CATCHWORDS Trade Practices - false representations as to benefits which promised service had - whether in addition to promise defendant represented intent to perform promise - intention of agent not to supply benefit promised by principal. Trade Practices Act 1974 s.53(c) David Allen Ransley v. Medical Benefits Fund of Australia Ltd. TG No. 3 of 1979 Coram: Smithers J. Melbourne 23 April 1980 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION TG No, 3 of 1979 TASMANIA DISTRICT REGISTRY wee IN THE MATTER OF THE TRADE PRACTICES ACT 1974 BETWEEN: DAVID ALLEN RANSLEY Prosecutor AWN D: MEDICAL BENEFITS FUND OF AUSTRALIA LTD. Defendant ORDER Judge Making Order: Smithers J. Date of Order: 23 April 1980 Where Made: Melbourne The Court orders that: 1. The informations G No, 2 of 1979, G No, 3 of 1979 and G No. 4 of 1979 be dismissed. The informant pay the defendant's costs of and incidental to each of those proceedings. IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION No. G3 of 1979 VICTORIA DISTRICT REGISTRY IN THE MATTER OF THE TRADE PRACTICES ACT 1974 BETWEEN: DAVID ALLEN RANSLEY Prosecutor > a lw] MEDICAL BENEFITS FUND OF AUSTRALIA LIMITED Defendant Coram: Smithers J. 23 April 1980 REASONS FOR JUDGMENT These proceedings concern three informations against the defendant in respect of offences alleged to have been committed by the defendant corporation in contravention of s.53(c) of the Trade Practices Act 1974 (the Act) at Hobart in Tasmania. The first alleged offence, namely that specified in proceedings G. No. 2 of 197%, as amended, is that the defendant did in November 1978, at Hobart in Tasmania, in trade or commerce in connection with the promotion by advertising of the supply of services, namely the rights or benefits to be provided under a scheme of hospital benefit, represent to Baden Bertram Duffy that the said services had benefits they did not have, namely that a benefit of $96.00 per day would be paid to contributors to "Table D" under the said scheme, such representation being contained in a brochure entitled "MBF from A to Z", The second of such alleged offences, namely that specified in proceeding G. No. 3 of 1979 as amended is that a representation in similar terms to that alleged in proceedings G. No. 2 of 1979 was made by the defendant concerning the supply of services of the same nature and quality as those specified in those proceedings in November 1978 to Rosalind Anne Duffy. The third of such alleged offences, namely that alleged in proceedings G. No. 4 of 1979 as amended is that the defendant in contravention of s.53(c) of the Act did in trade or commerce in connection with the promotion by advertising of the supply of services of the same nature and quality as those specified in those proceedings"represent, in a brochure entitled "MBF from A to Z", that the said services had benefits they did not have, namely that a benefit of $96.00 per day would be paid to subscribers to 'Table D' under the said scheme." The defendant sought particulars of the alleged offences, inter alia in the following terms, namely:- "Kindly specify each and every fact and circumstances that will be relied upon to establish that the defendant's scheme of hospital benefits did not have the benefits it was represented to have," In answer thereto the prosecutor replied, "The defendant's scheme of hospital benefits was represented in the brochure referred to in the summons to entail payment to contributors to Table B D of the sum of $96 per day should they become surgical patients in a private hospital and make a claim on the fund. The representation was notwithstanding that the defendant did not intend to pay $96 per day." The defendant pleaded not guilty. The evidence for the prosecution established that at a relevant time the defendant issued,for the information of persons in Tasmania,being possible contributors to Table D of the Hospital Benefits scheme of the defendants,a brochure described as "M.B.F. From A to Z" in which under the heading, "Summary of Benefits - 1 November 1978" the following statements appeared: Benefits are provided up to the HOSPITAL insured level towards the cost of BENEFITS in-patient care in an approved public or private hospital and towards the costs of other services listed subject to specified waiting period. HOSPITAL Basic - TABLE B (Incorporating Table C) A benefit of $40 a day, the charge for shared ward accommodation in a Public Hospital, or $56 (including $16 Government benefit) towards the cost of Private Hospital care. Weekly Contribution: $2.90 for families $1.45 single HOSPITAL Private - TABLE D (can only be taken with Table B) A benefit up to $420 a week ($60 a day including $40 Table B benefit) the single room charge in a public hospital. For private hospital care a benefit of up to $560 a week ($80 a day including $40 Table B benefit) for in-patient surgical care including confinements and up to $483 a week ($69 a day including $40 Table B benefit) for in-patient non-surgical care. The benefits are increased to $96 and $85 a day respectively (including $16 Government Benefits) towards the cost of private hospital care," The charge is that in connection with the promotion of the supply of services in trade or commerce the defendant represented that a service constituted by rights or benefits to be provided by it under a scheme of hospital benefits being a service within the meaning of s.53(c) of