FEDERAL COURT OF AUSTRALIA

Sunderland Marine Insurance Company Limited, in the matter of Sunderland Marine Insurance Company Limited (No 2) [2018] FCA 1721

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 17F of the Insurance Act 1973 (Cth), the scheme for the transfer of the insurance business of the applicant to The North of England Protecting and Indemnity Association Limited (Australian Branch) (ARBN 624 528 123), which comprises annexure MJE-14 to the affidavit of Matthew James Ellis affirmed 25 October 2018, be confirmed without modification.

2.    The scheme shall become effective on, and the Effective Date as defined in the scheme shall be, 16 November 2018, subject to the Australian Securities and Investments Commission having issued to North an Australian Financial Services Licence on or before that date.

3.    That the applicant shall pay the costs of the Australian Prudential Regulation Authority as agreed, or if agreement cannot be reached, as taxed or assessed, with liberty to the parties to provide such material as may be necessary to the Associate to Justice Lee for the purpose of making a lump sum order.

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

REASONS FOR JUDGMENT

Revised from the transcript

LEE J:

1    This is an application pursuant to s 17F of the Insurance Act 1973 (Cth) (Act) for confirmation of a scheme for the transfer of all of the insurance business of the Australian branch of the applicant to the Australian branch of the North of England Protecting and Indemnity Association Limited (North). In the words of the actuary who was engaged to prepare an actuarial report in support of the application for transfer, “[t]he transfer is one of the most straightforward from the perspective of policy interests that [sic] have seen”.

2    On 20 April 2018 in Sunderland Marine Insurance Company Limited, in the matter of Sunderland Marine Insurance Company Limited [2018] FCA 565, I dealt with an application for dispensation with the need to comply with s 17C(2)(c) of the Act in connexion with the proposed scheme. The background to the scheme and the nature of the business written by Sunderland is outlined in Section A of that judgment and does not require repetition.

3    The principles are well known. Section 17F(1A) of the Act sets out the factors to which the Court must have regard when deciding whether to confirm a scheme. They are:

(a) the interests of the policyholders of a body corporate affected by the scheme; and

(b) if a report relevant to all or part of the scheme has been filed with the Court under section 62ZI—that report; and

(c) any other matter the Court considers relevant.

4    Central to consideration of the application is the Court being satisfied that the scheme will not detrimentally affect policyholders in a material way: see Re Westport Insurance Corporation (No 2) [2009] FCA 1598; (2009) 181 FCR 530 at 535 [32] per Lindgren J. Where the transfer involves a foreign insurer, the interests of policyholders of branches other than the Australian branches are irrelevant to the exercise of discretion under s 17F: see Westport at 536-540 [36]-[59]. Here, the transferee branch is a new entity with no existing policyholders, so the required analysis is directed to consideration of the interests of policyholders of the transferor branch.

5    In considering the interests of policyholders of the Australian branch of a foreign insurer, it is often necessary for the court to have evidence of the balance sheet and risk profiles of the transferor and transferee companies beyond their Australian branches: see AXIS Specialty Europe SE (Australia Branch), in the matter of AXIS Specialty Europe SE (Australia Branch) (No 2) [2017] FCA 276 at [13], [36]-[46] per Allsop CJ. I accept the submission made by Mr Izzo SC who, together with Ms Keesing, appears on behalf of the applicant, that this consideration is presently of little significance where an intra-group transfer is involved. Notwithstanding this, it has been briefly addressed in the submissions provided to me.

6    It is unnecessary for me to canvass in great detail the factors relevant to the exercise of discretion in this straightforward application. The applicant has provided a detailed outline of submissions for the confirmation hearing which have been filed with the Court. In those submissions, there is comprehensive reference to the matters relevant to the exercise of discretion, including detailing the evidence establishing that the actuary has formed the view that the interests of policyholders of the applicant’s Australian branch and (prospectively) North’s Australian branch, will not be adversely affected in a material way as a consequence of the proposed scheme.

7    The actuary highlights several points in favour of confirming the scheme: first, that the Australian policyholders of the applicant will retain the same financial security they had prior to the scheme; secondly, that because North’s Australian branch is a new entity that will take on all of the assets and liabilities of the applicant’s Australian branch, there is no change in the risk profile of the Australian business that would be relevant to the interests of Australian policyholders; thirdly, that the capital adequacy ratio of the applicant’s Australian branch is considered appropriate; and fourthly, there will be no changes to processes or policy terms as a result of the scheme.

8    Additionally, the Australian Prudential Regulatory Authority (APRA) has indicated that it does not object to the proposed scheme and the orders. The evidence disclosed that APRA has been closely involved in the oversight of the scheme and, indeed, appeared at the earlier dispensation hearing. The evidence to which I was taken by Mr Izzo SC demonstrated an exchange between APRA and those acting for the applicant, which shows close attention was paid to the details of the relevant scheme. It hardly needs remarking that the non-objection of APRA, as the government regulator charged with ensuring that insurance businesses are conducted in such a way that the legitimate interests of policyholders are protected, is a matter from which the Court can (and in this case does) draw significant comfort: see Application of Sompo Japan Insurance Inc. under the Insurance Act 1973 (Cth) (No 2) [2014] FCA 677 at [41]-[42] per Yates J; ACE Insurance Ltd, in the matter of ACE Insurance Ltd (No 2) [2016] FCA 1258 at [44] per Gleeson J. This sense of reassurance is reinforced in circumstances where the evidence discloses that APRA has been closely engaged in detailed analysis in relation to the scheme.

9    The evidence also discloses that orders made on 20 April 2018 have been the subject of compliance. In particular, a comprehensive summary of the scheme was sent to each of the policyholders identified in the relevant policyholder register. The applicant was not notified by any interested party that they proposed to attend the confirmation hearing and oppose the scheme. Consistently with this, when the matter was called on, it was called outside of court three times and there was no appearance. The scheme summary made specific reference to the right of policyholders to appear at the confirmation hearing and noted that the application for confirmation of the scheme would be made today. The lack of objection to the scheme by affected policyholders (in circumstances where the evidence establishes that they have been given an adequate opportunity to do so) is also a matter which weighs in favour of confirmation of the scheme.

10    The evidence discloses that the conditions precedent to the scheme have been satisfied save for the requirement that ASIC issue North with an Australian financial services licence (AFSL). The affidavit material discloses that ASIC has issued a draft AFSL and has indicated that it will issue the ASFL on a final basis when provided with evidence that the scheme has been confirmed.

11    In short, there will be no changes in processes or policy terms as a result of the scheme. The employees of the applicant and its subsidiary, Marine Insurance Australia Pty Ltd, have become employees of an Australian registered North group service company, and will continue to provide the same services and perform the same roles as they did before the applicant’s Australian branch prior to transfer. In circumstances where there has been no material changes to the policies and procedures of the applicant’s Australian branch prior to transfer, and taking into account the other material to which the applicant has directed attention in its submissions, I am satisfied the implementation of the scheme will not detrimentally affect policyholders in a material way and that the orders sought should be made.

Associate:

Dated:    14 November 2018