Re Ahbs Company As Trustee of Army Health Benefits Society; Joseph Henry Burgess; Donald Bruce Chalmers and Geoffrey John Earley As Trustees of Naval Health Benefits Society v Private Health Insurance Administration Council [1993] FCA 34 (16 February 1993)

FEDERAL COURT OF AUSTRALIA

Re: AHBS COMPANY as trustee for ARMY HEALTH BENEFITS SOCIETY; JOSEPH HENRY
BURGESS; DONALD BRUCE CHALMERS and GEOFFREY JOHN EARLEY as trustees for NAVAL
HEALTH BENEFITS SOCIETY
And: PRIVATE HEALTH INSURANCE ADMINISTRATION COUNCIL
Nos. ACT G38 and 39 of 1991
FED No. 37
Number of pages - 33
Administrative Law
(1993) 40 FCR 255

COURT

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Neaves J.(1)

CATCHWORDS

Administrative Law - Judicial review - National Health Act 1953 (Cth) - Registered health benefits organizations - Requirement to conduct health benefits funds and to maintain a Reinsurance Account - Provision made for registered organizations to share burden of meeting deficits in Reinsurance Accounts - Establishment of Health Benefits Reinsurance Trust Fund for that purpose - Fund to be operated in accordance with principles determined by the Minister - Whether decisions that applicants pay amounts into Health Benefits Reinsurance Trust Fund made in accordance with the statutory provisions and the principles so determined.

Administrative Decisions (Judicial Review) Act 1977 (Cth), s.5

National Health Act 1953 (Cth), Part VI

HEARING

CANBERRA, 5 February, 14 May 1992
16:2:1993

Counsel for the applicants : Mr R.C. Refshauge

Solicitors for the applicants : Macphillamy Cummins and Gibson

Counsel for the respondent : Mrs J.A. Bonsey

Solicitor for the respondent : Australian Government

Solicitor

ORDER

Matter No. ACT G38 of 1991
The Court orders that:

1. The decision by the respondent that the Army Health Benefits
Society pay into the Health Benefits Reinsurance Trust Fund
in respect of the quarter ended 31 March 1991 an amount of
$2,120,295.00 be set aside.
2. The matter be remitted to the respondent for further
consideration and determination in accordance with the
judgment of the Court.
3. The respondent pay the applicant's costs of the application.
4. The parties have liberty to apply to the Court on 7 days'
notice in the event that difficulties arise in implementing
the judgment of the Court.

Matter No. ACT G 39 OF 1991
The Court orders that:

1. The decision by the respondent that the Naval Health
Benefits Society pay into the Health Benefits Reinsurance
Trust Fund in respect of the quarter ended 31 March 1991 an
amount of $650,290.00 be set aside.
2. The matter be remitted to the respondent for further
consideration and determination in accordance with the
judgment of the Court.
3. The respondent pay the applicants' costs of the application.
4. The parties have liberty to apply to the Court on 7 days'
notice in the event that difficulties arise in implementing
the judgment of the Court.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

NEAVES J. These two applications for orders of review under the Administrative Decisions (Judicial Review) Act 1977 ("the Judicial Review Act") were, by consent, heard together. The applicants are AHBS Company (a company limited by guarantee) as trustee for Army Health Benefits Society and Joseph Henry Burgess, Donald Bruce Chalmers and Geoffrey John Earley as trustees for Naval Health Benefits Society. Each of the societies is, and was at the material time, registered as a health benefits organization under the National Health Act 1953 (Cth) ("the Act"). The respondent to each application is the Private Health Insurance Administration Council ("the Council"), a body corporate established by s.82B of the Act.

2. In the proceeding in which AHBS Company is the applicant, the amended application filed on 13 March 1992 describes the proceeding in the following terms:

"Application to review the decision of the Respondent whereby the
Respondent determined that the Applicant pay $2,120,295.00 ('the
Amount') into the Health Benefits Reinsurance Trust Fund ('the
Fund') for the quarter ending 31 March 1991 and to review the
conduct of the Respondent for the purpose of making that decision,
the conduct being the calculation of the Amount by applying the
method set out in the Determination of Principles under Section
73BC ('the Principles') of the National Health Act 1953 ('the
Act') and in the application of that method grouping the Applicant
and its contributors for that purpose into the State of Victoria."

The amended application in the proceeding in which the trustees for the Naval Health Benefits Society are the applicants is in similar terms except that the relevant amount is not $2,120,295.00 but $650,290.00.

3. It is convenient to begin with a reference to the relevant statutory provisions.

4. Part VI of the Act is headed "Health Benefits Organizations". It consists of ss.66-82 inclusive.

5. Section 67(1) prohibits a person other than a registered organization, that is to say an organization registered under Part VI (see the definition of "registered organization" in s.4(1)), from carrying on health insurance business, an expression defined in s.67(4) as follows:

"'health insurance business' means the business of undertaking
liability, by way of insurance:
(a) with respect to loss arising out of a liability to pay
fees or charges in relation to the provision in
Australia of hospital treatment or an ancillary health
benefit; or
(b) with respect to, or with respect to the happening of
an occurrence connected with, the provision in
Australia of hospital treatment or an ancillary health
benefit;
but does not include:
(c) accident and sickness insurance business;
(d) liability insurance business; or
(e) business of a kind prescribed for the purposes of this
paragraph."