the Act "had" a benefit, namely that $96 per day would be paid to contributors to Table D of the scheme and that the representation was contained in the brochure "M.B.F. From A to Z", It is necessary to identify the service and to consider what 1s meant when it is said that the service "had" a benefit. In this case the service was the rights and benefits to be provided under the defendant's scheme of hospital benefits. See s.4 of the Act. The scheme of hospital benefits which the brochure promoted was constituted by the offer of the defendant to persons generally to undertake liability to make payments to persons who become contributors to the scheme at rates specified in a table or tables of benefits chosen by the contributor in consideration of payment by him of contributions at rates applicable to the particular table or tables so chosen. According to the defendant's brochure dated 1 November 1978 one of the benefits which the scheme "had" was that, including an amount of $16 per day provided by the Commonwealth Government, the defendant would provide {$96 per day towards the cost of private hospital in-patient surgical care of the contributor or a person covered by his contribution where the contributor had chosen Table D and had paid contributions applicable thereto. The brochure contained a form of application for cover for basic hospital benefits (Table B) or for that cover with additional cover for private care in a public or private hospital (Table D). Mr. Duffy became a contributor to the M.B.F. of Australia Limited (M.B.F.) hospital and medical benefits scheme on 4 October 1963 and thereafter paid the periodical contributions in accordance with the particular table of contri-~ butions in respect of which he was a contributor. Latey but before 21 November 1978,Mr. Duffy became a contributor to "Table D", On 21 November 1978 Mr. Duffy's wife Rosalind Anne Duffy entered St. John's Hospital for surgical treatment. She remained 1n hospital for twelve days. Before she entered hospital both Mr, & Mrs. Duffy had read the brochure "M.B.F. From A to Z" and gathered therefrom that the benefit would be $96 per day. They also enquired of a member of the Tasmanian staff of the defendant, not being the manager, as to the extent of the benefits provided in respect of the proposed hospital- isation of Mrs. Duffy and had been informed that the benefit was $96 per day but that any theatre fee charged by the hospital would be payable by the patient and not by the defendant. The charges made by the hospital in respect of Mrs. Duffy's hospitalisation were at the rate of $98 per day together with a theatre fee of $60. It is clear that this benefit was a benefit which the scheme "had" pursuant to its by-laws, in particular by-law 18(a)(ii)(a) and that the brochure correctly set out that it had this benefit. By-law 18(a)(ii)(a) is in the following terms, namely:- "(ii) Supplementary Hospital Table D (This Table cannot be taken unless person also contributes to Table B.) Benefits payable under this Table shall be: (a) Daily Benefit: For New South Wales, Australian Capital Territory, Queensland and Northern Territory contributors: a benefit of up to $20 a day for in-patient care except for pre-existing or chronic illnesses towards the hospital accommodation charge. For Tasmania contributors a benefit of up to $40 per day for in-patient surgical care including confinement and $29 a day for in-patient non-surgical care except for pre-existing or chronic illnesses towards the hospital accommodation charge." This supplementary provision, added to $40 per day payable under Table B, entitled a contributor to $80 per day for in-patient surgical care including confinement and {69 per day for in-patient non-surgical case except for existing or chronic illnesses towards the hospital accommodation charge. In cases where {$80 was payable, which included the case of Mrs. Duffy, the contributor was entitled to an additional benefit of $16 per day contributed by the Commonwealth Government. As a result of these provisions the statement in the brochure as to the benefit payable for in-patient surgical care was in accordance with the by-law. The liability of the defendant to provide benefits arose out of the contractval relationship between the contributor and the defendant established by the contributor's application for the relevant cover being accepted by the defendant and payment by the contributor of the specified contributions. The extent of the liability of the defendant was established by the by-law. In speaking of benefits to be provided under the scheme one is inevitably referring to the entitlements against the person offering the scheme of a contributor thereunder who has applied to goin the scheme, been accepted, and paid the contributions. Mr. Duffy was such a person and clearly he had an entitlement under the scheme to the benefit referred to. Accordingly, in stating the nature of the benefit in question in the terms it used, the brochure did not represent that the service of which it was part "had" a benefit itdid not have. However, when, in respect of Mrs. Duffy's hospitalisation the sum of $960 in respect of twelve days in-patient surgical care at the rate of $80 per day became payable, the defendant paid only $888, Its Tasmanian Manager denied liability for any further sum. The sum actually payable by the defendant, namely $960 with the Commonwealth