Re National Health Act 1953 (As Amended) v Re An Applicatioon By the Manchester Unity Independent Order of Oddfellows Friendly Society In New South Wales [1984] FCA 12 (10 February 1984)

FEDERAL COURT OF AUSTRALIA

Re: IN THE MATTER OF THE NATIONAL HEALTH ACT 1953 (AS AMENDED)
And: IN THE MATTER OF AN APPLICATIOON BY THE MANCHESTER UNITY
INDEPENDENT ORDER OF ODDFELLOWS FRIENDLY SOCIETY IN NEW SOUTH WALES
No. G 43 of 1984
Health

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Morling J.

CATCHWORDS

Health - winding up of health benefit fund conducted by
Friendly Society - approval of scheme for winding up of fund

- notice to contributors - statutory formula adopted for

scheme, as if fund had not achieved registration.

National Health Act 1953, s. 73AA, s.82ZG(1), s. 82ZGA(3)

Health Legislation Amendment Act 1983

Friendly Societies Act 1912

HEARING

SYDNEY
10:2:1984

ORDER

1. That the requirements of Order 55 rule 4 be
dispensed with.

2. That the Health Benefits Fund conducted by
The Manchester Unity Independent Order of
Oddfellows Friendly Society in New South
Wales be wound up in accordance with the
scheme set out in the First Schedule to this
order.

3. That the costs of the applicant herein be
paid out of the Fund.

DECISION

This is an application pursuant to subs. 82ZG(1) of the National Health Act 1953 ("the Act") for an order that the health benefits fund conducted by the Manchester Unity Independent Order of Oddfellows Friendly Society in New South Wales ("the Society") be wound up with effect from 1 February 1984 in accordance with a proposed scheme to which I shall presently refer.

2. The Society is a friendly Society registered under the Friendly Societies Act 1912, New South Wales. It has been a registered medical benefits organization and a registered hospital benefits organization in respect of the State of New South Wales pursuant to the provisions of the Act as in force prior to 1 October 1983 and has conducted a medical benefits fund known as the Medical Services Fund and a hospital benefits fund known as the Voluntary Hospital Fund in accordance with those provisions.

3. The Society is also a registered health benefits organization in respect of the State of New South Wales pursuant to the provisions of the Act as in force from 1 October 1983 and is authorised to conduct a health benefits fund in accordance with those provisions.

4. As a consequence of the registration of the Society as a health benefits organisation pursuant to the provisions of s.73AA of the Act as inserted by the Health Legislation Amendment Act 1983 the assets of the said medical benefits fund and the said hospital benefits fund formerly conducted by the Society as and from 1st February 1984 constitute the assets of the said health benefit fund.

5. The accounts of the Medical Services Fund and the Voluntary Hospital Fund reveal an anticipated surplus of approximately $1,750,258 in the Voluntary Hospital Fund and an anticipated deficit of approximately $2,126,319 in the Medical Services Fund. The precise amounts of surplus and deficit will not be known for some time as management expenses, interest earnings and actual contribution income are at this stage uncertain.

6. The hospital fund has approximately 69,000 contributors and the medical benefits fund has approximately 63,000 contributors. More than 90% of contributors to the medical services fund are contributors to the voluntary hospital fund. The policy of the Department of Health has been to permit surpluses in either the hospital fund or the medical fund of registered organisations to be used to balance deficits in the other. On this basis the combined position of the funds at 31 December 1983 was a deficit of approximately $1,050,061. It is not possible having regard to current uncertainties in relation to the introduction of the new health scheme to estimate what the actual position of the funds are at this date.

7. In 1983 the Registrar of Friendly Societies approved the transfer of an amount up to $750,000 from the general funds of the Society to meet any outstanding liability in the health benefits fund. The amount of $750,000 remains available to be applied towards any deficiency in the fund.

8. From 1 February 1984, following the amendments to the Act effected by the Health Legislation Amendment Act 1983, benefits for medical services (to be known as "Medicare benefits") will only be available under the Health Insurance Act 1973 through the Health Insurance Commission, trading as "Medicare"; health benefit organisations can only offer benefits for ancillary health services and hospital services. The Health Insurance Commission, also trading as Medibank Private, will offer such benefits and will have a considerable marketing advantage over other health benefits organisations. It will be in a position to offer "one stop shopping" where at one location contributors will be able to obtain Medicare benefits and health benefits, whereas contributors to other health benefit organisations will be obliged to attend a Medicare office in order to obtain Medicare benefits and then their hospital benefit organisation's office in order to claim health benefits. Health benefit organisations will need to offer very attractive rates to contributors to overcome these advantages.

