FEDERAL COURT OF AUSTRALIA

St Andrew’s Insurance (Australia) Pty Ltd, in the mater of St Andrew’s Insurance (Australia) Pty Ltd [2024] FCA 881

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 17F of the Insurance Act 1973 (Cth), the scheme for the transfer of the general insurance business of St Andrew’s Insurance (Australia) Pty Ltd, the First Applicant, to Hallmark General Insurance Company Ltd in the form of Annexure A to these orders (General Insurance Scheme) be confirmed without modification.

2.    Pursuant to s 194 of the Life Insurance Act 1995 (Cth), the scheme for the transfer of the life insurance business of St Andrew’s Life Insurance Pty Ltd, the Second Applicant, to Hallmark Life Insurance Company Ltd in the form of Annexure B to these orders (Life Insurance Scheme) be confirmed without modification.

3.    Each of the General Insurance Scheme and the Life Insurance Scheme is to take effect at 12.01 am on 31 July 2024.

4.    The Applicants pay the costs of the proceeding of the Australian Prudential Regulation Authority, as agreed, or, if agreement cannot be reached, as assessed.

5.    There be liberty to apply.

Annexure A

INSURANCE ACT 1973 (PART III DIVISION 3A)

SCHEME FOR THE TRANSFER OF THE INSURANCE BUSINESS OF ST ANDREW’S INSURANCE (AUSTRALIA) PTY LTD TO HALLMARK GENERAL INSURANCE COMPANY LTD

Background

A.    St Andrew’s Insurance (Australia) Pty Ltd (ABN 89 075 044 656) (St Andrew’s General) and Hallmark General Insurance Company Ltd (ABN 82 008 477 647) (Hallmark General) are authorised under the Insurance Act to carry on insurance business in Australia.

B.    St Andrew’s General has, as part of its business, operated the Business in Australia as an APRA-licensed general insurer.

C.    This Scheme has been prepared under Part III Division 3A of the Insurance Act 1973 (Cth) to give effect to the terms of an agreement by which St Andrew’s General has agreed to transfer, and Hallmark General has agreed to accept the transfer of all of the Business carried on by St Andrew’s General.

D.    If confirmed by the Federal Court of Australia, the Scheme will become binding on all persons.

E.    An Actuarial Report has been prepared in connection with the Scheme.

1.    Definitions and Interpretation

1.1    Definitions

    In this Scheme, unless the context requires otherwise:

APRA means the Australian Prudential Regulation Authority.

Assets means the assets of St Andrew’s General used for the purposes of conducting the Insurance Business as at the Transfer Effective Date including (without limiting the generality of the foregoing):

(a)    the rights, benefits and powers of St Andrew’s General under or by virtue of the Transferring Policies;

(b)    all rights and Claims (present or future, actual or contingent) against any third party in relation to the Insurance Business or arising as a result of St Andrew’s General having carried on the Insurance Business;

(c)    the rights, benefits and powers of St Andrew’s General under or by virtue of any contracts or arrangements in connection with the Insurance Business;

(d)    the Business Intellectual Property;

(e)    the Fixed Assets; and

(f)    all book, trade and other debts owing to St Andrew’s General as at the Transfer Effective Date and all deposits and bills receivables held by St Andrew’s General as at the Transfer Effective Date, in each case relating to the Business, and all rights in relation thereto and the benefit of all guarantees or other security in respect thereof.

but excluding the Second Tranche Assets.

Business means the business carried on by St Andrew’s in Australia as at the Transfer Effective Date including:

(a)    the Insurance Business;

(b)    the Assets;

(c)    the Liabilities; and

(d)    the Records,

and all powers, functions, rights and liabilities arising under, by virtue of, attributable to or in connection with these.

Business Transfer Agreement means the Business Transfer Agreement dated on or about 26 April 2024 between Hallmark General and St Andrew’s General pursuant to which St Andrews General agrees to transfer, and Hallmark General agrees to accept, the Business.

Claim means any claim, demand, legal proceedings or cause of action including any claim, demand, legal proceedings or cause of action based in contract, tort (including misrepresentation or negligence), under common law or under statute and includes a claim, demand, legal proceeding or cause of action arising from any breach of warranty or indemnity.

Insurance Act means the Insurance Act 1973 (Cth), including any act or enactment which amends or replaces, or has amended or replaced it and shall include any subordinate legislation made under it.

Independent Actuary means David Goodsall of Synge & Noble who is the independent qualified actuary instructed by St Andrew’s General to provide the Independent Actuarial Report.

Independent Actuarial Report means the report dated 26 April 2024 prepared by David Goodsall of Synge & Noble, the Independent Actuary, which sets out actuarial opinions in respect of the transfer of the Business to Hallmark General.

Insurance Business means the business carried on by St Andrew’s General in or from Australia in connection with its undertaking of liability under the Transferring Policies.

Liabilities means all liabilities whatsoever (whether present or future, certain or contingent) of St Andrew’s General as at the Transfer Effective Date under or by virtue of the Business or any cost, expense (including the fees and expenses of professional advisers), liability under any contracts or arrangements in connection with the Business, and damage or Loss of any kind in connection with the Business.

Records means the books and records (held in whatever medium) referable to the Business in the Transferor’s possession or control up to the Transfer Effective Date, including (but not limited to) any books and records relating to sales, marketing, underwriting and outstanding claims in respect of the Insurance Business, and any related accounting and financial records.

Scheme means the scheme, as set out in this document, to be confirmed by the Federal Court of Australia in accordance with Part III Division 3A of the Insurance Act for the transfer of the Business to Hallmark General.

Second Tranche Assets means a combination of cash and non-cash investments and STA Records as agreed between the parties (on the terms described in the Business Transfer Agreement) as at the STA Date.

STA Date means the date the parties agree the combination of cash and non-cash investments that will form the Second Tranche Assets, which must occur prior to the Transfer Effective Date.

STA Records means the books and records (held in whatever medium) referable to the Second Tranche Assets in the Transferor’s possession or control up to the STA Transfer Effective Date, including (but not limited to) any books and records, and any accounting and financial records.

Transfer Effective Date means the time and date on which the Transferring Policies are transferred to the Transferee pursuant to an order made by the Court pursuant to section 17F of the Insurance Act confirming the Scheme.

Transfer Value means the consideration for the Business, being the amount equal to the difference between the Assets and Liabilities as at the Transfer Effective Date, calculated in accordance with the Australian Accounting Standards.

Transferring Contracts means all contracts to which St Andrew’s General is a party to as at the Transfer Effective Date which relate to the Insurance Business.

Transferring Policies means any general insurance policies or risks forming part of the policies underwritten by St Andrew’s General.

1.2    Interpretation

In this Scheme:

(a)    the singular includes the plural and the plural includes the singular;

(b)    if a word or phrase is defined, its other grammatical forms have a corresponding meaning;

(c)    a reference to a person, corporation, trust, partnership, unincorporated body or other entity includes any of them;

(d)    a reference to a party includes the party’s executors, administrators, successors and permitted assigns;

(e)    a reference to a clause or schedule is a reference to a clause of or a schedule to, this Scheme;

(f)    a reference to an agreement or document (including, without limitation, a reference to the Business Transfer Agreement) is to the agreement or document as amended, varied, supplemented, novated or replaced except to the extent prohibited by this Scheme or that other agreement or document;

(g)    a reference to a statute or to a provision of a statute includes any amendment to or re-enactment of that statute, including any subordinate legislation issued under it; and

(h)    headings are for convenience only and do not form part of the Scheme or affect its interpretation.

2.    Conditions Precedent

Amongst other commercial condition precedents, this Scheme and the Business Transfer Agreement are conditional upon and will have no effect unless and until:

(a)    the Scheme is confirmed by the Federal Court of Australia and, if made on conditions, on such conditions as are acceptable to the parties; and

(b)    the Treasurer of the Commonwealth of Australia or his permitted delegate having no objection to the acquisition by Hallmark General of the Business under section 41 of the Insurance Acquisitions and Takeovers Act 1991 (Cth) and, if made on conditions, on such conditions as are acceptable to the parties.

6.    Transfer of Business

In accordance with the terms of the Business Transfer Agreement, St Andrew’s General agrees to transfer and Hallmark General agrees to accept the transfer of the Business, with effect on and from the Transfer Effective Date.

7.    Consideration

In consideration of the transfer of the Business from St Andrew’s General to Hallmark General, Hallmark General agrees to assume the Liabilities.

8.    Proceedings

(a)    As at the Transfer Effective Date there are no proceedings on foot against St Andrew’s General.

(b)    If any proceedings are pending or any proceedings are brought on or after the Transfer Effective Date by St Andrew’s General in any court or tribunal in respect of the Business, St Andrew’s General and Hallmark General shall determine whether such proceedings will be continued by St Andrew’s General in which case the parties agree to take all necessary action to effect a change of the name of the plaintiff or applicant in those proceedings from St Andrew’s General to Hallmark General and Hallmark General agrees to indemnify St Andrew’s General in relation to any adverse costs orders made in the proceedings.

(c)    If any proceedings are pending or any proceedings are brought on or after the Transfer Effective Date against St Andrew’s General in any court or tribunal in respect of the Business, Hallmark General agrees that it will indemnify in relation to any judgment or adverse costs order made in the proceeding against St Andrew’s General and will keep St Andrew’s General indemnified accordingly.

