f few end c- > or 7 eS CATCHWORDS Trade Practices Act —- Advertisement of tax deductibility and other benefits flowing from contributions to the Hospitals Contribution Fund "Budget Cover" - Whether misleading within s.52 of the Trade Practices Act - Whether contributions rebatable under s.159XA of the Income Tax (Assessment) Act. Trade Practices Act (Cth) 1974, ss.52 and 53(c) Income Tax (Assessment) Act 1936, s.159XA HEALTH INSURANCE COMMISSION v. THE HOSPITALS CONTRIBUTION FUND OF AUSTRALIA N.S.W. No. G93 of 1981 Bowen C.J. 12 August 1981 Sydney. IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. G93 of 1981 ) GENERAL DIVISION ) BETWEEN: HEALTH INSURANCE COMMISSION Applicant AND: THE HOSPITALS CONTRIBUTION FUND OF AUSTRALIA Respondent ORDER JUDGE MAKING ORDER: Bowen C.J. DATE OF ORDER: 12 August 1981. WHERE MADE: Sydney. THE COURT ORDERS THAT: 1. The Hospitals Contribution Fund refrain from displaying any poster referring to contributions to its Budget Cover as entitling a contributor to an income tax deduction or referring to deductibility. It will be a sufficient compliance with the injunction in para. 1 if the Hospitals Contribution Fund despatches to each of its branch offices, its agents and employers concerned, no later than 4.00 p.m. on 18 August 1981 telegrams requiring them to discontinue any display of Hospitals Contribution Fund posters containing such references. Health Insurance Commission to pay to The Hospitals Contribution Fund four-fifths of its costs including reserved costs. IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. G93 of 1981 ) GENERAL DIVISION ) BETWEEN: HEALTH INSURANCE COMMISSION Applicant AND: THE HOSPITALS CONTRIBUTION FUND OF AUSTRALIA Respondent CORAM: Bowen C.J. 12 August 1981. REASONS FOR JUDGMENT This is an application by the Health Insurance Commission ("the Commission") for certain orders against the Hospitals Contribution Fund of Australia ("H.C.F.") restraining it from advertising its health insurance plan known as Budget Cover in various ways which are claimed by the Commission to be contrary to ss.52 and 53(c) of the Trade Practices Act 1974. The Commission is a body corporate constituted under the Health Insurance Commission Act 1973. It conducts under the business name "Medibank Private" the business of providing hospital and medical benefits throughout Australia. The H.C.F. is a body corporate which carries on the business of providing hospital and medical benefits in the State of New South Wales, the Australian Capital Territory and the Northern Territory. It has branch offices in those areas numbering approximately 85. In addition, it carries on business through companies, firms and individuals (called its "agents") in those areas, such agents being authorised to publicise services offered by H.C.F., to receive applications for membership and transmit them to H.C.F., and to receive contributions and transmit these to H.C.F. The agents number approximately 2,800. In the course of its business, H.C.F. also employs salesmen to canvass applications for membership of its hospital and medical benefits plans in organisations and companies throughout the same areas. Employees of these organisations and companies become group contributors to hospital and medical benefit plans marketed by H.C.F. from time to time. Membership contributions of the employees are deducted by their employers and forwarded to H.C.F. There are approximately 2,700 organisations and companies with employees who are members of group deduction schemes of the type described. On 30 April 1981 the Federal Treasurer, Mr. Howard, announced that the Income Tax Assessment Act 1936 would be amended to provide with respect to contributions paid from 1 July 1981 for an income tax rebate of 32% in respect of contributions for basic health insurance. Shortly after this the H.C.F. commenced to advertise its health insurance plan known as Budget Cover referring particularly to the tax rebate in respect of contributions for that plan. Various advertise- ments were tendered in evidence. These included an advertisement in the "Sydney Sun" of 22 June 1981 which included the statement: "And your HCF Budget Cover contributions are tax deductible from July 1: Your HCF Budget Cover membership will automatically qualify you for benefits under H.C.F.'s new basic plans from September 1."; an advertisement in the "Canberra Times" of 25 July 1981 which included the statement: "If you join H.C.F. Budget Cover NOW you get immediate cover for medical, hospital and emergency ambulance benefits, and we'll automatically transfer you to our new Budget Cover plan on September 1. TAX REBATE H.C.F. Budget Cover contributions qualify for the income tax rebate of 32c in the dollar from July 1."; a poster displayed at offices of the H.C.F. and its agents which included the statement: "contributions tax rebatable 32c in the dollar"; another poster displayed at the offices of the respondent and its agents which contained the words: "Budget Cover Contribution Payments NOW TAX DEDUCTIBLE FROM JULY 1 at 32c in the dollar:"; later in the same poster it stated: "From July 1 next, contributions to basic medical and hospital tables in a registered benefit fund, will be an allowable income tax deduction." later it stated: "Your current H.C.F. membership will automatically qualify you for benefits under H.C.F.'s new plans from September 1."; an advertisement in the "Sunday Telegraph" of 5 July 1981 which contained a similar statement about the 32 cents in the dollar tax rebate and continuation of cover from 1 September. There was also a document described as a ""healthgram" which was dated 28 May 1981 and sent to paymasters of employer deduction groups. It contained the message: "Good news for your employees in H.C.F. Budget Cover. Prom July 1 tax rebate of 32 cents in the dollar on all Budget Cover contributions.". There were also tendered two brochures issued by the H.C.F. detailing its health insurance plan known as Budget Cover. These recommended Budget Cover as a low-cost health cover for young singles or married couples without dependants: "You get: . Benefits up to 100% of the Schedule fee for most medical services (see note below). : Basic Hospital benefits (see note below). . In-patient Theatre Fee benefits in private hospital - up to $166. . 100% of the cost of emergency Ambulance services. Medical benefits are limited to 12 consultations and 40 diagnostic services per person per membership year and are paid at Commonwealth benefit rate only for . pre-existing conditions during the first 12 months in plan . cosmetic surgery (except for accidents or mutilation resulting from surgery) . obstetrics and related conditions . psychiatric treatment . the first 12 consultations for each dependent child per membership year. Hospital benefits are not paid for . first 5 days' hospitalisation for each dependent child . outpatient treatment or medical charges raised by a public hospital." Under the Health Insurance Act 1973 there is payable by the Government of Australia a Commonwealth benefit for medical services being the amount by which the fee specified in respect of the professional service in the relevant table exceeds $20.00. This payment is known as and commonly referred to as "the Commonwealth benefit" or "Commonwealth medical benefit". The current table known as the Schedule was tendered in evidence. The Government of Australia by the Minister has entered into agreements with registered health benefits organisations whereby these organisations administer the payment of the Commonwealth benefit on behalf of the Government. The agreement between the Commonwealth of Australia and H.C.F. dated 1 November 1978 relating to Commonwealth benefits was tendered in evidence. For the Commission it was argued that there were four flaws in the advertising put forth by H.C.F. which rendered it misleading or deceptive. The argument concerning the first flaw was put in two parts. It was said that it was wrong to refer to the rebate as a deduction in the advertising and that persons in receipt of income taxed at higher than the standard rate might be led into thinking that they would get an advantage of more than 32 cents in the dollar because of their higher rate of tax. Secondly, it was put that as a matter of law a contribution to Budget Cover would not qualify 'for the rebate provided by s.159XA of the Income Tax Assessment Act. The second flaw was said to flow from the representation that Budget Cover would give payments at Commonwealth benefit rates whereas it was argued that this was not a benefit from H.C.F. procured by a contribution to Budget Cover but merely the passing on by H.C.F. of a benefit from the Commonwealth. The third flaw was said to be the statement to the effect that entry into Budget Cover would automatically qualify the contributor for benefits under H.C.F.'s new basic plans from 1 September which was incorrect because there was no scheme settled, no rules, which would apply after that date. The fourth flaw was said to be the statement that the contributor to Budget Cover would be automatically transferred to H.C.F.'s new Budget Cover plan on 1 September whereas there was no such plan. First Flaw In relation to s.159XA of the Income Tax Assessment Act it is in my view incorrect to refer to deduction or deductibility. Granted that the word deduction as a matter of English may include rebate and that the two words in ordinary parlance are sometimes used interchangeably, nevertheless in relation to income tax in Australia a clear distinction is drawn between them. It may be that the majority of contributors who are taxed at the rate of 32 cents