9. The Society believes that, having regard to the announced contribution rates of Medibank Private in New South Wales, the Health Benefits Fund of the society will not be viable and if the said fund were to be conducted in accordance with the conditions of registration imposed by the provisions of the Act and by the Department of Health in its letter of 9 January 1984, the fund would suffer substantial loss of membership resulting in an increased deficiency in the fund. The good risk contributors, with low claim rates and to whom the differences in contribution rates are significant, would leave the Society's fund and the bad risk contributors, with high claim rates and to whom the difference in contribution rates is less important, would remain so that claims would increase and contribution income would decrease.

10. If the Society conducts a health benefits fund without having to meet the conditions of registration required under the Act, the Society can offer a family rate providing a combined basic and supplementary hospital table at $6-94 per week. Such a table will be competitive with Medibank Private and with other health benefits organisations and this will enable the fund to be conducted profitably whilst still offering adequate benefits for contributors. On 13 January 1984, rules comprising new General Rule 203C for the conduct of a hospital fund at a family rate of $6-94 per week were registered under the Friendly Societies Act 1912.

11. On 22 November 1983 at the annual conference of the Society the following resolution was duly passed:

"That the Board of Directors be given authority
to immediately introduce and seek registration
of a Hospital Benefit Fund under the N.S.W.
Friendly Society Act should the Society's
application for re-registration as a Health
Benefits Organisation under the National Health
Act be refused or it is found that contribution
rates are uncompetitive thus effecting the
viability of the Fund."

12. On 14 January 1983 the directors of the Society passed the following resolution:

"That the Voluntary Hospital Fund of the Society
conducted under Rule 203A and the Medical Fund
of the Society conducted under Rule 233A be
wound up and that application for such winding
up to be effective from 31st January, 1984, be
made to the Federal Court of Australia in
accordance with the provisions of the National
Health Act, 1953."

13. In January 1984 a letter was sent to all members of the Society who were as at 20 January recorded as contributors to either the Medical Benefits Fund or the Hospital Benefits Fund conducted by the Society. The letter include the following paragraphs:

"With the introduction of the Federal
Government's Medicare Scheme to commence from the
1st February, 1984, shared ward accommodation in
public hospitals without cost to the patient will
be available when treatment is provided by
doctors who are nominated by the hospital.

If however on admission to a public hospital
you wish to nominate and be treated by your own
doctor, an accommodation charge of $80 per day
for a shared ward or if available $130 per day
for a single room will be raised which will not
be covered by Medicare. Medicare will not cover
accommodation in a private hospital.

Manchester Unity, to provide for its members
who elect to retain freedom of choice in
nominating their own doctor for treatment in a
public hospital and also to provide cover for
members who are admitted to a private hospital,
has decided to introduce a new hospital fund to
commence from 31st January, 1984, whch will
comprise a single table all inclusive hospital
plan, providing benefits in respect of both
public and private hospital charges. This new
single table plan will replace the basic and
supplementary tables presently conducted under
the National Health Act. Manchester Unity will
cease registration under the National Health Act
from 31st January, 1984, and will wind up the
existing hospital fund registered under that
Act."

14. On 20 January 1984 another letter was sent to members of the Society who were at that date contributors to the Hospital Benefit Fund of the Society and in respect of whom payments had been made by the Society from the re-insurance account maintained by the Society in accordance with s. 73BB of the Act. The letter included the following paragraph:

"With the introduction of Medicare from 1st
February, 1984 and the announcement by Medibank
Private of the contribution rates which will be
payable by contributors to the basic hospital
table, the Board of Directors of the Society has
concluded that the Society is not able to offer
to members a basic hospital table at a rate which
will be competitive. Thus, although the Society
has received the approval of the Commonwealth
Department of Health to conduct a hospital table,
we have decided not to proceed with this and as a
consequence intend to discontinue registration
under the National Health Act."

15. Since 1 February 1984 the Society has not accepted contributions to the registered health benefits fund formerly conducted by it.

16. The proposed scheme for the winding up of the Society's health benefit fund is as set out in the annexure to these reasons.

