5) The Federal 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
9 An application to dispense with the need for compliance with s 17(2)(c) often arises from the practicalities that attend to a transfer of scheme of this sort, which sometimes make it impossible or highly impractical for all affected policyholders of the transferor insurer to be identified or contacted. For a dispensation to be made, the Court must be satisfied of the necessity of that dispensation ‘because of the nature of the scheme or the circumstances attending its preparation’.
Reasons for dispensation application
10 Gordian essentially applies for dispensation on the basis of the circumstances attending preparation of the proposed transfer of scheme. It submits that the records obtained by it are insufficient to identify or make contact with every affected policyholder of Long Grove.
11 Enstar Australia, which manages the business of Gordian, initially used a list in Excel format prepared in December 2006 to identify the affected policyholders. Data obtained from the physical records of Long Grove by QBE Insurance Australia (Ltd) and external lawyers of Lumbermens Mutual Casualty Company had been transported to the list, which recorded the policy type, policy number, policyholder name, policyholder expiry date, policyholder’s postal address and file location code connected with each policy written by Long Grove.
12 From the 1,172 individual policyholders named on the list, searches were performed to determine the registration status of the policyholders with ASIC along with their names and addresses. The majority of policyholders was identified as being located in Australia. Companies identified as being under voluntary or external administration were recorded by reference to the liquidators’ addresses. Where the ASIC records did not assist in the task of identification, internet searches were conducted through the search engine Google and any relevant details recorded.
13 Those policyholders, who through a combination of ASIC and Google searches, could not be identified were marked on the relevant record as ‘Untraceable/unable to verify’. In total, there were:
(a) 426 policyholders who were identified as having been deregistered;
(b) 356 policyholders who were not able to be identified, or for whom an address could not be located (182 of this number, however, did have an address listed in the policyholder list)
(c) 390 policyholders, who were identified with contact details
The Court’s Discretion
14 The Court’s exercise of discretion to grant a dispensation is a ‘matter of considerable importance’ that ‘should not be regarded as a matter of course’: see Munich Reinsurance Company of Australasia Ltd  FCA 1391 at  per Tamberlin J, writing in the context of the dispensation for the transfer of life business pursuant to the Life Insurance Act 1995 (Cth).
15 As emphasised by Sackville J in The Application of Commonwealth Life Ltd & Anor  FCA 501 at , the legislative intent behind the requirement of alerting policyholders to a transfer of scheme and allowing them to inspect the scheme documents is to give those policyholders the opportunity to approach the Court and make submissions with regard to the application for the confirmation of the scheme. If policyholders are unaware of the proposed transfer, their opportunity to be heard is lost from the outset.
16 Gordian’s submissions state that there were no additional reasonable steps it could take to identify affected policyholders and obtain their contact details.
17 I am satisfied that Enstar Australia, as the manager of Gordian, has taken all reasonable steps to identify the names and addresses of the policyholders of Long Grove. The combination of ASIC and Google searches meant efforts were made for positive identification and those policyholders who appeared to be untraceable were recorded as such.
18 Gordian proposes to take additional steps to those under the Act and Prudential Standard 410 to ensure the notification of those affected policyholders whom it cannot identify in the records. These include publishing a notice in major state and territory newspapers as well as on the Enstar website. In numerous cases, the fact that the applicant will take addition steps to ensure the most compete notification of the scheme has satisfied the Court that dispensation should be granted: GIO Personal Investment Services Ltd and AMP Life Ltd  FCA 1871 at ; The Application of Commonwealth Life Ltd & Anor  FCA 501 at  and ; Challenger Life Limited  FCA 618 at ; Westport Insurance Corporation, in the matter of Westport Insurance Corporation  FCA 1357 at -; and HDI-Gerling Australia Insurance Company Pty Limited, in the matter of HDI-Gerling Australia Insurance Company Pty Limited  FCA 505 at -.
19 Furthermore, Mr Paraskevas appeared on behalf of the APRA at the interlocutory hearing. He confirmed APRA’s involvement in reviewing the scheme documents and the actuarial reports pertaining to the proposed transfer from the outset, and noted that APRA records no objection to the dispensation orders sought.
20 In considering the submissions in this application, together with the affidavit evidence outlining difficulties with the identification of complete policyholder information and the support of APRA, I consider that the dispensation is a necessity in light of the circumstances attending the preparation of the scheme. I am therefore prepared to make the orders under s 17C(5) sought by the applicant.