(d)    Hallmark General will be entitled to all defences, claims, counterclaims and rights of set-off that would have been available to St Andrew’s General in relation to any such proceedings.

(e)    Hallmark General, in its absolute discretion, may determine after the Transfer Effective Date to continue, discontinue or settle any proceedings relating to the Business that have been brought by St Andrew’s General.

(f)    Any judgement, settlement, order or award (or relevant part thereof) obtained by or against St Andrew’s General whether before or after the Transfer Effective Date to the extent that it relates to any part of the Business and which is not fully satisfied before the Transfer Effective Date shall, on that date and to the extent to which it was enforceable by or against immediately St Andrew’s General prior to such date (or, if later, the date on which the judgement, settlement, order or award is obtained), become enforceable by or against Hallmark General (to the exclusion of St Andrew’s General).

(g)    All documents which would before the Transfer Effective Date have been evidence in respect of any matter for or against St Andrew’s General shall on and from the Transfer Effective Date be evidence in respect of the same matter for or against Hallmark General.

9.    Transfer of Assets

The Business Transfer Agreement provides for the transfer of two classes of assets:

The first class is the transfer of the Assets under the Scheme. In particular, on and from the Transfer Effective Date, Hallmark General is legally and beneficially entitled to the benefit of the Assets and Hallmark General assumes responsibility for the Assets and shall indemnify and keep St Andrew’s General indemnified from and against all Claims under or in connection with the Assets.

The second class is the transfer of the Second Tranche Assets which will take place after the Transfer Effective Date in accordance with the terms of the Business Transfer Agreement.

10.    Transfer of Liabilities

On and from the Transfer Effective Date, St Andrew’s General transfers the Liabilities to Hallmark General and Hallmark General accepts the transfer of the Liabilities, and Hallmark General assumes and takes over and must indemnify and keep St Andrew’s General indemnified from and against all Claims under or in connection with the Liabilities.

11.    Transfer Effective Date

The sale and purchase of the Business from St Andrew’s General to Hallmark General, and the transfer to and assumption of the Insurance Business, Assets, Liabilities and Records by Hallmark General pursuant to this Scheme take effect on and from the Transfer Effective Date.

12.    Implementation

St Andrew’s General and Hallmark General will do all such things and execute all such deeds, instruments, transfers or other documents as may be necessary or desirable to give full effect to the provisions of the Business Transfer Agreement, this Scheme, the Actuarial Report and the transactions contemplated by them.

13.    Costs of the Scheme

Any stamp duty and other costs and expenses incurred in connection with the Scheme will not be paid by or charged to policyholders but will be met by Hallmark General and St Andrew’s General out of shareholder funds.

14.    Consequences of the transfer of the Business

(a)    The Scheme does not change the terms of any Transferring Policies or affect any claim in respect of any Transferring Policies, issued by St Andrew’s General other than that Hallmark General will become the insurer in place of St Andrew’s General. Policyholders will continue to have the same rights and obligations under or in respect of any Transferring Policies or claim but with Hallmark General as the insurer.

(b)    Subject to confirmation of the Scheme by the Federal Court of Australia, on and from the Transfer Effective Date:

(i)    all outstanding claims-related rights and liabilities of St Andrew’s General in respect of the Transferring Policies will be transferred to Hallmark General such that any claims arising under or in connection with any Transferring Policies underwritten by St Andrew’s General must be made against Hallmark General;

(ii)    all premiums and other amounts payable to or recoverable by St Andrew’s General under the Transferring Policies will be payable to and recoverable by Hallmark General instead of St Andrew’s General;

(iii)    Hallmark General will be entitled to enforce all rights and remedies which but for the Scheme would have been enforceable by St Andrew’s General under or in respect of the Transferring Policies (including but not limited to any claims by way of subrogation, contribution, outstanding premium and any other recoveries related directly or indirectly to any Transferring Policies);

(iv)    any policyholder under a Transferring Policy or other person who has a Claim on or obligation to St Andrew’s General under or in respect of a Transferring Policy will have the same Claim on or obligation to Hallmark General in substitution for his or her Claim on or obligation to St Andrew’s General irrespective of when such Claim or obligation arose; and

(v)    any authority granted to St Andrew’s General by a policyholder under or in respect of a Transferring Policy will be vested in Hallmark General as if Hallmark General was, and at all time had been so authorised. This includes all directions, authorities, mandates or instructions given to St Andrew’s General to deduct premium or fees payable in respect of the Transferring Policies (including by debiting a bank account/credit card or through electronic bank transfer) or to use, disclose or obtain information in the course of carrying on the Business (including personal information within the meaning of the Privacy Act 1988 (Cth) are deemed to be given to Hallmark General instead of St Andrew’s General.

(vi)    All references to St Andrew’s General in any of the Transferring Policies are replaced with Hallmark General.

(vii)    The Transferring Policies will remain on foot and there will be no cancellation and reissue of the Transferring Policies as a result of the Scheme.

(viii)    Hallmark General assumes the position of St Andrew’s General under all Transferring Contracts as if Hallmark General was the original party to those contracts in place of St Andrew’s General. The Transferring Contracts will remain in full force and effect on this basis.

(c)    Policyholders are not required to take any action before or as a result of the Scheme.

(d)    In the event of any inconsistency between this clause 11 and any other provision of this Scheme or the Business Transfer Agreement, the other provision shall prevail to the extent of the inconsistency.

(e)    The terms of this clause 11 apply mutatis mutandis to any other third-party contracts that form part of the Assets.

Annexure B

LIFE INSURANCE ACT 1995

(PART 9)

SCHEME FOR THE TRANSFER OF THE INSURANCE BUSINESS OF ST ANDREW’S LIFE INSURANCE PTY LTD TO HALLMARK LIFE INSURANCE COMPANY LTD

Background

A.    St Andrew’s Life Insurance Pty Ltd (ABN 98 105 176 243) (St Andrew’s Life) and Hallmark Life Insurance Company Ltd (ABN 87 008 446 884) (Hallmark Life) are registered under the Life Insurance Act to carry on a life insurance business in Australia.

B.    St Andrew’s Life has, as part of its business, operated the Business in Australia as an APRA-registered life insurer.

C.    This Scheme has been prepared under Part 9 of the Life Insurance Act 1995 (Cth) to give effect to the terms of an agreement by which St Andrew’s Life has agreed to transfer, and Hallmark Life has agreed to accept the transfer of all of the Business carried on by St Andrew’s Life.

D.    If confirmed by the Federal Court of Australia, the Scheme will become binding on all persons.

E.    Actuarial Reports have been prepared in connection with the Scheme.

1. Definitions and Interpretation

1.1     Definitions

In this Scheme, unless the context requires otherwise:

APRA means the Australian Prudential Regulation Authority.

Appointed Actuaries means David Millar and Stephen Jones who are the Appointed Actuaries of Hallmark Life and St Andrew’s Life instructed by Hallmark Life and St Andrew’s Life to provide the Joint Actuarial Report.

Assets means the assets of St Andrew’s Life used for the purposes of conducting the Insurance Business as at the Transfer Effective Date including (without limiting the generality of the foregoing):

(a)    the rights, benefits and powers of St Andrew’s Life under or by virtue of the Transferring Policies and Transferring Reinsurances;

(b)    all rights and Claims (present or future, actual or contingent) against any third party in relation to the Insurance Business or arising as a result of St Andrew’s Life having carried on the Insurance Business;

(c)    the rights, benefits and powers of St Andrew’s Life under or by virtue of any contracts or arrangements in connection with the Insurance Business;

(d)    the Business Intellectual Property;

(e)    the Fixed Assets; and

(f)    all book, trade and other debts owing to St Andrew’s Life as at the Transfer Effective Date and all deposits and bills receivables held by St Andrew’s Life as at the Transfer Effective Date, in each case relating to the Business, and all rights in relation thereto and the benefit of all guarantees or other security in respect thereof.

but excluding the Second Tranche Assets.

Business means the business carried on by St Andrew’s Life in Australia as at the Transfer Effective Date including:

(a)    the Insurance Business;

(b)    the Assets;

(c)    the Liabilities; and

(d)    the Records,

and all powers, functions, rights and liabilities arising under, by virtue of, attributable to or in connection with these (including the Transferring Reinsurances).

Business Transfer Agreement means the Business Transfer Agreement dated on or about 26 April 2024 between Hallmark Life and St Andrew’s Life pursuant to which Hallmark Life agrees to transfer, and St Andrew’s Life agrees to accept, the Business.

Claim means any claim, demand, legal proceedings or cause of action including any claim, demand, legal proceedings or cause of action based in contract, tort (including misrepresentation or negligence), under common law or under statute and includes a claim, demand, legal proceeding or cause of action arising from any breach of warranty or indemnity.

Independent Actuary means David Goodsall of Synge & Noble who is the independent qualified actuary instructed by St Andrew’s Life to provide the Independent Actuarial Report.

Independent Actuarial Report means the report dated 26 April 2024 prepared by David Goodsall of Synge & Noble, the Independent Actuary, which sets out actuarial opinions in respect of the transfer of the Business to Hallmark Life.

Insurance Business means the business carried on by St Andrew’s Life in or from Australia in connection with its undertaking of liability under the Transferring Policies.