6. The Act makes provision for the registration of health benefits organizations (ss.68-73BC). An organization may only carry on business as a registered health benefits organization in a State in which it is authorised to do so (s.68). Different provisions are made with respect to an organisation that is a restricted membership organization and an organization which is not properly so described. The expression "restricted membership organization" is defined in s.4(1) as follows:

"'restricted membership organization' means an organization the
rules of which restrict eligibility for membership by reference
to:
(a) employment or former employment in a profession,
trade, industry or calling;
(b) employment or former employment by a particular
employer or by an employer included in a particular
class of employers;
(c) membership or former membership of a particular
profession, professional association or union;
(d) membership or former membership of the Defence Force
or of a part of the Defence Force; or
(e) any other prescribed matter;
not being an organization that has notified the Secretary in
writing that it does not wish to be subject to the provisions of
this Act relating to restricted membership organizations."

7. By virtue of s.68(2), an organization (not being a restricted membership organization) is not eligible to carry on business as a registered health benefits organization in a State unless, under the rules of the organization:

(a) a health benefits fund is to be conducted by the
organization in respect of that State;
(b) there is to be credited to that fund the whole of the income
of the organization arising out of the carrying on by the
organization in that State of business as a registered
health benefits organization; and
(c) there are limitations upon the amounts that are to be
debited to that fund.

The amounts which may be debited to the fund include payments by the organization of fund benefits, payable under the rules of the organization, in respect of contributors to the fund or dependants of such contributors and any amount paid from that fund to the Health Benefits Reinsurance Trust Fund in accordance with a determination of the Council under s.73BC.

8. Section 68(4) provides:

"(4) A restricted membership organization is not eligible
to carry on business as a registered health benefits organization
in any State unless, under the rules of the organization:
(a) a health benefits fund is to be conducted by the
organization;
(b) there is to be credited to that fund the whole of the
income of the organization arising out of the carrying
on by the organization of business as a registered
health benefits organization; and
(c) no amount is to be debited to that fund other than:
(i) payments by the organization of fund benefits,
payable under the rules of the organization, in
respect of contributors to the fund or
dependants of such contributors;
(ii) costs incurred by the organization in carrying
on a business as a registered health benefits
organization;
(iii) costs incurred by the organization in providing,
or arranging to provide, professional services,
hospital treatment, out-patient services or
other allied health services for contributors,
or contributors included in a class of
contributors, to that fund or dependants of such
contributors; or
(iv) any amount paid from that fund to the Health
Benefits Reinsurance Trust Fund in accordance
with a determination of the Council under
section 73BC."

9. Sub-sections (5) and (6) of s.66 provide:

"(5) For the purposes of this Part, a registered health
benefits organization shall be deemed to carry on business as a
registered health benefits organization in a State or Territory
if, for the purposes of, or purposes related to, the enrolment of
contributors to a health benefits fund conducted by it or the
payment of benefits to such contributors:
(a) it uses premises in that State or Territory; or
(b) it uses, in that State or Territory, the services of a
servant or agent.
(6) For the purposes of this Part, the Australian Capital
Territory shall be deemed to form part of the State of New South
Wales."

10. Section 68 also contains provisions relating to the circumstances in which an organization may carry on business as a registered health benefits organization in the Northern Territory but it is unnecessary for present purposes to refer to those provisions.

11. Each of the applicant societies is, and was at the material time, properly described as a "restricted membership organization". It is not possible from the material before the Court to identify the States (other than the State of Victoria) in which each society carried on, or was deemed to carry on, business as a registered health benefits organization. However, each had contributors located in each of the States of the Commonwealth. The rules of each of the societies provided for, and each of the societies conducted, only one health benefits fund. There is no suggestion that either of the societies had given notice that it did not wish to be subject to the provisions of the Act relating to restricted membership organizations (see the definition of "restricted membership organization").

12. Unless granted an exemption under s.73BAC, it is a condition of registration of a registered organization that it maintain minimum reserves in respect of each health benefits fund conducted by the organization (s.73AB). Section 73BB makes it a condition of registration of a registered health benefits organization that it establish and maintain, in respect of classes of benefits declared by the Minister to be classes of benefits for the purpose of reinsurance, a Reinsurance Account in the health benefit fund, or in each of the health benefit funds, from time to time conducted by it (see subs.(1) and (9)). The section prescribes what amounts may be debited to the Reinsurance Account maintained by it in the health benefits fund concerned (subs.(5)). It is unnecessary to refer to the detail of the provision. Suffice it to say that, speaking generally, an organization may debit to a Reinsurance Account amounts paid to a contributor in accordance with a basic table or a supplementary hospital table in respect of a period of hospital treatment in excess of 35 days in any period of 12 months and amounts so paid in respect of treatment for a person who has reached the age of 65 years.