benefit in respect of twelve days, namely $192, would have provided the benefit of $96 per day for twelve days namely $1152. The payment made by the defendant was #72 less than the amount of its liability and M.B.F. thereby made default in the benefit 1t should have extended to its contributor. This default occurred because the Manager of the Tasmanian office of the defendant, albeit acting with perfect bona fides, misunderstood the extent of the defendant's liability. This misunderstanding arose out of his view that the defendant's liability was in some way reduced because St. John's Hospital had recently introduced a charge for theatre use separate from and additional to its charge at its daily in-patient rate for accommodation, His view is set out in an affidavit sworn by him, the contents of which are not challenged by the prosecutor. Material statements therein are as follows:- "... prior to September, 1978 private hospitals in Tasmania charged their patients an "all-inclusive" fee and raised no extra charge by way of an operating theatre fee for surgical patients. MBF paid an all inclusive benefit in respect of Table BD surgical hospital patients of $70.00 per day which together with the Commonwealth Benefit of $16.00, totalled $86.00 per day. wa It was (and continues to be) almost invariable practice that a contributor to MBF who sought to claim in respect of hospitalization, completed a hospital benefits claim form furnished to him by the hospital together with an authority to the MBF to pay the benefit due under the claim direct to the Hospital. MBF would receive such claim form from the Hospital and remit the benefit by cheque payable to the Hospital. In practice the payment of hospital fees in respect of MBF contributors was a procedure between the MBF and the hospital concerned, In or about September, 1978 certain private hospitals including St. Johns Hospital, Hobart, determined in the context of protracted and unconcluded negotiations with the health funds including MBF, to reintroduce theatre fees. In the "all-inclusive" fee context, I understood that there was an element in the surgical hospital benefit paid by MBF for theatre fees, There was indeed a differential between in-patient non- surgical care benefits and surgical care benefits. I took that differential to relate to the theatre fees, From 1st November, 1978 new benefits were set which were, for Table BD contributors, up to $69.00 per day (which together with the $16.00 Commonwealth Benefit totalled $85.00) for non-surgical hospital care and up to $80.00 per day (which together with the $16.00 Commonwealth Benefit totalled $96.00) for surgical hospital care. I took the $11.00 differential to relate to the theatre fee, Because of the practice which existed of MBF paying the hospital direct, I took the view that if a private hospital saw fit to raise a separate theatre fee then to avoid a double recovery by the hospital that theatre fee would be paid by MBF at the rate of $11.00 per day until the theatre fee was covered and that the benefit would then revert to the non-surgical or "basic" benefit rate of $85.00 per day (including the $16.00 per day Commonwealth Benefit). Consistent with the practice referred to/above/ the claim in respect of Mrs. Duffy's hospitalization in St. Johns hospital between 21st November, 1978 and 3rd December, 1978 was received by MBF from the hospital direct and pursuant to an authority signed by Mr. Duffy a cheque for the sum of $888.00 was sent direct to the hospital on or about 7 December 1978. A cheque for $72.00 was forwarded to Mr. Duffy on 30 March, 1978 ..." ew u The payment of $72.00 was not an "ex gratia" payment as I believed it to be at the time it was made. I now knov that the brochure entitled "M.B.F. from A to Z" was entirely correct in the information it furnished as to the entitlements of Table BD contributors, to benefits of $96.00 per day (including the Commonwealth Benefit) for surgical hospital care. The underpayment to St. Johns Hospital on 7th December, 1978 was entirely due to my misunder- standing created by the difficulties inherent in the changed method of charging adopted by some private hospitals in Hobart in the latter part of 1978." It is clear that Mr. Watson's view was erroneous. It proceeded on the false notion that the measure of the obligations of the defendant arose out of some kind of a relation- ship between the defendant and the hospital. Mr. Watson failed to keep in mind that the defendant's obligations were to the contributor and not to the hospital. When the contributor complained of the defendant's under payment Mr, Watson erroneously took the view that the payment made fully discharged the defendant's liability. As a result the contributor complained to the Trade Practices Commission which took the matter up with Mr. Watson. Mr. Watson explained the basis upon which he calculated the payment of $888 and maintained that the payment was sufficient to Gischarge the defendant's liabilities in respect of Mrs. Duffy's stay in hospital. But on 20 March the matter came to the attention of Mr. Cade, the General Manager of the Defendant from an outside source. He immediately commmuicated with Mr. Watson, ascertained that there had been a payment of $888 only and caused Mr. Watson to write to the contributor forthwith advising that there had been a misunderstanding and forwarding a cheque for the unpaid