Joint Actuarial Report means the report of St Andrew’s Life and Hallmark Life that has been prepared by David Millar and Stephen Jones in their capacity as the Appointed Actuaries of Hallmark Life and St Andrew’ Life.

Liabilities means all liabilities whatsoever (whether present or future, certain or contingent) of St Andrew’s Life as at the Transfer Effective Date under or by virtue of the Business or any cost, expense (including the fees and expenses of professional advisers), liability under any contracts or arrangements in connection with the Business, and damage or Loss of any kind in connection with the Business.

Life Insurance Act means the Life Insurance Act 1995 (Cth), including any act or enactment which amends or replaces, or has amended or replaced it and shall include any subordinate legislation made under it.

Records means the books and records (held in whatever medium) referable to the Business in the Transferor’s possession or control up to the Transfer Effective Date, including (but not limited to) any books and records relating to sales, marketing, underwriting and outstanding claims in respect of the Insurance Business, and any related accounting and financial records.

Scheme means the scheme, as set out in this document, to be confirmed by the Federal Court of Australia in accordance with Part 9 of the Life Insurance Act for the transfer of the Business to Hallmark Life

Second Tranche Assets means a combination of cash and non-cash investments and STA Records as agreed between the parties (on the terms described in the Business Transfer Agreement) as at the STA Date.

STA Date means the date the parties agree the makeup of the combination of cash and non-cash investments that will form the Second Tranche Assets, which must occur prior to the Transfer Effective Date.

STA Records means the books and records (held in whatever medium) referable to the Second Tranche Assets in the Transferor’s possession or control up to the STA Transfer Effective Date, including (but not limited to) any books and records, and any accounting and financial records.

Transfer Effective Date means the time and date on which the Transferring Policies are transferred to the Transferee pursuant to an order made by the Court pursuant to section 194 of the Life Insurance Act confirming the Scheme.

Transfer Value means the consideration for the Business, being the amount equal to the difference between the Assets and Liabilities as at the Transfer Effective Date, calculated in accordance with the Australian Accounting Standards.

Transferring Contracts means all contracts to which St Andrew’s Life is a party to as at the Transfer Effective Date which relate to the Insurance Business.

Transferring Policies means any life insurance policies or risks forming part of the policies underwritten by St Andrew’s Life.

Transferring Reinsurances means any reinsurance agreements or arrangements in respect of the Insurance Business including any reinsurance policies under which St Andrew’s Life is reinsured in respect of the Transferring Policies.

1.2    Interpretation

In this Scheme:

(a)    the singular includes the plural and the plural includes the singular;

(b)    if a word or phrase is defined, its other grammatical forms have a corresponding meaning;

(c)    a reference to a person, corporation, trust, partnership, unincorporated body or other entity includes any of them;

(d)    a reference to a party includes the party’s executors, administrators, successors and permitted assigns;

(e)    a reference to a clause or schedule is a reference to a clause of or a schedule to, this Scheme;

(f)    a reference to an agreement or document (including, without limitation, a reference to the Business Transfer Agreement) is to the agreement or document as amended, varied, supplemented, novated or replaced except to the extent prohibited by this Scheme or that other agreement or document;

(g)    a reference to a statute or to a provision of a statute includes any amendment to or re-enactment of that statute, including any subordinate legislation issued under it; and

(h)    headings are for convenience only and do not form part of the Scheme or affect its interpretation.

2.    Conditions Precedent

Amongst other commercial condition precedents, this Scheme and the Business Transfer Agreement are conditional upon and will have no effect unless and until:

(a)    the Scheme is confirmed by the Federal Court of Australia and, if made on conditions, on such conditions as are acceptable to the parties; and

(b)    the Treasurer of the Commonwealth of Australia or his permitted delegate having no objection to the acquisition by Hallmark Life of the Business under section 41 of the Insurance Acquisitions and Takeovers Act 1991 (Cth) and, if made on conditions, on such conditions as are acceptable to the parties.

3.    Transfer of Business

In accordance with the terms of the Business Transfer Agreement, St Andrew’s Life agrees to transfer and Hallmark Life agrees to accept the transfer of the Business, with effect on and from the Transfer Effective Date.

4.    Consideration

In consideration of the transfer of the Business from St Andrew’s Life to Hallmark Life, Hallmark Life agrees to assume the Liabilities.

5.    Proceedings

(a)    As at the Transfer Effective Date, there is one proceeding on foot against St Andrew’s Life.

(b)    If any proceedings are pending or any proceedings are brought on or after the Transfer Effective Date by St Andrew’s Life in any court or tribunal in respect of the Business, St Andrew’s Life and Hallmark Life shall determine whether such proceedings will be continued by St Andrew’s Life in which case the parties agree to take all necessary action to effect a change of the name of the plaintiff or applicant in those proceedings from St Andrew’s Life to Hallmark Life and Hallmark Life agrees to indemnify St Andrew’s Life in relation to any adverse costs orders made in the proceedings.

(c)    If any proceedings are pending or any proceedings are brought on or after the Transfer Effective Date against St Andrew’s Life in any court or tribunal in respect of the Business, Hallmark Life agrees that it will indemnify in relation to any judgment or adverse costs order made in the proceeding against St Andrew’s Life and will keep St Andrew’s Life indemnified accordingly.

(d)    Hallmark Life will be entitled to all defences, claims, counterclaims and rights of set-off that would have been available to St Andrew’s Life in relation to any such proceedings.

(e)    Hallmark Life, in its absolute discretion, may determine after the Transfer Effective Date to continue, discontinue or settle any proceedings relating to the Business that have been brought by St Andrew’s Life.

(f)    Any judgement, settlement, order or award (or relevant part thereof) obtained by or against St Andrew’s Life whether before or after the Transfer Effective Date to the extent that it relates to any part of the Business and which is not fully satisfied before the Transfer Effective Date shall, on that date and to the extent to which it was enforceable by or against immediately St Andrew’s Life prior to such date (or, if later, the date on which the judgement, settlement, order or award is obtained), become enforceable by or against Hallmark Life (to the exclusion of St Andrew’s Life).

(g)    All documents which would before the Transfer Effective Date have been evidence in respect of any matter for or against St Andrew’s Life shall on and from the Transfer Effective Date be evidence in respect of the same matter for or against Hallmark Life.

6.    Transfer of Assets

The Business Transfer Agreement provides for the transfer of two classes of assets:

(a)    The first class is the transfer of the Assets under the Scheme. In particular, on and from the Transfer Effective Date, Hallmark Life is legally and beneficially entitled to the benefit of the Assets and Hallmark Life assumes responsibility for the Assets and shall indemnify and keep St Andrew’s Life indemnified from and against all Claims under or in connection with the Assets.

(b)    The second class is the transfer of the Second Tranche Assets which will take place after the Transfer Effective Date in accordance with the terms of the Business Transfer Agreement.

7.    Transfer of Liabilities

On and from the Transfer Effective Date, St Andrew’s Life transfers the Liabilities to Hallmark Life and Hallmark Life accepts the transfer of the Liabilities, and Hallmark Life assumes and takes over and must indemnify and keep St Andrew’s Life indemnified from and against all Claims under or in connection with the Liabilities.

8.    Transfer Effective Date

The sale and purchase of the Business from St Andrew’s Life to Hallmark Life, and the transfer to and assumption of the Insurance Business, Assets, Liabilities and Records by Hallmark Life pursuant to this Scheme take effect on and from the Transfer Effective Date.

9.    Implementation

St Andrew’s Life and Hallmark Life will do all such things and execute all such deeds, instruments, transfers or other documents as may be necessary or desirable to give full effect to the provisions of the Business Transfer Agreement, this Scheme, the Actuarial Report and the transactions contemplated by them.

10.    Costs of the Scheme

Any stamp duty and other costs and expenses incurred in connection with the Scheme will not be paid by or charged to policyowners but will be met by Hallmark Life and St Andrew’s Life out of shareholder funds.

11.    Consequences of the transfer of the Business

(a)    The Scheme does not change the terms of any Transferring Policies or affect any claim in respect of any Transferring Policies, issued by St Andrew’s Life other than that Hallmark Life will become the insurer in place of St Andrew’s Life. Policyowners will continue to have the same rights and obligations under or in respect of any Transferring Policies or claim but with Hallmark Life as the insurer.

(b)    Subject to confirmation of the Scheme by the Federal Court of Australia, on and from the Transfer Effective Date:

(i)    all outstanding claims-related rights and liabilities of St Andrew’s Life in respect of the Transferring Policies will be transferred to Hallmark Life such that any claims arising under or in connection with any Transferring Policies underwritten by St Andrew’s Life must be made against Hallmark Life;

(ii)    all premiums and other amounts payable to or recoverable by St Andrew’s Life under the Transferring Policies will be payable to and recoverable by Hallmark Life instead of St Andrew’s Life;

(iii)    Hallmark Life will be entitled to enforce all rights and remedies which but for the Scheme would have been enforceable by St Andrew’s Life under or in respect of the Transferring Policies (including but not limited to any claims by way of subrogation, contribution, outstanding premium and any other recoveries related directly or indirectly to any Transferring Policies);

(iv)    any policyowner under a Transferring Policy or other person who has a Claim on or obligation to St Andrew’s Life under or in respect of a Transferring Policy will have the same Claim on or obligation to Hallmark Life in substitution for his or her Claim on or obligation to St Andrew’s Life irrespective of when such Claim or obligation arose; and

(v)    any authority granted to St Andrew’s Life by a policyowner under or in respect of a Transferring Policy will be vested in Hallmark Life as if Hallmark Life was, and at all time had been so authorised. This includes all directions, authorities, mandates or instructions given to St Andrew’s Life to deduct premium or fees payable in respect of the Transferring Policies (including by debiting a bank account/credit card or through electronic bank transfer) or to use, disclose or obtain information in the course of carrying on the Business (including personal information within the meaning of the Privacy Act 1988 (Cth) are deemed to be given to Hallmark Life instead of St Andrew’s Life.