13. Section 73BC relevantly provides -

"(1) The purpose of this section is to make provision for
registered organizations that conduct health benefits funds to
share the burden of, and for the Commonwealth to make a payment
towards, meeting any deficits in Reinsurance Accounts in those
funds.
(2) There is established by this subsection a fund, to be
known as the Health Benefits Reinsurance Trust Fund.
....
(5) There shall be paid into the Fund:
(a) such amount as is appropriated by the Parliament in
the financial year ending on 30 June 1989 for payment
into the Fund;
(b) payments determined pursuant to subsection (6) or (9);
and
(c) the amount standing to the credit of the former Fund
immediately before the commencement of this
subsection.
(5A) There shall be paid out of the Fund amounts determined
pursuant to subsection (12).
(5B) The Minister shall determine in writing principles
relating to the operation of the Fund.
(5C) The principles shall include principles for
determining the method of, and the matters to be taken into
account in, calculating the amounts to be paid into the Fund by
registered health benefits organisations.
(5D) Where the Minister determines or varies the
principles, he or she shall as soon as practicable:
(a) notify the Council of the principles or variation, as
the case may be; and
(b) cause a copy of the principles or particulars of the
variation, as the case may be, to be published in the
Gazette.
(5E) The Council shall exercise its functions and powers in
relation to the Fund in accordance with the principles.
(6) It is a condition of registration of a registered
health benefits organization that, on and after the date of its
registration, it shall participate with other registered health
benefits organizations in the operation of the Fund by making such
payments into the Fund as the Council determines from time to time
to be appropriate payments in relation to that organization.
(8) Where the Council determines an amount to be paid into
the Fund by a registered health benefits organization, it shall
notify the organization accordingly and shall specify in the
notification the date on or before which the payment is to be
made.
(9) Where a registered health benefits organization fails
to pay an amount into the Fund in accordance with a notification
under subsection (8), the Council may determine that, in addition
to that amount, a further amount be paid into the Fund, by way of
penalty, by the organization, being an amount calculated at the
prescribed rate upon the first-mentioned amount or such part of
that first-mentioned amount as from time to time remains unpaid,
to be computed from the time when that first-mentioned amount
became payable.
(10) Where the Council makes a determination under
subsection (9) in relation to a registered health benefits
organization, it shall notify the organization, in writing,
accordingly.
(11) A notification under subsection (8) or (10) shall be
served by the Council on the public officer of the organization.
(12) For the purposes of this section, the Council may
determine that an amount be paid out of the Fund to a registered
health benefits organization on the condition that that amount,
except to the extent that the Council otherwise directs, be
credited to the Reinsurance Account kept in a health benefits fund
conducted by it, and the organization shall deal with that amount
accordingly.
(13) In this section:
'former Fund' means the Health Benefits Reinsurance Trust Fund
that was established pursuant to this Act and in existence
immediately before the commencement of this subsection;
'Fund' means the Health Benefits Reinsurance Trust Fund
established by subsection (2)."

14. Reference has already been made to s.82B by which the Council is established. Section 82C provides that there is to be a Commissioner of Private Health Insurance Administration ("the Commissioner"). The Council consists of the Commissioner, three members representing registered organizations and one other member (s.82D). Relevantly for present purposes the function of the Council (see s.82G(a)) is to administer the Health Benefits Reinsurance Trust Fund established by s.73BB(2). The Commissioner is authorised to perform the functions and exercise the powers of the Council (s.82C(2)). In the performance of a function or the exercise of a power of the Council, the Commissioner is to have regard, as far as is practicable, to the advice of the other members (s.82C(3)).

15. Reference should also be made to the history of some of these provisions. By the National Health Amendment Act 1976 (Cth) and the National Health Amendment Act (No. 2) 1976 (Cth), the relevant provisions of which came into operation on 1 October 1976, provision was first made for the establishment and maintenance by each registered hospital benefits organization of a Reinsurance Account in the hospital benefits fund, or in each of the hospital benefits funds, from time to time conducted by it and for the establishment of a Hospital Benefits Reinsurance Trust Fund to be operated by trustees appointed by the Minister. By the Health Legislation Amendment Act 1983 (Cth), the relevant provisions were amended by substituting "health benefits" for "hospital benefits" and the name of the Fund was changed to "Health Benefits Reinsurance Trust Fund" (s.103). By the Health Legislation Amendment Act 1984 (Cth), a new fund, also known as the "Health Benefits Reinsurance Trust Fund" was established (with effect from 25 October 1984) into which the amount standing to the credit of the former Fund was to be paid. The new Fund was to be operated by Administrators appointed by the Minister (s.23). Each of the Funds to which reference has been made was to be operated in accordance with principles determined, in writing, by the Minister. By the Community Services and Health Legislation Amendment Act 1989 (Cth), the relevant provisions of which commenced on 28 June 1989, the administration of the Fund became a function of the Council which was established by that Act (s.45).

16. Prior to the commencement of the provisions of the last-mentioned Act that amended s.73BC of the Principal Act, subs.(1) of that section provided that the purpose of the section was to make provision for registered organizations that conducted health benefits funds and the Commonwealth to share the burden of meeting any deficits in the Reinsurance Accounts in those funds and subs.(5) provided for payment into the Health Benefits Reinsurance Trust Fund of such amounts as were appropriated from time to time by the Parliament. The amendments deleted the words in subs.(1) "and the Commonwealth" in relation of the sharing of the burden and inserted therein the words "and for the Commonwealth to make a payment towards" meeting any deficits and substituted a new subs.(5) providing for the payment into the Fund of such amount as was appropriated by the Parliament in the financial year ending on 30 June 1989 for payment into the Fund. The effect of those amendments was that the Commonwealth would no longer subsidise the Health Benefits Reinsurance Trust Fund after the payment into that Fund of the amount appropriated during the financial year ending on 30 June 1989. As the amount so appropriated was allocated in part to provide for the continuation of the existing arrangements to the end of May 1989 and in part for transactions for the period 1 June 1989 to 31 December 1990, the practical result was that the Commonwealth subsidy ceased at the end of the calendar year 1990.