17. The rules of the Federal Court make special provisions for applications for the winding up of a fund under the Act. Order 55 rule 4 provides as follows:

"On a directions hearing pursuant to an
application under sections 81Z, 82ZF, 82ZG or
82ZH for the winding up or transfer of the
business of a fund (but not the judicial manage
ment of a fund) unless the Court or a Judge
otherwise orders -

(a) evidence adduced by the applicant
shall include whatever is necessary
to enable the Court to order a
meeting or meetings of the
contributors or class of contributors
or of the creditors or class of
creditors or of any other persons or
class of person where their interests
may be affected, to be summoned in
such manner as the Court directs;
and

(b) the evidence tendered by the
applicant in support of the
application ordinarily should include
the following: -

(i) a form or, if more than one,
forms of notice of meeting;

(ii) a form or, if more than one,
forms of proxy;

(iii) a form of notice summoning the
meeting or meetings by
advertisement;

(iv) any proposed scheme for the
winding up or transfer of the
business of a fund;

(v) a statement explaining the
effect of the proposed scheme
and stating the material
interest of the directors or
officers of the registered
organization whether as
directors, officers or as
contributors or as creditors
or otherwise and the effect
thereon of the scheme insofar
as it is different from the
effect on the like interests
of other persons;

(vi) consent of the person proposed
as the chairman of the meeting
or meetings to act as
chairman; and

(vii) the most recent audited
accounts and balance sheets of
the fund."

18. The Society seeks an order that the requirements of Order 55 rule 4 be dispensed with. Neither this application nor the substantive application that the fund be wound up is opposed by the Minister for Health who is the respondent to the application.

19. As originally framed, paragraph (6) of the proposed scheme was in the following terms:

"6. In the event that there is any surplus in
the Fund at 1st August 1984 after meeting
all liabilities in accordance with Clause 5
and the proper costs of the administration
of this Scheme, such surplus shall be
divided into as many units as is equal to
four times the number of the contributors
which such units shall be distributed as
follows:

(a) As to each contributor who is a
member of the said medical benefits
and hospital benefits funds of the
Society at the family rate, four
units.

(b) As to each contributor who is a
member of the said medical benefits
and hospital benefits funds of the
Society at the single rate, two
units.

(c) As to each contributor who is a
member of the said medical benefits
fund only at the family rate, two
units.

(d) As to each contributor who is a
member of the said hospital benefits
fund only at the family rate, two
units.

(e) As to each contributor who is a
member of the said medical benefits
fund only at the single rate, one
unit.

(f) As to each contributor who is a
member of the said hospital benefis
fund only at the single rate, one
unit."

20. During the course of the argument I indicated to counsel for the applicant that I was not prepared to make the orders sought in the absence of some further notice to the contributors. I expressed the view that such notice could be given by an appropriate newspaper advertisement, rather than by separate notification to each member. I was reluctant to dispense entirely with the requirements of Order 55 rule 4 because I thought that members should have some opportunity to object to clause (6) of the scheme as originally proposed. Whilst the provisions of that clause appear to me to be eminently suitable and fair I can imagine that some contributor might wish to contend otherwise.

21. Because of the view which I expressed in the course of the argument the applicant reframed clause (6) of the scheme. As reframed, the clause is in the same terms as subs. 82 ZGA (3) of the Act as amended by the Health Legislation Amendment Act 1983. This last mentioned section makes provision for the winding up of funds conducted by registered organization which have not achieved registration under the amending legislation. The section makes quite detailed provision for what is to happen when such a fund is wound up and the applicant has incorporated those provisions in clause (6) of the scheme for which it now seeks approval. Whilst the present application is not, of course, made under subs. 82ZGA(3), the adoption of the statutory formula referred to in that subsection justifies the Court in dispensing ith the requirements of Order 55 rule 4.

22. The applicant's proposal has been carefully examined by the Minister and through his counsel he has indicated that he does not oppose it. My own examination of the scheme leads me to the view that it ought to be approved and I am fortified in that opinion by the attitude taken by the Minister.

23. I would not have been prepared to dispense with all the requirements of Order 55 rule 4 had clause (6) of the scheme stood in its original form. However, the inclusion of the new clause (6) so as to follow closely the provisions of s. 82 ZGA (3) makes it proper to exercise the power to dispense with the requirements of that rule.

24. Accordingly, I propose to grant both the application that the requirements of Order 55 rule 4 be dispensed with and also the substantive application. I make orders as follows:

1. That the requirements of Order 55 rule 4 be
dispensed with.

2. That the health benefits fund conducted by
the Manchester Unity Independent Order of
Oddfellows Friendly Society in New South
Wales be wound up in accordance with the
scheme set out in the schedule to these
reasons.

3. That the applicant's cost of the application
be paid out of the fund.

25. Since the respondent Minister does not seek any order in respect of his costs, I make no order as to his costs.