(vi)    All references to St Andrew’s Life in any of the Transferring Policies are replaced with Hallmark Life.

(vii)    The Transferring Policies will remain on foot and there will be no cancellation and reissue of the Transferring Policies as a result of the Scheme.

(viii)    All references to St Andrew’s Statutory Fund No. 1 in any of the Transferring Policies will be read as a reference to Hallmark SF 1.

(ix)    Hallmark Life assumes the position of St Andrew’s Life under all Transferring Contracts as if Hallmark Life was the original party to those contracts in place of St Andrew’s Life. The Transferring Contracts will remain in full force and effect on this basis.

(c)    Policyowners are not required to take any action before or as a result of the Scheme.

(d)    In the event of any inconsistency between this clause 11 and any other provision of this Scheme or the Business Transfer Agreement, the other provision shall prevail to the extent of the inconsistency.

(e)    The terms of this clause 11 apply mutatis mutandis to the Transferring Reinsurances and any other third-party contracts that form part of the Assets.

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

REASONS FOR JUDGMENT

JACKMAN J:

Introduction

1    This is an application seeking orders under:

(a)    s 17F of the Insurance Act 1973 (the Insurance Act) for confirmation of a scheme for the transfer of the transfer of the insurance business of the First Applicant (General Insurance Business) to a related company, Hallmark General Insurance Company Ltd (Hallmark General); and

(b)    s 194 of the Life Insurance Act 1995 (Cth) (the Life Insurance Act) for confirmation of a scheme for the transfer of the life insurance business of the Second Applicant (Life Insurance Business) to a related company, the Hallmark Life Insurance Company Limited (Hallmark Life).

2    The application is supported by the following affidavits:

(a)    affidavit of Matthew James Way affirmed 24 July 2024 (Third Way Affidavit);

(b)    affidavit of Matthew James Way affirmed 26 July 2024 (Fourth Way Affidavit);

(c)    affidavit of Matthew James Way affirmed 29 July 2024 (Fifth Way Affidavit);

(d)    affidavit of Nicholas John Lethbridge affirmed 26 July 2024 (Lethbridge Affidavit);

(e)    affidavit of Natalie Lauren Caton affirmed 25 July 2023 (Caton Affidavit);

(f)    affidavit of Stephen William Jones affirmed 24 July 2024 (Jones Affidavit), regarding the report entitled “Proposed Transfer of St Andrew’s Life Insurance Pty Ltd to Hallmark Life Insurance Company Joint Appointed Actuaries Report” (Joint Life Actuarial Report), which he jointly issued with Thomas David Millar on 26 April 2024. Mr Jones is the appointed actuary for St Andrew’s Life.

(g)    affidavit of Thomas David Millar affirmed 25 July 2024 (Millar Affidavit) regarding the Joint Life Actuarial Report. Mr Millar is the appointed actuary for Hallmark Life;

(h)    affidavit of David Millington Goodsall of Synge & Noble sworn 25 July 2024 (Goodsall Affidavit — Life) regarding an independent actuarial report dated 26 April 2024 which he prepared in relation to the proposed Life Insurance Scheme (Independent Life Actuarial Report); and

(i)    affidavit of David Millington Goodsall sworn 25 July 2024 (Goodsall Affidavit — General) regarding an independent actuarial report dated 26 April 2024 which he prepared in relation to the proposed General Insurance Scheme (Independent General Insurance Actuarial Report).

3    The Applicants also rely on the following affidavits read at the dispensation hearing on 30 May 2024:

(a)    affidavit of Matthew James Way sworn 10 May 2024 (First Way Affidavit); and

(b)    affidavit of Matthew James Way sworn 16 May 2024 (Second Way Affidavit).

4    Each of St Andrew’s Insurance, St Andrew’s Life and the proposed transferee companies — Hallmark General and Hallmark Life — are wholly owned subsidiaries of St Andrew’s Australia Services Pty Ltd: First Way Affidavit at [13]. Hallmark General and Hallmark Life became wholly owned subsidiaries of St Andrew’s Australia Services Pty Ltd in May 2023: First Way Affidavit at [18], [23]–[24].

5    The schemes are being proposed as a part of an internal merger and integration project, which is expected to reduce the overall complexity of the St Andrew’s Group corporate structure, as well as reduce overall costs and operational risk for the group: First Way Affidavit at [27]–[30].

Relevant principles

General Insurance Scheme

6    Section 17F(1A) of the Insurance Act sets out the factors to which the Court must have regard in deciding whether to confirm a scheme under that Act. They are:

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

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

(c)    any other matter the Court considers relevant.

7    A critical factor on an application of this kind is whether implementation of the scheme will materially detrimentally affect policyholders: Re Westport Insurance Corporation (No 2) (2009) 181 FCR 530 at [32] (Lindgren J). Although an “affected policyholder” is defined in s 17C as referring to the holder of a policy being transferred under the scheme, it is accepted that the Court is to look to the interests of the relevant policyholders of both the transferor and transferee insurers and consider whether implementation of the scheme will detrimentally affect them in a material way: Re Australian Branch of Great Lakes Insurance SE (trading as Great Lakes Australia) (No 2) [2020] FCA 1266 (Great Lakes) at [13] (Allsop CJ).

Life Insurance Scheme

8    The Court has a discretion under s 194 of the Life Insurance Act to refuse a scheme or confirm it with or without modification. Confirmation pursuant to s 194 is not a mere formality. Section 194(2) of the Life Insurance Act sets out the factors to which the Court must have regard in deciding whether to confirm the Life Insurance Scheme. They are:

(a)    the interests of the policyowners of a company affected by the scheme;

(b)    if a report relevant to all or part of the scheme has been filed with the Court under s 175 of the Life Insurance Act — that report; and

(c)    any other matter the Court considers relevant.

9    The object of the Life Insurance Act — to safeguard the interests of policyowners — is of primary importance in the Court’s exercise of its discretion pursuant to s 194. In Re Asteron Life & Superannuation Ltd (No 3) [2021] FCA 1148; (2021) 394 ALR 89 (Re Asteron Life (No 3)) at [127]–[128], Allsop CJ identified two main dimensions to the protection of policyowners’ interests. The first is the procedural dimension by which the Court considers whether the processes undertaken in connection with the scheme have been undertaken in accordance with the requirements of the Life Insurance Act, the Life Insurance Regulations 2024 (Cth) and any orders made by the Court pursuant to s 191(5) of the Act. The second is the substantive dimension, where the Court is concerned to ensure that the scheme is not prejudicial to the interests of the policyowners, and to avoid policyowners experiencing material detriment as a result of the Scheme: Re AIA Australia Ltd (No 2) [2023] FCA 1305 (Derrington J) at [32].

10    The question as to whether policyowners will be adversely affected by the Life Insurance Scheme is to be answered predominantly by reference to the actuarial evidence. It involves a comparison of the security of those policyowners’ benefits, and their reasonable benefit expectations as they stood prior to the implementation of the Scheme, and as they would stand following the implementation of that Scheme: Re Asteron Life (No 3) at [129].

Factors relevant to the exercise of the discretion

General Insurance Scheme

11    Hallmark General is a general insurance company and is registered by the Australian Prudential Regulation Authority (APRA) under the Insurance Act to carry on an insurance business in Australia. It also has an insurer licence from the Reserve Bank of New Zealand pursuant to New Zealand’s Insurance (Prudential Supervision) Act 2010 and operates in New Zealand through a branch: First Way Affidavit at [19]. Section 5 of the Independent General Insurance Actuarial Report provides an overview of Hallmark General’s business and assets and liabilities as at 31 August 2023, which almost entirely concern consumer credit insurance.

12    The Independent General Insurance Actuarial Report considers the capital adequacy ratio of Hallmark General based on its published accounts as at 31 August 2023. As at 31 August 2023, Hallmark General had excess assets of $12.8 million above the Prescribed Capital Amount (PCA) of $7.2 million, with a capital adequacy multiple of 2.8. Its capital base of $20 million includes $7.5 million of Tier 2 capital (unsecured borrowings): pp 475–6 of Exhibit MW-1.

13    The independent actuary has updated tables 7.10.1–7.10.3 of the Independent General Insurance Actuarial Report to reflect Hallmark General’s and St Andrew’s Insurance’s financial positions prior to the Proposed Transfer, at the Transfer Date and at the completion of the Proposed Transfer and $8.25m Tier 2 Note transactions — based on the financial positions of Hallmark General and St Andrew’s Insurance as at 31 May 2024: Goodsall Affidavit — General at [12].