17. On or about 30 June 1989, the Minister, pursuant to s.73BC(5B) determined principles relating to the operation of the Health Benefits Reinsurance Trust Fund. Those principles were revoked and replaced by principles determined by the Minister on 24 July 1990. The principles so determined were to have effect from 30 September 1990 and were the principles in force at all material times prior to 1 April 1991. Those principles relevantly provided (par.2) that organizations should maintain a "Reinsurance Council Account" in addition to the mandatory Reinsurance Account as required by s.73BB(1); that, at the end of each quarter, they were to transfer the balance of their Reinsurance Accounts to their Reinsurance Council Account; that a debit or credit, as appropriate, was to be made to the latter account depending on whether payments were to be made to, or received from, the Health Benefits Reinsurance Trust Fund after settlement; and that the balance remaining was to be transferred to the Ordinary Account. Paragraph 6 provided that, within one month after the end of a quarter, each organization was to forward a statement, certified as being true and correct, to the Council setting out various details, including details of the fund benefits paid during the quarter in respect of Reinsurance Account contributors. Paragraph 7 provided -

"The Commonwealth will make a special appropriation of $20 million
into the Trust Fund before 30 June 1989. Thereafter, there will
be no provision for a Commonwealth contribution to the Trust Fund.
The Commonwealth contribution will be allocated on the following
basis:
(a) Component A - An amount to provide for the
continuation of the existing arrangements to the end of
May 1989. The amount will be $167,000 (i.e. two-thirds
of $1 million over four). This amount will be
allocated on the basis of the principles existing
until 31 May 1989; and
(b) Component B - The balance of $19.833 million plus any
interest earned on this amount will be utilised as
evenly as possible for transactions for the period 1
June 1989 to 31 December 1990 to minimise the impact
on those organisations most affected adversely by the
new reinsurance arrangements."

Paragraphs 8 and 9, so far as material, provided -

"8. As soon as possible after the end of each settlement period,
the Council will determine the net amounts payable by or to each
organisation in respect of that period and notify them
accordingly....
9. The amounts will be determined on the following basis:
(a) ascertain the Reinsurance Account deficit for each
organisation's health benefits fund;
(b) calculate the average numbers of existing contributors
enrolled in the basic table and supplementary table(s)
(Ordinary Account and Reinsurance Account) of each
organisation's health benefits fund. For this
purpose, contributors at the family rate will count as
two and those at the single rate as one - single
equivalent units (SEU);
(c) calculate the ratio of supplementary benefits
(eligible for reinsurance) to total hospital benefits
(basic plus eligible supplementary) paid during the
period. Apply this ratio to the number of SEUs for
supplementary tables as calculated in (b). Deduct the
resultant supplementary table SEUs from the basic
table SEUs as calculated in (b). The figure derived
under this calculation becomes the weighted
contributor figure for an organisation for reinsurance
purposes;
(d) calculate the total of weighted contributors for all
health benefits funds by States;
(e) determine the total Reinsurance Account deficit for
all health benefits funds in each State, respectively;
(f) determine the average deficit per weighted contributor
for each State (i.e. the total Reinsurance Account
deficit in (e) divided by the total number of weighted
contributors in (d));
(g) determine the deficit that would have applied to each
health benefits fund if it had had average experience
(i.e. the number of weighted contributors for each
health benefits fund under (c) multiplied by the rate
calculated under (f));
(h) calculate the difference between (a) and (g) for each
health benefits fund. Where (g) exceeds (a) each
organisation is to be notified that an amount equal to
the difference, less any amount that may be determined
for each organisation under (i) is payable to the
Trust Fund. Where (a) exceeds (g) an amount equal to
the difference is payable from the Trust Fund to each
organisation;
(i) component B of the Commonwealth contribution (i.e.
$19.833 million plus any interest) is to be allocated
on, as far as possible, an equal quarterly basis for
transactions between 1 June 1989 and 31 December 1990
to achieve such uniform maximum payments per weighted
contributor calculated in (c), for each settlement
period for those organisations making payments into
the Trust Fund, as may be permitted by the quarterly
allocation of the Commonwealth contribution;
(j) determine on a separate State basis the totals of the
amounts of Commonwealth contribution calculated for
each organisation in (i) and pay these total amounts
into the Trust Fund for each State; and
(k) ...."

Paragraph 10 provided:

"10. After receiving advice from the Council, organisations will
be required, where payments are due to the Trust Fund, to make
such payments within 14 days of the date of the advice. Payments
not made by the due date may attract a penalty calculated at a
daily rate of 15 per cent per annum."

18. On 21 March 1991, the Minister revoked, "with effect from 1 April 1991, the principles determined .... on 30 September 1990". It may be accepted, despite the language used, that the principles revoked were those determined on 24 July 1990 to take effect from 30 September 1990. The Minister also determined principles that were to have effect from 1 April 1991. Those principles differed from the principles determined on 24 July 1990 in the following respects -

(a) Paragraph 7 relating to the Commonwealth contribution was
deleted.
(b) A new par.7 relating to the statement required by par.6 to
be furnished by each registered organization was inserted
reading as follows:
"For the purposes of paragraph 6, in the case of an
organisation which is a restricted membership
organisation and has members who reside in more than
one State, a separate statement setting out the above
details in respect of each State where members reside
will be necessary. However, where the number of
members (expressed as basic table single equivalent
units) in any State is less than 5 per cent of the
total membership of the organisation, the members in
that State(s) shall be included with the State where
the majority, or in the absence of a majority, the
largest number of members reside."
(c) Paragraph 9 was amended so that it was made subject to a new
par.10.
(d) Sub-paragraphs (i), (j) and (k) of par.9 were deleted.
(e) A new par.10 was inserted reading as follows:
"In relation to an organisation which is a restricted
membership organisation which submits separate
statements as required by paragraph 7, the
determination of amounts on the basis outlined in
paragraph 9 shall assume for reinsurance purposes that
those organisations operate a separate fund in each of
the States in respect of which such a statement is
submitted."
(f) Paragraph 10 became par.11.

