Federal Court of Australia

Australian Securities and Investments Commission v Zurich Australia Limited [2023] FCA 712

ORDERS

THE COURT ORDERS THAT:

1.    Zurich Australia Limited (ABN 92 000 010 195) be substituted for OnePath Life Limited in the proceedings, and:

(a)    the title of the proceedings be amended accordingly; and

(b)    pursuant to r 9.11(a) of the Federal Court Rules 2011 (Cth), any thing done or action taken in the proceedings before the substitution has the same effect in relation to Zurich Australia Limited as it had in relation to OnePath Life Limited.

2.    The costs of the application be costs in the cause.

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

REASONS FOR JUDGMENT

JACKMAN J

1    These proceedings concern the handling of a claim made by the insured under a life policy issued by the defendant, ACN 009 657 276 Pty Ltd (formerly known as OnePath Life Ltd) (OnePath). The policy was issued in June 2016 and events relating to the handling of the claim occurred between 2018 and 2020.

2    In the proceeding, the plaintiff (ASIC) seeks:

(a)    declarations under s 75A of the Insurance Contracts Act 1984 (Cth) (ICA) that OnePath breached the duty of utmost good faith implied by s 13(1) of the ICA and thereby contravened s 13(2A), being a civil penalty provision, on three occasions;

(b)    the imposition of a civil pecuniary penalty under s 75B of the ICA; and

(c)    an order under s 1101B(1) of the Corporations Act 2001 (Cth) that OnePath take all reasonable steps to cause to be published a notice stating that it has been ordered to pay a pecuniary penalty because it has contravened s 13(2A) of the ICA.

Section 75A(1) of the ICA provides relevantly that ASIC may apply to a relevant court for a declaration that “the person” contravened the provision. Further, s 75B(1) provides relevantly that ASIC may apply to a relevant court for an order that “a person, who is alleged to have contravened a civil penalty provision, pay the Commonwealth a pecuniary penalty”.

3    By interlocutory application dated 11 April 2023, OnePath applies for orders that Zurich Australia Ltd (Zurich) be substituted for OnePath as defendant to the proceeding, that the title of the proceedings be amended accordingly, and that pursuant to r 9.11(a) of the Federal Court Rules 2011 (Cth) any thing done or action taken in the proceedings before the substitution has the same effect in relation to Zurich as it had in relation to OnePath.

4    OnePath seeks these orders on the basis that any liability it had to the relief sought in the originating process was transferred to Zurich at 12.01 am AEST on 1 August 2022 by operation of s 195 of the Life Insurance Act 1995 (Cth) (Life Act), following the confirmation by this Court of a scheme to transfer OnePath’s life insurance business to Zurich (the Scheme): Re OnePath Life Limited (No 2) [2022] FCA 811 (Jagot J). ASIC neither consents to nor opposes the application, and Zurich consents to the orders sought.

Salient Aspects of the Life Act and the Scheme

5    Part 9 of the Life Act deals with transfers and amalgamations of life insurance businesses. Section 190(1) provides that no part of the life insurance business of a life company may be (a) transferred to another life company, or (b) amalgamated with the business of another life company, except under a scheme confirmed by the Court. Section 190(3) stipulates that a scheme must set out (a) the terms of the agreement or deed under which the proposed transfer or amalgamation is to be carried out, and (b) particulars of any other arrangements necessary to give effect to the scheme. Section 194 confers upon this Court the power to confirm a scheme with or without modification, or to refuse to confirm a scheme.

6    Section 195 of the Life Act provides as follows:

When a scheme is confirmed:

(a)    it becomes binding on all persons; and

(b)    it has effect in spite of anything in the constitution of any company affected by the scheme; and

(c)    the company on whose application the scheme was confirmed must cause a copy of the scheme to be lodged at an office of ASIC in every State and Territory in which a company affected by the scheme carried on business.