14    Based on the updated tables and the further information that has been provided to him since he prepared the Independent General Insurance Actuarial Report, the independent actuary has observed at [13]–[14] of the Goodsall Affidavit — General:

(a)    at the Transfer Date and after the General Insurance Scheme is effected, Hallmark General’s pro-forma capital in excess of the PCA is $29.6m based on the capital positions at 31 May 2024, including the payment of a dividend by Hallmark General in the normal course of business (which was approved by APRA);

(b)    Hallmark General’s PCA is $7.8m;

(c)    after the Proposed Transfer, the $8.25m Tier 2 note transfer, and the revocation of St Andrew’s Insurance authorisation as a general insurer are completed, Hallmark General’s overall capital adequacy multiple has increased from 4.4 to 4.8 based on the pro-forma capital positions at 31 August 2023 and 31 May 2024 respectively;

(d)    while the pro-forma capital position of Hallmark General following the Proposed Transfer has decreased in the period 31 August 2023 to 31 May 2024, it remains sound; and

(e)    the financial impact of the open remediation program St Andrew’s Insurance is undertaking (arising from the “advance premium issue” referred to below) on the capital position of St Andrew’s Insurance of approximately $10,000 is negligible.

15    The independent actuary continues to hold the opinions he expressed in the Independent General Insurance Actuarial Report: Goodsall Affidavit — General at [14.3]. The principal conclusions in that report are:

(a)    the financial strength of Hallmark General will be sound and meet regulatory and internal minimum requirements following the completion of the proposed transfer under the General Insurance Scheme: Independent General Actuarial Report at [2] (Exhibit MW-1 at p 467);

(b)    the proposed transfer will not materially prejudice the interests of policyholders of St Andrew’s Insurance and Hallmark General once St Andrew’s Insurance’s authorisation as a general insurer is revoked and its remaining assets are transferred to Hallmark General: Independent General Insurance Actuarial Report at [2] (Exhibit MW-1 at p 467);

(c)    there will be no changes to the contractual rights or benefits of policyholders of St Andrew’s Insurance or Hallmark General: Independent General Insurance Actuarial Report at [2] (Exhibit MW-1 at p 467);

(d)    the administration of both St Andrew’s Insurance and Hallmark General policies, including claims management, will be unchanged after the transfer date: Independent General Insurance Actuarial Report at [6.6] (Exhibit MW-1, p 480); and

(e)    service levels and customer experience are not expected to be impacted by the proposed transfer: Independent General Insurance Actuarial Report at [7.8] (Exhibit MW-1, p 483).

16    There will be no change to the policy terms and conditions of St Andrew’s Insurance policies apart from references to St Andrew’s Insurance becoming references to Hallmark General: cl 11 of the General Insurance Scheme, pp 538–539 of Exhibit MW-1 to the First Way Affidavit. There will also be no change to the policy terms and conditions of existing Hallmark General policies: Independent General Insurance Actuarial Report at [6.4].

17    The implementation of the General Insurance Scheme will not result in any material change for policyholders in the process for making new claims. Hallmark General uses the same personnel to manage its general insurance business as St Andrew’s Insurance. Existing St Andrew’s telephone numbers will be retained and attended by the same customer service personnel. Policies, processes and procedures used by St Andrew’s Insurance and Hallmark General for policy administration, claims management, complaints management, risk and governance, and information technology and information security in the Australian operations are the same and will not change following implementation of the General Insurance Scheme: First Way Affidavit at [97].

18    St Andrew’s Insurance does not have any reinsurance arrangements in place: Independent General Insurance Actuarial Report at [4.6]. Hallmark General has an immaterial amount of reinsurance because of the low individual exposures: Independent General Insurance Actuarial Report at [5.6].

19    The independent actuary has formed the view that the proposed transfer will not materially prejudice the interests of policyholders of the First Applicant and Hallmark General once St Andrew’s Insurance’s authorisation as a general insurer is revoked and its remaining assets are transferred to Hallmark General: Independent General Insurance Actuarial Report at [2]; Further, APRA does not object to the General Insurance Scheme and the orders sought by the Applicants in relation to it, except in relation to the treatment of the remediation programs referred to below. APRA has been involved in the oversight of the Scheme and appeared at the dispensation hearing. APRA’s non-objection is a matter from which the Court can draw significant comfort: Re Ace Insurance Ltd (No 2) [2016] FCA 1258 (ACE) at [44] (Gleeson J).

20    The First Applicant was not notified by any policyholder that they proposed to attend the confirmation hearing and oppose the General Insurance Scheme: Caton Affidavit at [17]; Lethbridge Affidavit at [64], [66]. There was no opposition at the confirmation hearing before me. The lack of any objection to the scheme by affected policyholders, in circumstances where they have been given an adequate opportunity to do so, is a matter speaking in favour of confirmation of the scheme: ACE at [46].

21    The conditions precedent to the General Insurance Scheme are set out in cl 2 of the scheme document (Exhibit MW-1 at p 536). The first of these is that the Scheme is confirmed by the Federal Court of Australia and, if made on conditions, on such conditions as are acceptable to the parties. There is evidence that the other condition precedent has been met, namely a go-ahead decision under s 41 of the Insurance Acquisitions and Takeovers Act 1991 (Cth): Third Way Affidavit at [55] and p 71 of Exhibit MW-3.

22    There is one remediation program currently being undertaken by the First Applicant, which is referred to below as the “advance premium issue”. The significance of this remediation program in the context of the proposed scheme is addressed below.

23    In all the circumstances, in my view, the case is an appropriate one for the Court to exercise its discretion to approve the General Insurance Scheme pursuant to s 17F of the Insurance Act.

Life Insurance Scheme

24    Hallmark Life is a life insurance company and is registered by APRA under the Insurance Act to carry on a life insurance business in Australia. It also has an insurer licence from the Reserve Bank of New Zealand pursuant to New Zealand’s Insurance (Prudential Supervision) Act 2010 and operates in New Zealand through a branch: First Way Affidavit at [20].

25    Section 5 of the Independent Life Actuarial Report and section 4 of the Joint Life Actuarial Report provide an overview of Hallmark Life’s business and assets and liabilities as at 31 August 2023, involving consumer credit insurance and term life policies.

26    The Independent Life Actuarial Report considers the capital adequacy ratio of Hallmark Life based on its published accounts as at 31 August 2023. As at 31 August 2023, Hallmark Life had net assets of $12.5 million plus Tier 2 Capital of $5 million (unsecured borrowings). It had free capital in excess of $5 million above the PCA, with a capital adequacy multiple of 1.8: [5.7] at p 509 of Exhibit MW-1.

27    Stephen Jones is the Chief Actuary at the St Andrew’s Insurance Group and the Appointed Actuary for St Andrew’s Life. He has updated Tables 22–25 from section 6 of the Joint Actuarial Report to reflect Hallmark Life’s and St Andrew’s Life’s net asset and capital position before the Proposed Transfer, at the Transfer Date and at the completion of the Proposed Transfer and $8.25m Tier 2 Note transactions — based on the financial positions of Hallmark Life and St Andrew’s Life as at 31 May 2024: Jones Affidavit at [9]–[10]. Mr Jones has observed in his affidavit at [12] that, based on the updated versions of Tables 22 to 25:

(a)    at the Transfer Date and after the Proposed Transfer under the Life Insurance Scheme, Hallmark Life’s pro-forma capital in excess of the Prescribed Capital Amount (PCA) has increased by $2.6 million based on the capital positions as at 31 May 2024;

(b)    Hallmark Life’s PCA remains at the regulatory minimum of $10 million;

(c)    after the Proposed Transfer and the $8.25 million Tier 2 note transfer are completed, Hallmark Life’s overall capital adequacy multiple will have increased from 4.1 to 4.3 on the pro-forma capital positions at 31 August 2023 and 31 May 2024 respectively.

28    The Appointed Actuary for Hallmark Life, Mr Millar, agrees with those observations: Millar Affidavit at [10].

29    Each of Mr Jones and Mr Millar has confirmed that they continue to hold the opinions expressed in the Joint Life Actuarial Report: Jones Affidavit at [14]; Millar Affidavit at [12].

30    The principal conclusions of the Joint Life Actuarial Report are summarised at p 4 of the report (p 419 of Exhibit MW-1) and include:

(a)    regarding St Andrew’s Life’s transferring policyowners:

(i)    the proposed transfer does not adversely impact the contractual benefits and rights of the transferring policyowners;

(ii)    there is no impact to the reasonable benefit expectations of the existing policyowners of St Andrew’s Life as a result of the proposed transfer;

(iii)    there are no material disadvantages for the existing policyowners of St Andrew’s Life as a result of the proposed transfer; and

(iv)    Hallmark Life will remain in a sound financial position and the transferring policyowners’ benefit security will remain adequate after the proposed transfer and the subsequent expected activities described in section 1.3 of the report;

(b)    regarding Hallmark Life’s transferring policyowners:

(i)    there is no impact to the contractual benefits and rights of the existing policyowners of Hallmark Life as a result of the proposed transfer;

(ii)    there is no impact to the reasonable benefit expectations of the existing policyowners of Hallmark Life as a result of the proposed transfer;

(iii)    at both the individual fund level and the entity level, Hallmark Life will continue to satisfy regulatory capital requirements and will remain in a sound financial position, and the existing policyowners’ benefit security will remain appropriate after the proposed transfer; and

(iv)    there are no material disadvantages for the existing policyowners of Hallmark Life as a result of the proposed transfer and the subsequent expected activities.