19. The applicant societies were established in 1953 and 1956 respectively. The head office of each society and its administrative centre were in Melbourne until 1960 when each head office is said to have been transferred to Canberra. Melbourne, however, remained the place at which the societies conducted the bulk of the administrative activity associated with their operations.

20. There is evidence before the Court, though the matter was not fully explored, that prior to 1984 the Hospital Benefits Reinsurance Trust Fund and the Health Benefits Reinsurance Trust Fund were conducted on a national basis, that is to say on the basis that a single set of calculations was made in respect of all the registered organizations but that thereafter the Health Benefits Reinsurance Trust Fund was conducted on what was referred to as a State pooling basis in which separate calculations were made in respect of each State in which organizations carried on, or were deemed to carry on, business as registered health benefits organizations. It is common ground that, in making the calculations on a State pooling basis in order to determine which registered organizations were to be required to pay moneys to the Fund and which were to receive moneys from the Fund, the applicant societies were treated as if the whole of their operations were conducted within the State of Victoria. It is not clear on the material before the Court on what basis the State of Victoria was chosen. If the choice were made on the basis that the head office of each society was in Melbourne, the choice appears to have been made erroneously as it seems to be accepted that the head office of each society was in Canberra from about 1960. It may be that the choice was made on the basis that the administrative activities of the societies took place in Melbourne even though the head office of each society was in Canberra. In any event, until the present dispute arose, the relevant details of the business carried on by each of the societies (in whatever State that business was, or was deemed to be, carried on) were, for the purpose of making the calculations required by par.9 of the principles determined by the Minister, included with the details of the business carried on in the State of Victoria by each other registered organization (not being a restricted membership organization) that was carrying on business in that State and with the details of the businesses carried on by other restricted membership organizations that had been allocated to the Victorian pool. It was said on behalf of the applicant societies that, while the Commonwealth subsidy to the Fund continued, it made little difference to their position whether they were included in the Victorian pool or the pool relating to another State.

21. By letter dated 30 November 1990, the Council informed each of the applicant societies that it had "completed its calculations in respect of the reinsurance account transactions for the quarter ended 30 September 1990". Each society was required to make a payment to the Fund by 14 December 1990. Each of the letters contained the following paragraph:

"Organisations receiving a share of the Commonwealth subsidy are
reminded that the subsidy will cease after the transactions for
the December quarter 1990 have been settled. Those funds that
will be significantly affected should be carefully reviewing their
financial operations to ensure that they can adequately meet the
additional liability that will arise under the reinsurance
arrangements when there is no longer a Commonwealth subsidy."

22. In December 1990, the applicant societies first raised with the Commissioner whether the practice which had been followed of including the societies in the calculation in respect of the State of Victoria was correct. In the discussions which took place, and in confirming correspondence, the societies took the view that the State of Victoria had been chosen as being the place at which the head offices of the societies were located, that that was not the appropriate choice as the head office of each society was in Canberra and that the societies should have been included in the pool relating to the State of New South Wales which, as we have seen, included, for this purpose, the Australian Capital Territory (see s.66(7)). The societies stated that they were not concerned with the manner in which past payments into the Fund had been calculated, but that they required the change of head office to Canberra to be taken into account from the beginning of the quarter commencing on 1 January 1991. There is evidence before the Court that, if each of the applicant societies was included in the New South Wales pool instead of that for Victoria in respect of the quarter commencing on 1 January 1991, the contribution required to be made by the societies to the Health Benefits Reinsurance Trust Fund would be considerably reduced - in the case of the Army Health Benefits Society from $2,120,295.00 to $1,250,118.00 and in the case of the Naval Health Benefits Society from $650,290.00 to $351,937.00.

23. The Commissioner sought and received advice from the other members of the Council upon the matter raised by the societies. On 20 February 1991, the Commissioner wrote to each of the societies stating that the matter was under consideration but that the existing practice was to continue unless and until the principles determined by the Minister under s.73BC(5B) were varied. Subsequently, the societies were informed of the proposed changes to the principles to take effect from 1 April 1991. By letters dated 17 April 1991 the societies asked the Commissioner (par.3 of each letter) whether it was implicit in the release of the variation of the principles effective from 1 April 1991 that what was referred to as the "claim for correction of the anomaly effective from 1 January 1991" had been denied. The letter also contained a request that, if the "claim for NSW headquarters status" had been rejected, a statement of the grounds and reasons for the rejection be provided.