7    The word “persons” includes a body politic or corporate as well as an individual: Acts Interpretation Act 1901 (Cth), s 2C(1). ASIC is a body corporate and is therefore a person bound by a scheme upon its confirmation under s 194 of the Life Act: Australian Securities and Investments Commission Act 2001 (Cth), s 8(1)(a). The Court itself is not a “person”: Kizon v Palmer (1997) 72 FCR 409 at 430-431 (Lindgren J, with whom Jenkinson and Kiefel JJ agreed). As Rares J said of s 17G of the Insurance Act 1973 (Cth) (which is substantially identical to s 195 of the Life Act), when a scheme is confirmed it becomes binding on all persons so that, in effect, it operates in rem and affects not merely policyholders of the different insurers but also their shareholders, debtors and creditors: Re Cavell Insurance Co Ltd [2008] FCA 1984 at [46].

8    On 6 July 2022, Jagot J confirmed the Scheme and ordered that the Scheme was to take effect on and from 12.01 am AEST on 1 August 2022. The terms of the Scheme were Annexure A to those orders.

9    Clause 1.1 of the Scheme contained the following definitions of relevance:

Business means the life insurance business carried on by OnePath Life in Australia, within the meaning of the Life Act, including any business of OnePath Life that relates to its life insurance business, as otherwise defined in the Life Act, including:

(a)    the Policies and the Policy Liabilities; and

(b)    the Business Assets and the Business Liabilities,

but does not include the Regulatory Capital.

Business Liabilities means Claims, losses, liabilities, costs or expenses of any kind of the Business (including liabilities (if any) in the OnePath Life Shareholder Fund related to the Business) which have arisen and remain unsatisfied or which may arise in the future or which     are prospective or contingent and whether or not the amount of the liability is ascertained or ascertainable other than the Policy Liabilities.

Claim means, in relation to any person, a claim, action, proceeding, judgment, damage, loss, cost, charge, expense or liability of whatever nature incurred by or to or made or recovered by or against the person, however arising and whether present, future or contingent, whether ascertained or unascertained and whether arising before or after the Effective Date.

Effective Date means 12:01am on 1 August 2022 or such other date that the Federal Court of Australia may specify as the commencement date of the Scheme should the Scheme be confirmed by the Court.

life policy has the meaning given in the Life Act and includes contracts of insurance and reinsurance.

Policies means:

(a)    all life policies that are referable to the Business issued, entered into or assumed by OnePath Life as insurer or reinsurer prior to the Effective Date (including, for clarity, life policies which may have lapsed, been cancelled or expired but under which benefits or rights may remain);

(b)    any agreement to insure or reinsure under a life policy that is referable to the Business issued, entered into or assumed by OnePath Life as insurer or reinsurer prior to the Effective Date where the life policy is to commence or does commence on or after the Effective Date; and

(c)    any Post-Effective Date Policy.

Policy Liabilities means claims, losses, liabilities, costs or expenses of any kind under or in respect of the Policies, which have arisen and remain unsatisfied or which may arise in the future or which are prospective or contingent and whether or not the amount of the liability is ascertained or ascertainable.

10    Clause 2 of the Scheme is entitled “Transfer of Business” and provides:

On the Effective Date, OnePath Life agrees to sell and transfer and Zurich agrees to purchase and accept the transfer of all of the Business and, in particular:

(a)     the Policies and the Policy Liabilities; and

(b)    the Business Assets and the Business Liabilities,

from OnePath Life in accordance with the terms of the Transfer Agreement, including all right, title, interest, benefit and powers that have arisen, or may in the future arise under any of the above.

11    Clause 4 is entitled “Transfer of Policies and Policy Liabilities”. Clause 4(a) provides:

On and from the Effective Date, OnePath Life transfers to Zurich and Zurich accepts the transfer of the Policies and the Policy Liabilities, and Zurich assumes and takes over and must indemnify and keep OnePath Life indemnified from and against all Claims under or in connection with the Policies or Policy Liabilities.