31    The Joint Actuaries have also expressed their views (at p 419 of Exhibit MW-1) that:

(a)    the combination of the Proposed Transfer and the Subsequent Expected Activities is expected to strengthen policyowners’ ongoing benefit security; and

(b)    Hallmark Life’s plans to resume writing new business are expected to bring longer-term benefits to current policyowners, with shorter-term reductions in capital resources experienced. Specifically, writing new business is expected to increase net revenue and diversify overall risk, contributing to the future financial health and stability of the business which, in turn, will positively contribute towards both the transferring St Andrew’s Life and the Hallmark Life existing policyowners’ benefit security.

32    The independent actuary, Mr Goodsall, has been provided with information on the updated capital position of the St Andrew’s Life and Hallmark Life as at 31 May 2024 as well as details of provisions made by St Andrew’s Life since 31 May 2024 for the litigation and remediation matters described in the Third Way Affidavit at [33]–[38] and [43]–[50]: Goodsall Affidavit — Life at [7]–[12]. Having considered that information, the independent actuary has observed at [13] of the Goodsall Affidavit — Life:

(a)    the capital positions of St Andrew’s Life and Hallmark Life have improved in the period 31 August 2023 to 31 May 2024 as described in the Jones Affidavit at [12]; and

(b)    the financial impact of the new litigation and remediations (referred to in the Third Way Affidavit at [33]–[38] and [43]–[50]) on the capital position of St Andrew’s Life is not significant.

33    The independent actuary has also confirmed he continues to hold the opinions he expressed in the Independent Life Actuarial Report: Goodsall Affidavit — Life at [13.3].

34    In section 2 of the Independent Life Actuarial Report (p 499 of Exhibit MW-1), Mr Goodsall expressed his opinions that:

(a)    the proposed transfer will not materially prejudice the interests of policyowners of St Andrew’s Life and Hallmark Life;

(b)    Hallmark Life will remain in a sound financial position, meeting regulatory and internal capital requirements, and policyowners’ benefit security will remain appropriate following the completion of the proposed transfer;

(c)    there will not be any adverse impact on reasonable benefit expectations of policyowners of St Andrew’s Life and Hallmark Life; and

(d)    the minor changes to contractual references contained in the Life Insurance Scheme are necessary to give effect to the Life Insurance Scheme and will not adversely affect the contractual rights or benefits of policyowners of St Andrew’s Life or Hallmark Life.

35    There will be no changes to the contractual rights or benefits of policyowners other than that Hallmark Life will become the insurer in place of St Andrew’s Life and all references to St Andrew’s Statutory Fund No. 1 in any of the transferring policies will be read as a reference to Hallmark Statutory Fund 1: clause 11 of the Life Insurance Scheme at pp 7–8 of Exhibit MW-4 to the Fourth Way Affidavit. Policyowners will continue to have the same rights and obligations under or in respect of their policy but with Hallmark Life as the insurer: clause 11(a) of the Life Insurance Scheme at p 7 of Exhibit MW-4. Additionally, the process by which policyowners make claims will not materially change as a result of the proposed Life Insurance Scheme: First Way Affidavit at [118], [127], [141], [152], [155].

36    St Andrew’s Life has agreed with its reinsurers that all existing reinsurance treaties will be novated to Hallmark Life. There will be no changes to existing St Andrew’s Life and Hallmark Life reinsurance terms or arrangements as a result of the proposed transfer: Joint Life Actuarial Report at [5.3.6] (p 445 of Exhibit MW-1).

37    APRA does not object to the Life Insurance Scheme and the orders sought by the Applicants in relation to it, except in relation to the treatment of the remediation programs referred to below. APRA has been involved in the oversight of the Scheme and appeared at the dispensation hearing.

38    The Applicants were not notified by any policyholder that they proposed to attend the confirmation hearing and oppose the Life Insurance Scheme: Caton Affidavit at [14]–[17]; Lethbridge Affidavit at [64], [66]. There was no opposition to the Life Insurance Scheme at the confirmation hearing before me.

39    The conditions precedent to the Life Insurance Scheme are set out in clause 2 of the scheme document (Exhibit MW-4 at pp 5–6). The first of these is that the Scheme is confirmed by this Court and, if made on conditions, on such conditions as are acceptable to the parties. There is evidence that the other condition precedent has been met, namely a go-ahead decision under s 41 of the Insurance Acquisitions and Takeovers Act 1991 (Cth): Third Way Affidavit at [55] and p 72 of Exhibit MW-3.

40    As referred to below, remediation programs which are currently being undertaken by the Second Applicant will continue to be undertaken by Hallmark Life after the Life Insurance Scheme takes effect.

41    In all the circumstances, in my view, the case is an appropriate one for the Court to exercise its discretion to approve the Life Insurance Scheme pursuant to s 194 of the Life Insurance Act.

Remediation

42    The Third Way Affidavit at [20]–[54] refers to three remediation programs which the Applicants have been undertaking.

Remediation for Let’s Insure aggregation issue

43    The first of those remediation programs concerns the remediation incident referred to at section 3.12 of the Joint Life Actuarial Report. It relates to Let’s Insure and FlexiSure products where approximately 500 policyowners of St Andrew’s Life were over-insured and paid premiums for coverage they would not receive if they made a claim.

44    In relation to remediation being undertaken with respect to this issue, Mr Way gives evidence at [20]–[31] of the Third Way Affidavit that:

(a)    St Andrew’s Life has paid premium refunds totalling $54,954.03 plus interest to 433 policyholders who responded to letters and SMS messages sent in February 2024;

(b)    there are 258 policyowners whose policies have lapsed and who have not responded to correspondence sent to them offering premium refund payments. The premium refund payments due to these policyowners total $28,336.74 plus compensatory interest of

$12,214.55 and will be made to them in the event that they eventually make contact with the St Andrew’s Insurance Group. A note to this effect has been recorded in the “Blueprint” policy administration system for each of these policyowners, which system will continue to be used by Hallmark Life after the Life Insurance Scheme is confirmed. A provision for the total amount has been made and, in due course, the monies will be paid by Hallmark Life as “unclaimed monies” pursuant to s 216 of the Life Insurance Act if the policyowners do not make contact with Hallmark Life;

(c)    St Andrew’s has not been able to make contact with policyowners of two active policies whom St Andrew’s Life has offered alternative specific remediation options. St Andrew’s Life have recorded a note on each of these policyowner’s records on the “Blueprint” policy administration system which specifies the specific remediation options available to each policyowner, should the policyowner eventually make contact. After the Life Insurance Scheme has been confirmed:

(i)    those policyowners will be able to contact Hallmark Life using the existing St Andrew’s Life phone numbers listed in their policy documentation;

(ii)    their policyowner records on the “Blueprint” policy administration system will be accessible by the Hallmark Life customer service personnel; and

(iii)    the Hallmark Life customer service personnel will be able to apply one of the three remediation options offered to these policyowners (as recorded in the “Blueprint” policy administration) in accordance with the existing processes and this will be recorded in the policyowner records in the existing policy administration systems.

Remediation for “premium refund account issue”

45    A further remediation incident has arisen which has been identified by St Andrew’s Life as impacting 314 policies and individual policyowners. Certain policyowners of Let’s Insure and FlexiSure policies have not received premium refunds due to them under their policies. A report has been submitted to ASIC in respect of the issue (Reportable Situation 454426): Third Way Affidavit at [33]–[36] and Exhibit MW-3 at pp 55–60.

46    The estimated total of remediation payments which need to be paid arising from this issue is $30,130.12 including compensatory interest. Of that amount, $21,369.46 has already been paid to 238 policyowners entitled to remediation: Third Way Affidavit at [37]–[38].

47    The remediation being undertaken in respect of the premium refund account issue will be assumed by Hallmark Life if the Life Insurance Scheme is confirmed, and will continue under the leadership of Doug Smith, Chief Operating Officer and Deputy CEO of the St Andrew’s Insurance Group, who has been given responsibility for the ongoing investigation and remediation with respect to this issue: Third Way Affidavit at [41].

48    To give the Court additional assurance that the remediation being undertaken in respect of this incident will continue and be carried out by Hallmark Life if the Court confirms the Life Insurance Scheme, the board of directors of Hallmark Life has passed a circular resolution in respect of this matter: Third Way Affidavit at [42]. A copy of the resolution is at pp 61–63 of Exhibit MW-3. It relevantly provides that the board of Hallmark Life resolves to:

Continue, on and from the Scheme Effective Date, the remediation program currently being conducted by St Andrew’s Life arising from Reportable Situation 454426 in accordance with the principles set out in the St Andrew’s Group Incident and Breach Policy and Regulatory Guide 277: Consumer Remediation.

Remediation for “advance premium issue”

49    Following an internal review, St Andrew’s Life and St Andrew’s Insurance have identified a number of products (including certain versions of life insurance, mortgage protection insurance, bill protection insurance and accidental death insurance) where customers paid for premiums in advance but cancellation processes were applied that were designed for premiums paid in arrears, and which has resulted in St Andrew’s Life or St Andrew’s Insurance failing to refund customers premiums that were paid in advance after the underlying policy was cancelled. A report has been submitted to ASIC in respect the issue (Reportable Situation 441127): Third Way Affidavit at [43]–[44] and Exhibit MW-3 at pp 64–65.

