Federal Court of Australia

Gordian RunOff Limited, in the Matter of Gordian RunOff Limited [2021] FCA 1386

ORDERS

THE COURT ORDERS THAT:

Dispensation Orders

1.    The need for the applicant to comply with section 17C(2)(c) of the Insurance Act 1973 (Cth) (Insurance Act) is dispensed with provided that the applicant complies with Orders 2 through 5 below.

2.    The applicant is to cause a copy of the summary of the Scheme approved by the Australian Prudential Regulation Authority (APRA) (Approved Summary), a copy of which is at Annexure SO-10 to the affidavit of Sandra O’Sullivan sworn 5 November 2021, to be sent by pre-paid post or email to each of the following prior to the date the Scheme is released for public inspection under Order 4:

(a)    North Limited (ACN 005 233 689);

(b)    each of the Australian registered entities identified in Annexure A to these orders, being the entities referred to at paragraph 63(b) and (d)-(f) of the affidavit of Michele John Martino filed in the proceedings on 4 November 2021 (Martino Affidavit);

(c)    the 7 overseas companies listed in Annexure A to these orders, being the entities referred to in the Subsidiary List at Annexure MM-8 of the Martino Affidavit which are presently companies within the Rio Tinto Group;

(d)    the Australian Securities and Investments Commission, in respect of the 57 former or deregistered Australian companies listed in Annexure B to these orders, being the entities referred to at paragraph 63(g) of the Martino affidavit;

(e)    WHS/Workers Compensation, Unions NSW (email address – nflores@unionsnsw.org.au); and

(f)    WHS/Workers Compensation Officer, Australian Manufacturing Workers Union (AMWU) (email address – David.Henry@amwu.org.au).

3.    The applicant is to cause a copy of the Notice of Intention to make the application, as required under APRA Prudential Standard GPS 410 Transfer and Amalgamation of Insurance Business for General Insurers (in the form approved by APRA) (Notice of Intention), as described in the affidavit of Sandra O’Sullivan sworn 5 November 2021, to be published in the following publications prior to the date the Scheme is released for public inspection under Order 4:

(a)    the Government Gazette;

(b)    The Australian, which circulates in every State and Territory in Australia; and

(c)    the following metropolitan newspapers:

(i)    The Sydney Morning Herald;

(ii)    The Age;

(iii)    The Canberra Times;

(iv)    The Mercury; and

(v)    The West Australian.

4.    The applicant is to cause copies of the following documents to be made available for inspection at www.northinsurances.com from 15 November 2021 until a decision on the application is made by the Court:

(a)    the Scheme, as described in the affidavit of Sandra O’Sullivan filed in these proceedings on 3 November 2021;

(b)    the Approved Summary;

(c)    the Notice of Intention;

(d)    the Actuarial Report dated 12 October 2021, a copy of which is annexure “WEG-1” to the affidavit of Warrick Evan Gard sworn 3 November 2021; and

(e)    a list of the 58 overseas companies listed in Annexure C to these orders, being the entities referred to in the Subsidiary List at Annexure MM-8 of the Martino Affidavit which are international companies that are not within the Rio Tinto Group, with a note that these companies were insured under policies of insurance issued by North Insurances.

5.    The applicant is to cause the establishment of a dedicated phone line (+61 7 3625 4352) to be monitored from 9:00am to 7:00pm AEST Monday to Friday during the period from 15 November 2021 to 10 December 2021, along with a monitored message bank for this phone line, for the purpose of allowing policyholders to request copies of the documents itemised at Order 4 above.

6.    The applicant pay the cost of the proceedings of APRA to date, as agreed or assessed.

Case Management Orders

7.    Confidential Annexure MM-1 to the affidavit of Michele John Martino, affirmed 4 November 2021, not be produced to anyone not party to the proceedings without leave of a judge of the Court, it not having been placed into evidence nor relied on.

8.    On or before 10 December 2021, the applicant file and serve any evidence in support of the application for confirmation of the Scheme.

9.    On or before 10 December 2021, the applicant file and serve written submissions in support of the application for confirmation of the Scheme.

10.    The matter be listed for confirmation hearing on 15 December 2021 at 10.15am AEDT.

11.    Liberty to restore on two days’ notice.

12.    These orders be entered forthwith.

Annexure A – additional entities to be notified

Australian entities that are not part of the Rio Tinto Group

Australian registered entities that are part of the Rio Tinto Group

Entities listed at 63(d)-(f) of Martino affidavit

International entities that are part of the Rio Tinto Group

Annexure B - Deregistered Australian entities

Deregistered entities listed in the Subsidiary List annexed to the Martino Affidavit

Other former or deregistered Australian entities identified in the Martino Affidavit

Annexure C - International entities that are not part of the Rio Tinto Group

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

REASONS FOR JUDGMENT

(Revised from Transcript)

ALLSOP CJ:

1    In these proceedings, the applicant, Gordian RunOff Limited (Gordian) applies for confirmation pursuant to Division 3A of Part 3 of the Insurance Act 1973 (Cth) of a proposed scheme of transfer of all the insurance business of North Insurances Pty Ltd (North), to Gordian (Scheme). I will deal with the transfer in a moment. The application before the Court today is an interlocutory application under s 17C(5) of the Act for dispensation from the requirements under s 17C(2)(c) for the notification and provision of a summary of the Scheme to every affected policyholder. The business of North was as a captive insurer for North Broken Hill Peko Limited – later called North Limited – until that business was acquired by the Rio Tinto Group in 2000.