in the dollar will not be misled. It may be that people who are knowledgable about income tax will not be misled. However, there is in my view a section of people amongst those addressed to whom the statements would be misleading. Whether any injunction should be granted is another matter. The H.C.F. has not issued any fresh advertising asserting deductibility since 27 June 1981 after its attention was drawn to the problem. When the matter came on for hearing at the interlocutory stage on 31 July Counsel for H.C.F. on behalf of his client gave an undertaking to the Court pending the final hearing to refrain from issuing or distributing such advertisements or material. At the final hearing the undertaking was repeated on the basis that it would continue indefinitely. One difficulty arises in relation to a poster which was forwarded to branches, agents and employers with group schemes. This poster was issued before the undertaking was given. It probably remains displayed in the branch offices, agents' offices and the like. It is argued that I should not order its removal. It is said that this would require a mandatory injunction and that I have no power to issue a mandatory injunction under the Trade Practices Act. Reference was made to Trade Practices Commission v. Tooth & Co. Limited (1979) 26 A.L.R. 185 at p.212. While I accept that the language of s.80(1) of the Trade Practices Act is more appropriate to the grant of a negative injunction than to the grant of a mandatory injunction, I do not consider that this concludes the matter. There has to be considered the terms of the definitions in s.4(2) of the Trade Practices Act and the effect of ss.22 and 23 of the Federal Court of Australia Act 1976 which apply once the Court is seized of a matter which it has jurisdiction to entertain. Another ground on which the issue of an injunction was opposed in relation to the poster was that in the exercise of its discretion the Court should refuse an injunction because there were grave elements of impracticality in supervising the carrying out of any such order. The H.C.F. would have difficulty in conveying to 85 branches, 2,800 agents and 2,700 employers an adequate identification of the particular poster and in ensuring that action was taken in each case in relation to it. While recognising the practical difficulties I think I should make a general order that the H.C.F. do not continue to display the poster in question referring to deductibility but providing that it shall be sufficient compliance with this order so far as display in the offices of branches, agents or employers are concerned if the H.C.F. sends a telegram referring to the poster and requiring them to discontinue any display of it. I turn now to the main question argued under the first flaw, that is, whether it was misleading conduct to advertise that a contributor to the H.C.F. Budget Cover would be entitled to an income tax rebate. The relevant section of the Income Tax Assessment Act 1s s.159XA. This is as follows: "159XA (1) Subject to this section, a taxpayer is entitled to a rebate of tax in his assessment in respect of income of the year of income of an amount equal to 32% of any amount paid by the taxpayer in the year of income to a registered organization for the purpose of securing, for the personal benefit of the taxpayer, of his spouse or of a child of the taxpayer or his spouse an entitlement to basic hospital benefits or basic medical benefits. (2) A rebate 1s not allowable under this section in respect of: (a) an amount paid by a taxpayer before 1 July 1981; or (b) an amount paid by a taxpayer on or after 1 July 1981 to the extent that the amount was paid for the purpose of: (i) securing an entitlement to basic hospital benefits or basic medical benefits in respect of any period before 1 July 1981; or (i2) securing an entitlement to benefits other than, or in addition to, basic hospital benefits or basic medical benefits. (3) In this section - 'basic hospital benefits' means benefits of a kind to which the definition of 'basic hospital benefits table' or 'basic table' in sub-section 4(1) of the National Health Act 1953 applies; —~10- "basic medical benefits' means benefits of a kind to which the definition of 'basic medical benefits table' or 'basic table' in sub-section 4(1) of the National Health Act 1953 applies; 'registered organization' means an organization that is registered under Part VI of the National Health Act 1953." For the Commission it was argued that to qualify for rebate a contribution had to be made to a fund which gave entitlements to basic hospital benefits or basic medical benefits as defined in the National Health Act. It was argued that the definitions in s.159XA(3) bring in definitions in s.4(1) of the National Health Act. The definitions in s.4(1) of the National Health