50    This “advance premium issue” has been identified as impacting 3,717 policies and individual policyowners. The estimated total quantum of overpaid premiums which arises from this incident is $118,112.74 excluding compensatory interest: Third Way Affidavit at [49]–[50].

51    The remediation being undertaken in respect of this issue will be assumed by Hallmark Life subject to the Life Insurance Scheme being confirmed and by Hallmark General subject to the General Insurance Scheme being confirmed. As with the “premium refund account issue” referred to above, the ongoing investigation and remediation with respect to the “advance premium issue” will continue under Doug Smith’s leadership after the Schemes are confirmed: Third Way Affidavit at [53].

52    To give the Court additional assurance that the remediation being undertaken in respect of this incident will continue and be carried out by Hallmark Life and Hallmark General (respectively) if the Court confirms the Life Insurance Scheme and the General Insurance Scheme:

(a)    the board of directors of Hallmark Life has passed a circular resolution (pp 61–63 of Exhibit MW–3), which relevantly provides that the board of Hallmark Life resolves to:

Continue, on and from the Scheme Effective Date, the remediation program currently being conducted by St Andrew’s Life arising from Reportable Situation 441127 in accordance with the principles set out in the St Andrew’s Group Incident and Breach Policy and Regulatory Guide 277: Consumer Remediation;

(b)    the board of directors of Hallmark General has passed a circular resolution (pp 69–70 of Exhibit MW–3), which provides that the board of Hallmark General resolves to:

Continue, on and from the Scheme Effective Date, the remediation program currently being conducted by St Andrew’s Insurance arising from Reportable Situation 461569 in accordance with the principles set out in the St Andrew’s Group Incident and Breach Policy and Regulatory Guide 277: Consumer Remediation.

Consideration of remediation

53    Details of the remediation incidents have been provided to the Appointed Actuaries for St Andrew’s Life and Hallmark Life, and to the Independent Actuary, Mr Goodsall: Third Way Affidavit at [39], [51]; Jones Affidavit at [13]; Millar Affidavit at [11]; Goodsall Affidavit —Life at [7]–[9]; Goodsall Affidavit — General at [7]–[9]. Each of the actuaries has confirmed that there are no matters, changes or circumstances which have led them to change the opinions expressed in their actuarial report(s): Jones affidavit at [14]; Millar Affidavit at [12]; Goodsall Affidavit — Life at [13]; Goodsall Affidavit — General at [14].

54    In light of the matters referred to above, including the arrangements in place for remediation programs to continue and the resolutions passed by the boards of Hallmark Life and Hallmark General, policyholders and policyowners who are or may become entitled to remediation in respect of the Let’s Insure aggregation issue, the premium refund account issue and the advance premium issue will not be adversely affected by the Scheme.

55    Pursuant to cll 3, 4 and 7 of the Life Insurance Scheme, Hallmark Life agrees to assume the “Liabilities”, which is defined in clause 1.1 to mean all liabilities whatsoever (whether present or future, certain or contingent) of St Andrew’s Life as at the Transfer Effective Date under or by virtue of the business carried on by St Andrew’s Life in Australia as at the Transfer Date

(“Business”) or any cost, expense, liability under any contracts or arrangements in connection with the Business, and any damage or Loss of any kind in connection with the Business. Clauses 3, 4 and 7 of the General Insurance Scheme are to similar effect with regard to the transfer of “Liabilities” of St Andrew’s Insurance to Hallmark General. In other cases where insurers offer remediation to their customers there may be a real question whether the remediation program truly reflects a liability of the insurer, as distinct from an ex gratia payment. An ex gratia payment would not be a liability in the context of schemes where the standard definition of “Liabilities” has been adopted. However, in the present case, in my view the payments to be made pursuant to the existing remediation programs do fall within the definition of “Liabilities”, as customers to whom premium refunds are to be paid are likely to have a pecuniary claim against St Andrew’s or St Andrew’s Life in respect of those refunds. APRA accepted that characterisation.

56    Irrespective of whether the payment of remediation in the present case is properly characterised as a “Liability”, in my view (and contrary to APRA’s submissions), it is unnecessary for the Scheme documents to refer expressly to St Andrew’s Life’s and St Andrew’s Insurance’s remediation programs. Policyholders and policyowners are sufficiently protected by Hallmark Life’s and Hallmark General’s decisions to continue the remediation program without there being amendments to the proposed schemes of the type referred to in Re Colonial Life Assurance Society Limited [2021] FCA 394 (Re Colonial Life) at [99] (Allsop CJ). I note that, in contrast to Re Colonial Life, which involved over 40 separate remediation programs, the number of remediation incidents here is very confined and the total sums involved are relatively modest. Even in the highly unlikely event that the boards of Hallmark Life and Hallmark General were to change their minds as to the continuation of the remediation programs, policyowners would be in no different position than before implementation of the Schemes, given that St Andrew’s Life and St Andrew’s Insurance could equally have changed their minds about continuing those remediation programs (again, at least at the theoretical level).

57    Senior Counsel for the Applicants drew my attention to Re AIA Australia Ltd (No 2) [2023] FCA 1305 at [84]–[86], in which Derrington J approved a scheme for the transfer of life insurance business with on-going remediation programs, without requiring that the continuation of those programs be referred to expressly in the scheme terms. The scheme in that case did contain a term obliging the transferee to maintain such policies and procedures as are required to conduct the business consistently with legal and regulatory obligations, and

consistently with the contractual rights and reasonable benefit expectations of the transferring policyowners (as was also a feature of the scheme in Re Colonial Life). However, that term was not referred to by Derrington J in relation to the remediation program, and I doubt whether such programs properly fall within its scope. I do not regard the absence of such a term in the present case as having a material bearing on the treatment in this application of the remediation programs.

Steps to be taken before an application for confirmation

58    The steps to be taken before an application for confirmation of the General Insurance Scheme is made are set out in s 17C(2) of the Insurance Act and are supplemented by APRA’s prudential standards (relevantly, Prudential Standard GPS 410 Transfer and Amalgamation of Insurance Business for General Insurers (GPS 410)). The steps to be taken before an application for confirmation of the Life Insurance Scheme is made are set out in s 191 of the Life Insurance Act and reg 7 of the Life Insurance Regulations 2024 (Cth).

59    Additionally, in orders made on 30 May 2024 (Dispensation Orders), the Court set out steps for the Applicants to take as a condition of:

(a)    the First Applicant being dispensed from complying with s 17C(2)(c) of the Insurance Act; and

(b)    the Second Applicant being dispensed from complying with s 191(2) of the Life Insurance Act.

60    As required by s 17C(2)(a) of the Insurance Act, a copy of the General Insurance Scheme has been given to APRA. The Independent General Insurance Actuarial Report has also been given to APRA: First Way Affidavit at [163]–[167]. GPS 410 requires APRA’s approval of the summary of the General Insurance Scheme to be obtained before publication of the notice of intention to make the application for confirmation of the scheme: para 8. The scheme summary and the notice of intention were approved by APRA on 10 May 2024 (Second Way Affidavit at [5]–[6] and Exhibit MW-2 at pp 4–7).

61    As required by s 191(2)(a) of the Life Insurance Act, a copy of the proposed Life Insurance Scheme and the Joint Life Actuarial Report have been given to APRA. The Independent Life Actuarial Report has also been given to APRA: First Way Affidavit at [163]–[167].

62    Section 17C(2)(b) of the Insurance Act requires that a notice of intention be published in accordance with GPS 410. Paragraph 9 of GPS 410 requires that a notice of intention, in a form

approved by APRA, be published in the Government Gazette and in one or more newspapers approved by APRA circulating in each Stated Territory which an affected policyholder resides. Paragraph 11 requires that the notice be published before the scheme is released for public inspection. The General Insurance Notice of Intention was approved by APRA on 10 May 2024 (Second Way Affidavit, Exhibit MW-2 at pp 4–7). APRA’s approval for the General Insurance Notice of Intention stipulated that the notice be published in the same newspapers in Australia as those stipulated in Order 3(a)(ii) and (iii) of the Dispensation Orders (Second Way Affidavit, Exhibit MW-2 at p 4).

63    Section 191(2)(b) of the Life Insurance Act requires that a notice of intention for a life insurance scheme be published in accordance with s 191(2A) of the Life Insurance Act. Section 191(2A) requires that a notice of intention, in a form approved by APRA, be published in a manner that results in the notice being accessible to the public and reasonably prominent (or in a manner specified in a determination made by APRA, by legislative instrument). The Life Insurance Notice of Intention was approved by APRA on 10 May 2024 (Second Way Affidavit, Exhibit MW-2 at pp 3 and 8–9).

64    Order 3(a) of the Dispensation Orders required that, before the Scheme documents were made available for public inspection, a copy of the General Insurance Notice of Intention and the Life Insurance Notice of Intention be published in the Government Gazette, the Australian, eight nominated metropolitan newspapers in Australia, and six nominated regional newspapers in New Zealand. The General Insurance Notice of Intention and the Life Insurance Notice of Intention were published in the Government Gazette on 11 June 2024, and in the newspapers stipulated in Order 3(a) on 11 June 2024: Lethbridge Affidavit at [11]–[12] and pp 1–26 of Exhibit NL-1. This occurred before the scheme documents were made available for public inspection (which occurred from 12 June 2024 – see below).