balance — namely $72.00. ay 10. It is not contended that the contractual obligations of the defendant to Mr. Duffy were not a service within the meaning of s.53(c) of the Act. It is apparent from the above that the brochure "M.B.F. from A to Z" correctly stated the benefits in respect of hospital care which, in the terms of s. 53(c) the relevant service "had", But Mr. Nathan argued : that the terms of the brochure were such as to constitute a representation that there was some other benefit. In the terms of the particulars of the alleged offences delivered by the prosecution that other benefit was that at the time the brochure was issued or came to the notice of Mr. Dufiy the defendant "intended to pay $96 per day" should the contributor or person covered by the benefits become a surgical patient in a private hospital. There is no doubt that the defendant undertook a legal liability in these terms. And possibly deciding to become a contributor to Table D Mr. Duffy would assume that the defendant intended to honour that undertaking. But, on the evidence it is to be inferred that the defendant corporation at its supreme management level, namely at the managing director and board of directors level and also Mr. Watson personally did at all times intend to honour its undertaking according to its terms properly construed, It appears to be put however, that in issuing the brochure the defendant represented, not only that it would provide the benefits which, it undertook to supply, that is, that it would comply with the terms of its contract with Mr. Duffy, but that it intended, in such cases as those of wy 11. Mrs. Duffy, to pay $96 per day. It 1s always possible that a contract may be made in circumstances in which not only is the contract concluded, but a party also represents to the other that he intends to carry out his obligations thereunder. As was pointed out in R. v. Sunair Holdings Ltd. by MacKenna J. /19737 2 All E.R. 1233 at 1236, "A promise .., may contain by implication a statement of present fact. The person who makes the promise may be implying that his present intention is to keep it or that he has at present the power to perform it. ..." And in this case where an offer is contained in a document advising the obligations a party is willing to assume and is introduced by phrases such as "the M,B.F, will pay to all contributors" various benefits, and "Benefits are provided up to" specified amounts, there may be some ground for the contention that an implied representation of intention to observe the provisions of the contract, if made, does arise. But Tf ain far from satisfied that in this case there is any such representation. Basically the brochure does no more than describe the benefits which the defendant will undertake to supply and offer to undertake to supply if a person becomes a contributor. It was notifying the legal obligations which it was willing to undertake in the contract between itself and a contributor. The transaction offered and ultimately concluded between Mr, Duffy and the defendant was one containing promises on the part of the defendant to make payments 1n specified circumstances in consideration of contributions being made. It would have 12. been something quite different and superfluous to introduce the notion that the defendant was saying that in addition to promising to provide the benefits it was also representing that it intended topovide them. Contractual promises not representations of intent were the subject of interest. That there is an intention on the part of parties entering into a contract to observe the obligations undertaken is no doubt normally assumed by all parties to the contract. But that a party making an offer to enter anto a contract containing specified promises not only intends to accept legal responsibility in respect of his promises but also represents that he intends to perform them is not to be inferred in the absence of evidence significantly pointing to the making of such a representation and in this case the evidence would have to be strong enough to raise the inference beyond reasonable doubt. Merely to offer to conclude a bargain in legal form or to enter into a contract offered is not enough. Compare L. Grollo Darwin Management Management Pty. Ltd. v. Victor Plaster Products Pty. Ltd. (1978) A.£.P.R. 40-072 at p.17737. I do not accept that the contents of the brochure gives rise to an inference that as well as offering to undertake to fulfil its obligations under the contemplated contract the defendant represented that it intended so to do, or more particularly, intended to pay $96 per day in circumstances such as those of Mrs. Duffy's hospitalisation. It may be added that if some representation of intention to provide a benefit of $96 per day 1n circumstances such as those which arose in Mrs. Duffy's case could be spelt out from the evidence there is no evidence that it was an untrue one. On the contrary 13. the inference is that the intention of the defendant was that it would provide that benefit. Mr. Nathan contended that so far as Tasmanian contributors were concerned it was the intention of Mr. Watson, the Tasmanian Manager that was material. He submitted that it was Mr. Watson who issued the brochure in Tasmania and that in so doing he represented that it was his intention to pay the benefits outlined in the brochure. He contended that it was the intention of