2    The captive insurer carried on, broadly speaking, three classes of business. The first two classes, which were carried on by the captive insurer until 2000, were not very accurately named public liability cover, to which I will refer in a moment, and property damage and business interruption cover or Industrial Special Risk policies for companies in the group and also wider classes of Insureds referred to in the policies issued over the period between 1991 or thereabouts to 1999/2000. The third class of business was workers’ compensation, which business was written until 2003. The complexity of the types of cover issued under the so-called public liability policies are dealt with in the affidavit of Mr Michele John Martino, affirmed 4 November 2021. It is unnecessary for the purposes of this interlocutory hearing to descend into the detailed complexities of those different types of cover and ranges of potential Insureds or parties who may be s 48 parties for the purposes of the Insurance Contracts Act 1984 (Cth).

3    It suffices to say that liability extended to excess aviation liability, hull, pilots, a company reimbursement policy, and excess aviation liability cover for charterers. All these are set out in the policies and the endorsements as an addendum to Mr Martino’s affidavit in Annexure MM-4. Importantly, for present purposes, in both the forms of policy issued over the approximate decade to 2000, there were workers’ compensation and asbestos exclusions and the insurance can broadly be identified and characterised as short tail business.

4    The claims under those first two lines of business have been identified: All are closed and have been closed since approximately 2007. Those claims were small in number (eight for the so-called public liability cover and nine for the business interruption cover) and broadly low in value: approximately $1.2 million and $1.7 million in total, respectively. The closed claims were thus, in total, in the order of $3 million.

5    The dispensation hearing largely concerns those two lines of business. Mr Martino in his affidavit from paragraphs 36 and following sets out the history of the subsidiaries, joint venturers, and other parties who might potentially be interested in cover.

6    The summary of those matters is contained in paragraph 63 and following of Mr Martino’s affidavit, and the parties interested are identified in the draft short minutes of order that have been supplied, and which I propose to make. I will come to the different groups of parties in a moment. It should be noted that, as the helpful written submissions of both Mr Newton and Mr Izzo make clear, there is an issue as to the meaning of the term policyholder, for the purposes of s 17C(2)(c) of the Act. Many of these entities, on any view, would not be policyholders.

7    There may be an issue about whether the companies in the group – which are identified in the definitions of the Insured in the various policies – are, in fact, policyholders. Mr Newton indicates that the premium paid to North by North Broken Hill Peko was apportioned amongst the companies in the group. But the problem with the identification of who the persons interested in the insurance are does not lie with the companies in the group. As for the workers’ compensation cover, there is no issue about the identification of the policyholders. Only the workers’ compensation business is the subject of provisioning.

8    The actuary’s report, being that of Mr Warrick Evan Gard of Ernst & Young, has clearly dealt with the provisioning and the coverage ratio over Prescribed Capital and Target Capital. This will be dealt with in greater detail at the confirmation hearing, but it suffices to say, for present purposes, that the tolerably small nature of the provisioning necessary for this workers’ compensation cover – which, I would add, includes the potential for long-tail asbestos liability – is adequately provisioned, it would appear. Thus, the claim is for the transfer of a reasonably small amount of insurance business that is completely in run-off, and has been in run-off since the early 2000s.

9    Two of the three lines of business appear to be entirely closed and appear to be short tail business; the closed nature of the claims reveals only a small amount in claims, in any event, historically, and the outstanding claims provisioning for the workers’ compensation is appropriately covered by the assets transferred, being premium of nearly $5 million. In those circumstances, there does not appear to be any likely prejudice to any of the foreign entities who cannot be, at the moment, easily identified: the cost of so identifying them, even assuming them to be – which is doubtful – policyholders for the purposes of 17C(2)(c) of the Act, is not justified.

10    The Australian Prudential Regulation Authority (APRA) has been involved in the matter to date, has made suggestions to the applicant for amendments to the disclosure and notification regime, has no opposition to the dispensation orders sought, and has formed the view that those foreign entities who may not be directly contacted by way of notification would not be materially disadvantaged by that. If I may respectfully say so, on the material before the Court, that view is well justified. It is broadly for those reasons – and accepting the helpful submissions of both Mr Newton and Mr Izzo, which will remain on the file – that the Court is satisfied that because of the nature of this Scheme and the circumstances attending its preparation, it is not necessary that s 17C(2)(c) of the Act be fully complied with.

11    In those circumstances, I make orders in accordance with the draft minute of proposed orders for notification and publication. The Annexures to the draft orders – which will be Annexures to the final orders – identify by various categories the additional entities to be notified. The entities that will not be directly notified and, really, which are the subject of the dispensation, are contained in Annexure C. They are contained in Annexure C pursuant to suggestion of APRA to the applicant that the 58 overseas companies listed in Annexure C, being the entities referred to in the subsidiary list in Mr Martino’s affidavit, which are the international companies that are not within the Rio Tinto Group, and whose identity and addressees will be of some significant cost to identify and notify, will be listed on the website of North from 15 November 2021, thereby making known to parties interested in the transfer the identity of the receiving entity.

12    For those reasons, I make orders in accordance with the draft minute of proposed orders provided to the Court, with the amendment of having the words “draft” removed.

Associate:

Dated:    8 November 2021