65    Order 3(b) of the Dispensation Orders required the Applicants to make a copy of the following documents available for viewing and download at www.standrews.com.au and www.hallmarkinsurance.com.au: General Insurance Notice of Intention, the General Insurance Scheme, the General Insurance Scheme Summary, the Independent General Insurance Actuarial Report, the Life Insurance Notice of Intention, the Life Insurance Scheme, the Life Insurance Scheme Summary, the Independent Life Actuarial Report and the Joint Life Actuarial Report. That was done: Lethbridge Affidavit at [13]–[15]. However, links to the documents were made available on those websites from 7.29am on 12 June 2024, which was before the time when the Schemes were released for public inspection from 9am on 12 June 2024 but not “[b]efore the date on which the Schemes [were] released for public inspection”. As such, there has not been strict compliance with order 3(b). The non-compliance is not such as causes me any concern that policyholders or policyowners’ interests have been adversely affected or that any person has been deprived of the opportunity to raise any reasonable objection to the schemes. Accordingly, the Applicants submit, and I accept, that the partial non-compliance with order 3(b) ought not impede the Court’s exercise of discretion to confirm the scheme: Re OnePath General Insurance Pty Ltd [2023] FCA 1424 at [14].

66    Order 3(c) required a dedicated email address to be established to receive enquiries about the schemes. This was done. 23 emails were received to that address in the period from 11 June to 26 July 2024, none of which contained an objection to either of the schemes: Lethbridge Affidavit at [22].

67    GPS 410 at [12]–[15] sets out requirements for a summary of a general insurance scheme to be approved by APRA. Paragraph [15] of GPS 410 requires that the approved summary must be sent to affected policyholders before the scheme is released for public inspection. The General Insurance Scheme Summary was approved by APRA on 10 May 2024 (Second Way Affidavit, Exhibit MW-2 at pp 4–5 and 10–13).

68    Section 191(2E) of the Life Insurance Act requires that an approved summary for a life insurance scheme be given after the scheme and each actuarial report (if any) on which it is based have been given to APRA, and requires that the approved summary be given at the same time as, or after the notice of intention is published. The Life Insurance Scheme Summary was approved by APRA on 10 May 2024 (Second Way Affidavit, Exhibit MW-2 at pp 3 and 14–17).

69    Order 3(d) of the Dispensation Orders required that, before the schemes were released for public inspection, the Applicants were to cause the General Insurance Scheme Summary and the Life Insurance Scheme Summary to be sent to specified persons as set out in the order. Similarly, order 3(f) required the Applicants to send, or arrange for the third parties listed in Annexure A to the orders, to send the General Insurance Scheme summary to policyholders of General Insurance policies, and the Life Insurance Scheme summary to policyowners of Life

Insurance policies issued by the Second Applicant. In each case, the orders did not require the summary to be sent to policyholders or policyowners for whom the Applicants have no record of a current contact address and/or whose policy lapsed, was cancelled or not renewed prior to 1 March 2022 and in respect of which there are no open claims. Those orders have been substantially complied with.

70    Active Mail, a direct mail marketing house engaged by St Andrew’s, sent the General Insurance Scheme Summary by post on or by 12 June 2024 to policyholders of the First Applicant whose contact details St Andrew’s had obtained from its own records or the records of third parties, and excluding policyholders or policyowners for whom the Applicants have no record of a current contact address and/or whose policy lapsed, was cancelled or not renewed prior to 1 March 2022 and in respect of which there are no open claims: Lethbridge Affidavit at [24].

71    Active Mail also sent the Life Insurance Scheme Summary by post on or by 12 June 2024 to policyowners of the Second Applicant whose contact details St Andrew’s had obtained from its own records or the records of third parties, and excluding policyowners for whom the Applicants have no record of a current contact address and/or whose policy lapsed, was cancelled or not renewed prior to 1 March 2022 and in respect of which there are no open claims: Lethbridge Affidavit at [24], [46]–[48].

72    In total, Active Mail sent the scheme summary documents, together with the relevant notices of intention, and cover letters to over 40,000 policyholders and policyowners of the First and Second Applicants: Lethbridge Affidavit at [25]–[27], [33]–[34]. This included 3,454 Credicorp policyholders, who fell within the scope of order 3(f) rather than order 3(d): Lethbridge Affidavit at [30.2].

73    In addition:

(a)    Bankwest, being one of the third parties listed in Annexure A to the Dispensation Orders, arranged for the General Insurance Scheme Summary and the Life Insurance Scheme Summary to be sent by email on 12 June 2024 to over 11,400 policyholders and policyowners and by post on 12 June 2024 to over 1,800 policyholders and policyowners, whose details were extracted from Bankwest’s systems: Lethbridge Affidavit at [42]–[45];

(b)    Greenstone Financial Services (GFS), being another of the third parties listed in Annexure A to the Dispensation Orders, sent the Life Insurance Scheme Summary by post to over 5,800 policyowners: Lethbridge Affidavit at [49]–[51].

74    In total:

(a)    Over 33,000 individuals, whose details were obtained from St Andrew’s “StACS” and Blueprint systems, were sent correspondence notifying them of the General Insurance Scheme and/or Life Insurance Scheme: Lethbridge Affidavit at [52]; and

(b)    In addition, a total of over 25,000 individuals, whose details were held on third party systems, were sent correspondence notifying them of the General Insurance Scheme and/or Life Insurance Scheme: Lethbridge Affidavit at [53].

75    As noted above, order 3(d) of the Dispensation Orders required the scheme summaries to be sent to the persons referred to in that order before the date on which the schemes were released for public inspection under order 3(g). The scheme summaries were sent on the same day as the schemes were released for public inspection being 12 June 2024: Lethbridge Affidavit at [34]. The Applicants submit, and I accept, that this partial non-compliance ought not to impede the exercise of the Court’s discretion to confirm the General Insurance Scheme or the Life Insurance Scheme, particularly in circumstances where the scheme summaries were made available for public inspection for longer than the required minimum of 15 business days (as to which, see below). In the circumstances, the non-compliance with the time requirement in order 3(d) and paragraph 15 of GPS 410 did not adversely affect the interests of policyholders or policyowners or deprive them of the opportunity to raise any reasonable objection to the schemes.

76    Order 3(e) of the Dispensation Orders required the Applicants, in the event the material required to be sent to policyholders and policyowners is returned undelivered up to and including the confirmation hearing, to the extent reasonably practicable, to follow their returned contact procedure for that policyholder or policyowner, as identified in the First Way Affidavit at [213]–[214].

77    A total of 1,242 “return to sender” letters were received back by St Andrew’s from the correspondence sent by Active Mail: Lethbridge Affidavit at [36]. The Applicants caused a search to be undertaken by Active Mail of the “National Change of Address Register” maintained by Australia Post, as a result of which 6 customers were identified as deceased and an alternative postal address was identified for 58 customers. A further 58 customers had email addresses identified and were emailed the correspondence. There are 1,120 return to sender letters in respect of which an alternate address could not be found: Lethbridge Affidavit at [36]–[39].

78    The process followed, as referred to in the Lethbridge Affidavit at [36], does not accord with the returned contact procedure identified in the First Way Affidavit at [214] in one respect, namely the process has not involved attempting to telephone the policyholder or policyowner to request an updated postal address as referred to at [214.2] of the First Way Affidavit. The Applicants submit, and I accept, that their failure to undertake that step ought not cause the Court to withhold approval for the schemes in circumstances where the unresolved “return to sender” communications represent less than 5% of the total number of communications sent out by Active Mail for the Applicants and in view of the other steps taken by the Applicants to publicise the schemes.

79    The public inspection requirements set out at Order 3(g) of the Dispensation Orders, paragraph 16 of GPS 410 and s 191(2)(d) of the Life Insurance Act have been complied with. Ms Caton gives evidence that the scheme documents and actuarial reports referred to in order 3(g) were made available for inspection at the locations approved by APRA and listed in Appendix B to the orders for 18 weekdays from 12 June to 5 July 2024: Caton Affidavit at [8]. That was more than the minimum period of 15 days specified in order 3(g). Ms Caton also gives evidence that no one attended any of the inspection sites to view the scheme documents: Caton Affidavit at [12].

80    The requirement in order 3(h) for the St Andrew’s Head Office contact number to be utilised to handle calls about the Schemes was complied with. Mr Lethbridge gives evidence that as at 22 July 2024, St Andrew’s Head Office had received 868 calls to that number in respect of the General Insurance Scheme and Life Insurance Scheme. The questions asked by callers were of a general nature with respect to the schemes and also questions were raised in respect to individual’s policies: Lethbridge Affidavit at [61]–[62]. Mr Lethbridge gives further evidence that GFS received 109 calls in relation to the Life Insurance Scheme: Lethbridge Affidavit at [65].

81    Section 17C(4) of the Insurance Act provides that 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. Section 191(4) of the Life Insurance Act is to similar effect. Order 3(i) of the Dispensation Orders imposes a similar requirement. 13 requests have been received for the scheme documents, in response to which copies were sent out by post to the persons who requested them: Lethbridge Affidavit at [68].

Confirmation orders

82    The proposed confirmation orders do not depart from existing practice. In my view, it is appropriate that those orders be made.

Associate:

Dated:    7 August 2024