Mr. Watson not to provide a benefit of $96 per day, including the Commonwealth contribution of $16 per day, in carcumstances such as those of Mrs, Duffy's hospitalisation and the representation was accordingly false, But if the issuing of the brochure in Tasmania is seen to be conduct on the part of the defendant by its servant, such conduct amounted to nothing more than the publishing of the defendant's offer to be bound in the terms thereof to a contributor accepting his offer. Mr. Watson's understanding of the offer and his intention were irrelevant. He could not be thought to have made any representation as to his own understanding of the offer or his own intention. Even if Mr. Watson could be regarded as making a representation of any kind the most that could be inferred would be that he represented that the defendant, as the party proposing to enter into a contract with the contributor intended to provide the benefit in question. The intention of the defendant in that context is necessarily the intention of 14, those servants or agents of the defendant having the supreme managerial responsibility in respect of the matter, that is the intention of the members of the Board of Directors or the Managing Director. A representation, of the defendant's intention, even if made, by Mr. Watson as not shown to have been false. It was a representation that the corporation intended to perform what the brochure promised. And that was true. Mr, Nathan sought to invoke the provisions of s.84 (1) of the Act, That section provides:- "Where in a proceeding under this Part in respect of any conduct engaged in by a body corporate, being conduct in relation to which a provision of Part V applies, it is necessary to establish the intention of the body corporate, it is sufficient to show that the servant or agent of the body corporate by whom the conduct was engaged in had that intention." However, where the conduct of the servant or agent of a corporation in the relevant sense, namely as being that of its supreme managing authority that section does not operate in a manner that would essentially change the substance of the representation. Because it was made by Mr. Watson it did not become a representation of his personal intention, rather than that of the corporation. In this case the representation, 1f made, related only to the intention of the corporation as existing or established by reference to the intention of its supreme managing authority and not to the intention of Mr, Watson or of any others " 15. of ats servants and agents. The relevant intenLlion of the supreme managing authority was to provide the benefit in question in accordance with the contract with the contributor in the terms of the brochure. The foregoing comments proceed on the basis that at the time Mr. Watson issued the brochure he had no intention to pay $96 per day in circumstances such as arose in relation to Mrs. Duffy's hospitalisation. I would think that a more accurate assessment of the situation is that, at the time of issuing the brochure, Mr, Watson antended that the defendant would supply whatever benefits the brochure indicated would be supplied and that his intention not to pay the $96 in a case such as Mrs. Duffy's arose only when her case came before him and he mistakenly decided that the defendant's liability was less than $96 per day. It was contended by Mr. Morling for the defendant that if it otherwise appeared that the defendant had committed a contravention of s.53(c) of the Act that contravention was due to reasonable mistake, It does not so appear, but as in that case the defendant would have a good defence in any event by reason of the provisions of s.85(1)(a) of the Act, I add the following comments, If the contravention were due to a mistake, the mistake was one made by the defendant's Tasmanian manager. But in my opinion that mistake, if 1t were made, was not a reasonable one. 16. It was not reasonable, in my view, for him so to concentrate on ensuring that the hospital was not, as he thought, paid twice for use of the theatre, that he overlooked the defendant's primary obligation was to the contributor, The critical considerations as to the reasonableness of Mr. Watson's decision not to pay the $72 referred to above are that he acted on the basis that the amount payable by the defendant was in some way dependent upon a relation-— ship between the defendant and the hospital and-that he completely lost sight of the factor that the amount paable by the defendant was to be measured and was payable under a contract between the defendant and the contributor. Mr, Watson's decision was no doubt the product of a bona fide but bureaucratic approach arising out of the practices which had grown up under which payments of benefits were usually made direct from the defendant to the hospital and from the circumstances that there had been controversy and negotiations directly between the defendant and the hospitals on the question of hospital charges. It seems that this practice and such negotiations obscured the basic reality that in paying sums to the hospital the defendant was but performing its liability as measured by the terms of its contract with the contributor. But to be so misled in such a vital respect was in my opinion far from reasonable, Accordingly, the informations are dismissed and the informant will pay to the defendant its costs of and incidental thereto.