12    Clause 6 is entitled “Proceedings” and provides:

If any proceedings are pending or any proceedings are brought on or after the Effective Date by or against OnePath Life in any court or tribunal in respect of or in connection with the Policies, the Policy Liabilities, the Business Assets or the Business Liabilities, such proceedings will be continued by or against Zurich, and the parties agree to take all necessary action to effect a change of the name of the party in those proceedings from OnePath Life to Zurich.

13    Clause 7 is entitled “Effective Date” and provides:

The sale and purchase of the Business from OnePath Life to Zurich, and the transfer to and assumption of the Policies and Policy Liabilities by Zurich pursuant to this Scheme will take effect on and from the Effective Date (or in the case of any Post-Effective Date Policy, on the date that it is issued by OnePath Life).

14    Clause 10 is entitled “Consequences of the transfer of Business”. Clause 10.1(a) provides that “On and from the Effective Date … (a) all references to OnePath Life in a Policy are replaced with a reference to Zurich”.

15    Clause 10.3(c) provides that:

Any Policy owner or other person having any claim on or obligation to OnePath Life under or in respect of a Policy will, as and from the Effective Date, have the same claim on or obligation to Zurich in substitution for that person’s claim on or obligation to OnePath Life irrespective of when such claim or obligation arose.

The Scheme Transferred OnePath’s Liability to Zurich

16    The question on the present application is whether the Scheme, on its proper construction, operates by reason of s 195 of the Life Act to transfer OnePath’s liability to ASIC’s claims to Zurich. As OnePath submits, and I accept for reasons given below, this does not require the Court to be satisfied that Zurich would be “the person” which contravened s 13(2A) for the purposes of ss 75A and 75B of the ICA, or that the Scheme effected the complete transfer of OnePath’s legal personality.

17    The essence of ASIC’s claim is that OnePath breached the term implied into the relevant policy by s 13(1) of the ICA, and that OnePath’s failure to comply with that term therefore constituted a contravention of s 13(2A) of the ICA, rendering OnePath liable to declaratory and civil penalty relief under ss 75A and 75B of the ICA. The life policy the subject of the proceeding is a “Policy”. The claim is a “kind” of claim in respect of a Policy, and therefore falls within the definition of Policy Liabilities. The phrase “of any kind” is obviously broad. The phrase “in respect of” is also one of wide meaning: Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 267 CLR 560 at [159] (Nettle, Gordon and Edelman JJ); Workers’ Compensation Board (Q) v Technical Products Pty Ltd (1988) 165 CLR 642 at 646-647 (Wilson and Gaudron JJ), 653-654 (Deane, Dawson and Toohey JJ). The phrase “Policy Liabilities” is defined to extend to claims and liabilities “which have arisen and remain unsatisfied or which may arise in the future or which are prospective or contingent”. In this regard it is immaterial that ASIC’s claim had not been articulated or advanced at the time that the Scheme took effect, or that the proceeding was not commenced until 7 December 2022.

18    The consequence of ASIC’s claims being “Policy Liabilities” is that, from the Effective Date of 22 August 2022, they were transferred to Zurich, such that they subsisted as against Zurich and not as against OnePath pursuant to cl 4(a) of the Scheme. That this was the intended effect of the Scheme is confirmed by the mandatory language in cl 6 of the Scheme that “any proceedings … by or against OnePath Life … in respect of or in connection with the Policies [or] the Policy Liabilities … will be continued by or against Zurich”, and by the obligation of OnePath Life and Zurich “to take all necessary action to effect a change of the name of the party in those proceedings from OnePath Life to Zurich”. Accordingly, Policy Liabilities did not subsist as against OnePath after the Effective Date, nor did OnePath remain a necessary party to any proceedings concerning such liabilities.

19    The intended effect of the Scheme is further confirmed by the use of the language of “assumption” of Policy Liabilities by Zurich in cl 7 and by the language of “substitution” in cl 10.3(c). For the purposes of cl 10.3, ASIC is an “other person” which had a claim on OnePath “under or in respect of a Policy”. The effect of cl 10.3(c) is that, “as and from the Effective Date”, ASIC has “the same claim” on Zurich “in substitution for” ASIC’s claim on OnePath.