24. By letters dated 3 May 1991, the Commissioner informed the societies as follows:

"I refer to your letter dated 17 April, 1991 concerning the recent
changes to Reinsurance Principles as they relate to accounting for
restricted membership organisations.
The answer to the question raised in the third paragraph of your
letter is yes.
In coming to this conclusion the following matters were taken into
consideration.
The Head Office of your Organisation was located in
Melbourne until 1960 in which year it was located in
Canberra.
Your Organisation continued to be treated as a Victorian
Fund in the intervening years for reinsurance purposes.
In seeking to change the Head Office as from 1960 to be
taken into account from the beginning of the quarter
commencing 1 January 1991 you stated you were not concerned
about being treated as a New South Wales Fund in respect of
past payments.
Your letter highlighted an anomaly in the Reinsurance Principles
in that restricted membership organisations operate nationally but
are headquartered in one State. The Principles simply did not
deal with this contingency. In arriving at its decision the
Council was concerned to ensure that it acted in accordance with
both the letter and spirit of the law, and what it ultimately
decided would be adequate to cover all restricted membership
organisation funds and not just the two in question. In its
consideration of the matter the Council paid close attention to
the purpose of the reinsurance arrangements, which are intended to
provide a mechanism for sharing the load for heavy claiming
contributors. It thereby supports the community rating principle
which enables all people to be treated equally for health
insurance purposes, regardless of age, medical history or family
size. In short, the scheme is intended to remove the advantage
which a particular organisation may have by virtue of its
membership profile which results in a lower claims experience.
To enable a restricted membership organisation to be treated as
operating in one State for the purposes of the Principles, whilst
most, or a significant proportion of its membership is located in
another State would frustrate the purpose of the scheme. After
considering a range of options, the Council concluded that the
solution it ultimately adopted was the only one which was both
fair and equitable to all the participants in the reinsurance
arrangements, and in accordance with the requirements of the
legislation. For these reasons when the anomaly was brought to
the attention of the Council it made the decision to seek to have
the Principles varied as quickly as possible and published in the
Gazette in accordance with subsection 73BC(5) (sic) of the
National Health Act 1953. This was done with effect from 1 April
1991."

25. By letters dated 30 May 1991, the Council informed the societies that it had completed its calculations in respect of the reinsurance account transactions for the quarter ended 31 March 1991. The letters also informed the societies of the amounts they were respectively required to pay to the Fund. That amount was, in the case of the Army Health Benefits Society, $2,120,295.00 and, in the case of the Naval Health Benefits Society, $650,290.00.

26. By letter dated 12 June 1991 addressed to the solicitors for the societies, the Council responded to the request made by the solicitors by letter dated 16 May 1991 that a statement pursuant to s.13 of the Judicial Review Act be provided. The letter contained the following:

"Findings on material questions of fact
The Head Office of each organisation was located in Melbourne
until 1960 in which year it was located in Canberra.
Each organisation continued to be treated as a Victorian fund in
the intervening years for reinsurance and other purposes.
In seeking to change the Head Offices as from 1960 to be taken
into account from the beginning of the quarter commencing 1
January 1991 each organisation stated it was not concerned about
being treated as a New South Wales fund in respect of past
payments.
The Reinsurance Principles which were in existence at the time,
did not deal with the matter of restricted membership
organisations which operate nationally but are headquartered in
one State.
Subsection 73BC(6) of the Act required as a condition of
registration as a health benefits organisation that the
organisation make payments into the Fund.
Evidence or other material on which findings based
Principles determined by the Minister for Community Services and
Health under subsection 73BC(5B) of the National Health Act 1953
on 24 July 1990.
Quarterly calculations which have been made under reinsurance
arrangements that originally commenced in 1976 and have provided
for separate State pooling arrangements since 1984.
Letters from both organisations dated 24 December 1990 advising of
changes to the Head Office arrangements of the organisations.
Reasons for the Decision
As the Principles did not deal expressly with the matter of
restricted membership organisations which operate nationally but
are headquartered in one State, Council was concerned to ensure
that it acted in accordance with both the letter and spirit of the
law and what it ultimately decided would be adequate to cover all
restricted membership organisations not just the two in question.
In its consideration of the matter, the Council paid close
attention to the purpose of the reinsurance arrangements which are
intended to provide a mechanism for sharing the load for heavy
claiming contributors. The arrangements therefore support the
community rating principle which enables all people to be treated
equally for health insurance purposes, regardless of factors such
as age, medical history or family size. In short, the scheme is
intended to remove the advantage which a particular organisation
may have by virtue of its membership profile which results in a
lower claims experience.
To enable a restricted membership organisation to be treated as
operating in one State for the purposes of the Principles, while
most, or a significant proportion of its membership is located in
another State would frustrate the purpose of the scheme. After
considering a range of options, the council concluded that the
solution it ultimately adopted was the only one which was both
fair and equitable to all the participants in the reinsurance
arrangements, and in accordance with the requirements of the
legislation.
For these reasons, when the anomaly was brought to the attention
of the Council it made the decision to seek to have the Principles
varied as quickly as possible and published in the Gazette in
accordance with subsection 73BC(5) (sic) of the Act. This was
done with effect from 1 April 1991.
However, as subsection 73BC(6) of the Act made it a condition of
registration as a health benefits organisation that the
organisation participate with other organisations in the operation
of the Reinsurance Trust Fund by making payments into the Fund,
the procedures then in operation were allowed to continue until
the Principles were amended."

27. As appears from what I have written, the case that the applicant societies represented to the Council and the Commissioner was that, for the purpose of calculating their respective contributions to the Health Benefits Reinsurance Trust Fund in respect of the quarter commencing on 1 January 1991, they should be included, not in the pool for the State of Victoria, but in that for the State of New South Wales (including the Australian Capital Territory). The foundation for that case was an assertion that the criterion by which to determine into which State pool a restricted membership organization was to be placed for the purpose of making the calculations required by par.9 of the principles determined by the Minister on 24 July 1990 was the location of the head office of the organization and that, in the case of each of the applicant societies, the head office was located in the Australian Capital Territory.

28. However, when the matter came before the Court, counsel for the applicants, while advancing a submission to that effect, took broader ground. He put alternative submissions depending on whether the principles determined by the Minister were apt to require material relating to the activities of the applicant societies to be included in the prescribed calculations. The principles were said not to apply to a restricted membership organization, or at least to a restricted membership organization that carried on, or was deemed to carry on, business in more than one State, for the reason that such an organization, having only one health benefits fund, was not within the requirement contemplated by the principles that, to fall within their purview, an organization must have a separate health benefits fund (including a Reinsurance Account within that Fund) in respect of the business carried on in each State.

29. It was submitted that, if the principles were not apt to embrace the applicant societies, the Council or the Commissioner could not validly require the applicants to make any contribution to the Health Benefits Reinsurance Trust Fund in respect of the relevant quarter. One facet of that submission was that s.73BC(6) was to be read as conferring upon the Council (and consequently upon the Commissioner) a limited power, a power to determine the contribution to be made by a registered health organization in accordance with the principles determined by the Minister and not otherwise. It was not to be read as conferring a more general power with the consequence that, if the principles so determined were not apt to apply to the applicant societies or were deficient in their application to them, the Council (and the Commissioner) had no power to fill the void by determining what modifications or additions to the principles should be applied in making the necessary calculations.

30. The alternative submission, based on the view that the principles determined by the Minister were apt to embrace the applicant societies, was that the making of the decisions under review had miscarried. It was submitted that the Council should have applied the principles as they had been in the past, namely by treating each of the societies as being part of the pool for the State in which the head office of the society was situate (the relevant pool being that relating to the State of New South Wales, it being asserted that the State of Victoria had been erroneously regarded as the State in which the head offices of the societies were situate) or, alternatively, by treating each of the societies as participating, in accordance with the number of its members located in the particular State, in the pool for each State in which its members were located at the relevant time.

31. Counsel for the respondent conceded that, in making the decisions under review, the Council proceeded on the basis that the principles determined by the Minister on 24 July 1990 did not refer expressly to the particular problems associated with the assessment of the contributions to be made to the Health Benefits Reinsurance Trust Fund by restricted membership organizations such as the applicant societies. It was submitted, however, that the detailed accounting processes set out in par.9 of the principles determined by the Minister were used to calculate the contribution required to be made by each of the applicant societies once it had been accepted that the societies were to be included in the pool for the State of Victoria. It was also submitted that, as the Act and the principles were silent on the question in which State pool the societies should be treated as participating, it was open to the Council (and the Commissioner), as a matter of administrative procedure, to place the societies in the pool relating to any State provided only that the decision-maker acted reasonably. It was said that, whether such a decision was based upon the location of the head office of the relevant society, the location of its main administrative centre, the location of the majority of its members or the place where they enrolled was entirely a matter for the Council (or the Commissioner), acting reasonably, to decide. It was not unreasonable, so it was submitted, to include each of the applicant societies in the pool relating to the State of Victoria.

32. Counsel for the respondent further submitted that, if the Court were of opinion that the applicant societies had established grounds for the Court's intervention, the Court should, in the exercise of its discretion, refuse to grant relief. The Court should decline relief, so it was said, because each of the applicant societies had had notice since shortly after 30 June 1989 that the Commonwealth contribution to the Health Benefits Reinsurance Trust Fund would cease on 31 December 1990 yet neither society raised any question concerning the calculation of its contribution to the Fund until late in December 1990. It was also submitted that setting aside the decisions under review and remitting the matters to the respondent for further consideration would potentially affect the contributions of all other organizations which were included in the Victorian pool for the quarter that commenced on 1 January 1991 and the contributions of all other organizations in any State pool in which the applicant societies might be treated as participating as a result of such further consideration.

33. In my opinion, the Parliament has made its intention abundantly clear that all registered health benefits organizations, including restricted membership organizations, are to participate in the operations of the Health Benefits Reinsurance Trust Fund. Unless that were the position, it could not be said, in terms of s.73BC(1), that the registered organizations were "to share the burden of ... meeting any deficits in the Reinsurance Accounts" in their health benefits funds. The position is reinforced by the requirement of s.73BC(6) that it be a condition of registration of each registered health benefits organization (an expression apt to include a restricted membership organization) that it participate with other such organizations in the operation of the Fund by making such payments into the Fund as the Council determines from time to time to be appropriate. Provision is also made for payments out of the Fund to any registered health benefits organization (s.73BC(5A) and (12)). Whether a registered health benefits organization is, in respect of each assessment period, to make a payment to, or receive a payment from, the Health Benefits Reinsurance Trust Fund will depend on the combined experiences of the registered organizations during that period.

34. The Council is required (s.73BC(5E)) to administer the Health Benefits Reinsurance Trust Fund in accordance with the principles which the Minister is, by s.73BC(5B), required to determine. The operation of the scheme clearly depends upon the Minister having made such a determination. I agree with the submission made on behalf of the applicant societies that the Council is not free to ascertain, otherwise than in accord with the principles so determined, the contributions to the Fund that are to be made by registered organizations and that, while the principles may leave the determination of various matters to the Council, if the principles do not provide a sufficient basis for the determination by the Council of the amount of the contributions to be made to the Fund by the organizations, the omission cannot be filled by the Council.

35. The only guidance that the statute gives as to the content of the principles is that provided by s.73BC(5C), namely that they are to include principles for determining the method of, and the matters to be taken into account in, calculating the amounts to be paid into the Fund by registered health benefits organizations. It may be said of the principles determined by the Minister on 24 July 1990 that they travel beyond what is required by s.73BC(5C) in that they leave no room for the exercise of discretion by the Council (or the Commissioner) - a discretion for which s.73BC(6) provides - but, in effect, prescribe a precise formula by the application of which the amount to be paid into the Fund, or the amount to be received from the Fund, by any registered health benefits organization is to be ascertained. However, no submission was made to the Court by any party that, in making that determination, the Minister had failed properly to exercise the power conferred upon him by s.73BC(5B).