20    ASIC has drawn attention in its written submissions to the decision of the former Industrial Relations Court of New South Wales in Country Energy v Malone [2005] NSWIRComm 78; (2005) 138 IR 221 (Wright, Boland and Staff JJ). That case concerned the prosecution of an alleged contravention of s 15(1) of the Occupational Health and Safety Act 1983 (NSW). The reasoning at [28] confirmed that it is possible for a statute to bring about a succession to criminal liability. Whether legislation does so is a matter of construction and it would usually be expected that such an intention would be clearly stated. An example of where such an intention may be found was said to be where there is express provision that the two bodies are the “same legal person”: [28(c)]. The reasoning, however, does not support the proposition that confluence in identity of legal personality is necessary for succession to criminal liability, that being given as no more than an example of where such an intention might be found. In any event, the present case does not concern criminal liability. A statutory liability to a civil pecuniary penalty is a civil, not a criminal, liability, even though the purposes of such proceedings include purposes of deterrence and the consequences can be large and punishing: Commonwealth v Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 at [102] (Keane J).

21    ASIC also submits that in order to allow the application, the Court must be satisfied that Zurich would be “the person” for the purposes of ss 75A and 75B of the ICA. That argument was rejected by Hoeben J in Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd [2005] NSWSC 20; (2005) 189 FLR 14 at [149]-[161]. In that case, the plaintiffs brought proceedings against the defendant for negligence and breach of ss 52(1) and 74(2) of the Trade Practices Act 1974 (Cth) (TPA). It was necessary for Hoeben J to address whether the liability under that Act had been transferred to the defendant from its predecessor by the Airports (Transitional) Act 1996 (Cth) and the Bankstown Airport Transfer Instrument (made by a delegate of the Minister for Finance and Administration). His Honour referred to the defendant’s arguments at [150]-[152] to the effect that the relevant remedial provisions of the TPA conferred rights of action only against the person who engaged in the proscribed conduct or was involved in the contravention, and further that the burden of such an action could not be assigned. His Honour rejected those arguments at [153]-[161]. The effect of Hoeben J’s reasoning was that the issue was not whether the relevant instrument which effected the transfer constituted the transferee entity as “the person” which had contravened the statutory norm. Rather, the issue was whether the instrument had the effect of transferring the contravenor’s statutory liability to a transferee. As Hoeben J said at [153]: “What needs to be examined are the meaning of the relevant statutory provisions and whether they were effective to transfer any liability” of the defendant’s predecessor under the remedial provisions of the TPA. His Honour’s reasoning turned on the breadth of the definition of liability in the relevant instrument, in circumstances where (as here) it included contingent or prospective liabilities in respect of various matters.

22    In my view, the reasoning is apposite to the present case. There is no material distinction by reason of the legal mechanism for effecting the transfer. In the present case, liability has been transferred pursuant to the statutory provision in s 195 of the Life Act, together with the orders of Jagot J. The order confirming the Scheme is an order of a superior court of record. ASIC does not contend that the order was beyond power, nor would that be relevant in any event in circumstances where the order has not been set aside: see Deputy Commissioner of Taxation v Clyne (1984) 4 FCR 156 at 157-158 (Toohey and Wilcox JJ).

23    ASIC has also drawn my attention to the decision of Perram J in ACE Insurance Ltd v Trifunovski (No 2) [2012] FCA 793, in which the insurer’s liability to civil penalties under the Workplace Relations Act 1996 (Cth) was treated as having been transferred by a scheme under the Insurance Act 1973. The judgment of Perram J does not indicate whether there was any consideration of the transfer issue, but in my view it would not be surprising if this aspect of the matter passed without argument or comment. Such a transfer of liability to civil penalties is clearly within the scope of a conventionally drafted insurance transfer scheme.

Conclusion

24    For those reasons, the orders sought by OnePath in the Interlocutory Application should be made.

25    In accordance with the orders sought in the Interlocutory Application, the costs of the application will be costs in the cause.

Associate:

Dated:    28 June 2023