36. The principles determined by the Minister on 24 July 1990 clearly require that separate calculations be made in respect of each State in which organizations carry on business as registered health benefits organizations. There are express references to the calculations having to be made on a State basis in pars 9(d), (e), (f) and (j). That the calculations are to be made by reference to the experience of the organizations carrying on business as registered health benefits organizations in the State in respect of which the calculations are being made is implicit in the references in pars 9(a), (b), (e) and (h) to each organization's health benefits fund. By virtue of s.68(4) of the Act, each such fund conducted by a registered health benefits organization (not being a restricted membership organization) will be confined to the business carried on by the organization in the particular State. That will also be the position in the case of a restricted membership organization, if there be such, that carries on business only in one State. It is only in respect of restricted membership organizations that carry on business in more than one State that the problem arises.

37. It must be accepted that the principles appear to assume, contrary to the fact, that each registered health benefits organization will have a health benefits fund (and, within it, a Reinsurance Account) relating solely to the business conducted in each State in which it carries on business. But it does not follow that the principles are to be construed as providing no guidance to the Council as to how, in the exercise of its functions and powers under s.73BC, it is to treat restricted membership organizations that carry on business in more than one State. If the principles were so construed, a serious question would arise as to their validity having regard to the overriding consideration that the legislation evinces a clear intention that all registered health benefit organizations, including restricted membership organizations, are to participate in the operations of the Health Benefits Reinsurance Trust Fund.

38. Having regard to the considerations to which I have adverted, I am of opinion that it is implicit in the principles that restricted membership organizations carrying on business in more than one State are to be treated in the same way as the registered organizations which are not restricted membership organizations. So to conclude is, I think, consistent with the language of the Minister's determination and requires only that the appropriate administrative steps be taken to collate, in respect of each State in which the organization carries on business rather than nationally, the details necessary to enable the calculations to be made under par.9 of the principles. It is of some significance that, in his letters dated 3 May 1991 to the applicant societies, the full text of which is set out earlier in these reasons, the Commissioner said:

"In its consideration of the matter the Council paid close
attention to the purpose of the reinsurance arrangements, which
are intended to provide a mechanism for sharing the load for heavy
claiming contributors. It thereby supports the community rating
principle which enables all people to be treated equally for
health insurance purposes, regardless of age, medical history or
family size. In short, the scheme is intended to remove the
advantage which a particular organisation may have by virtue of
its membership profile which results in a lower claims experience.
To enable a restricted membership organisation to be treated as
operating in one State for the purposes of the Principles, whilst
most, or a significant proportion of its membership is located in
another State would frustrate the purpose of the scheme. After
considering a range of options, the Council concluded that the
solution it ultimately adopted was the only one which was both
fair and equitable to all the participants in the reinsurance
arrangements, and in accordance with the requirements of the
legislation."

I note, however, that in this passage reference is made to the States in which the membership of a restricted membership organization is located rather than to the States in which the organisation carries on business. A statement in identical terms to that contained in the Commissioner's letter also appears in the document furnished pursuant to s.13 of the Judicial Review Act.

39. It follows that, in my opinion, each of the decisions under review, involving as they did treating the whole of the operations of the applicant societies as occurring in the State of Victoria, involved an error of law.

40. I should add that, had I been prepared to accept the submission of counsel for the respondent that it was a matter for the Council (or the Commissioner) to place the societies in the pool relating to any State provided only that the decision-maker acted reasonably, I would have taken the view that the decision-making process miscarried. I would have done so on the basis that the applicant societies were, in respect of the relevant quarter, included in the Victorian pool not because of any conscious decision that that was the appropriate pool but simply on the basis that they had been so treated in the past. Indeed, as appears from the Commissioner's letter dated 3 May 1991 and the statement pursuant to s.13 of the Judicial Review Act to which reference has already been made, the Council was of opinion that to treat the applicant societies as though the whole of their operations occurred in the State of Victoria was not fair and equitable as between the participants in the scheme.

41. It remains to consider whether the Court, in the exercise of its discretion, should grant relief. As has already been mentioned, counsel for the respondent relied on two grounds in support of the submission that relief should be denied. The first related to the dilatoriness of the applicant societies in raising the matter with the Council. The second concerned the potential effect on other organizations if, in respect of the relevant quarter, the Council was required to treat the applicant societies on a basis different from that on which the Council had treated them. The latter ground was not supported by any evidentiary material from which the extent of the potential effect could be assessed.

42. While giving due consideration to these matters, I am of opinion that the material before the Court provides no sufficient basis upon which to deprive the applicant societies of the relief to which they are otherwise entitled.

43. Accordingly, the decisions under review, namely the decisions made by the respondent that the Army Health Benefits Society and the Naval Health Benefits Society pay into the Health Benefits Reinsurance Trust Fund in respect of the quarter ended 31 March 1991 amounts of $2,120,295.00 and $650,290.00 respectively, are set aside. The matters are remitted to the respondent for further consideration and determination in accordance with the judgment of the Court. The respondent must pay the costs of each of the applicant societies. Each party is to have liberty to apply to the Court on 7 days' notice in the event that difficulties arise in implementing this judgment.