Act define "basic hospital benefits table" or "basic table" as a "table that incorporates benefits of the following kinds (set forth in paras. (a) to (e) inclusive)" and no other benefits. It defines "basic medical benefits table" or "basic table" in relation to a registered medical benefits organisation as "a table that incorporates a range of benefits of the following kinds and no other benefits" followed by paras. (a) and (b). It was then argued that there was no entitlement under s.159XA of the Income Tax Assessment Act to a rebate in respect of contributions to a health benefits fund unless the fund provided for all the benefits of a basic hospital benefits fund or all the benefits of a basic medical benefits fund as defined in the National Health Act and no other benefits. It was pointed out that the Budget Cover did not qualify according to these definitions because, in the first -ll- place, it did not provide for various items mentioned in those tables. For example, in the case of the basic hospital benefits table Budget Cover did not provide for the first five days hospital cover for a dependant child. It did not provide for out-patient treatment and it did not provide for medical service which is charged for by the hospital to an in-patient. It was said also that there was an additional benefit provided for by Budget Cover making it different - it provided for emergency ambulance service which was not in basic hospital cover. A similar criticism was made of Budget Cover in comparison with the basic medical table. For example, it was said that Budget Cover was limited to twelve consultations and forty diagnostic services and one would not get the full amount of benefit in respect of cosmetic, obstetric and psychiatric services. Counsel for the H.C.F. referred me to Cooper Brookes Wollongong Pty. Limited v. Commissioner of Taxation (1981) 11 A.T.R.« 949 and W.T. Ramsay Limited v-. Inland Revenue Commissioners (1981) 2 W.L.R. 449 and to s.15AA inserted in the Acts Interpretation Act 1901 by the Statute Law Revision Act 1981 as to the way I should approach the interpretation of s.159XA. While I find these references useful, it is still necessary to look at the words used and to give a meaning and application to them. It was further submitted that the purpose of s.159XA was to encourage taxpayers to become contributors to health insurance funds. Some stress was - 12 - placed on the use of the word "purpose" in s.159XA(1) and the words "to the extent to which" in s.159XA(2). I have felt some awkwardness in addressing my mind to the construction of s.159XA in the absence of the Commissioner of Taxation and of any contributor. These would be the persons directly interested in this question. However, it appears to me that I am obliged to undertake this task in order to decide the questions raised under the Trade Practices Act. In spite of the use in the National Health Act of general words such as "range of benefits of the following kind", I would agree that the definitions in that Act are in fact precise and limited as to the benefits to which they apply. However, I do not read s.159XA of the Income Tax Assessment Act as quite so inflexible. Under s.159XA a taxpayer is entitled to a rebate of 32% "of any amount paid ... to a registered organisation for the purpose of securing an entitlement to basic hospital benefits or basic medical benefits". The nature of the entitlement is not defined. It is not expressly required to be a full entitlement. It ais true that basic hospital benefits and basic medical benefits are defined in s.159XA(3) but this definition does not provide that the words have the same meaning as in the National Health Act. It defines them as "benefits of a kind to which the definition (in the National Health Act) applies". I regard s.159XA as having the purpose of encouraging taxpayers to secure an entitlement to basic health benefits. It does not appear to me to be worded in such a way that a - 13 - rebate will be denied to a taxpayer who secures health cover which does not extend to all items of basic hospital or medical benefits under the National Health Act or which extends to additional items. Indeed, s.159XA(2)(b)(ii), in providing for apportionment in the case where the cover secures entitlement to benefits other than or in addition to basic hospital benefits or basic medical benefits, would appear to be inconsistent with that view of the enactment. In my view a contributor to Budget Cover will not lose the rebate because of these variations from basic hospital benefits and basic medical benefits which have been mentioned. It may be that in respect of the additional benefit, namely emergency ambulance services, some question of apportionment might arise. However, there is no evidence before me that to any extent the contribution paid for Budget Cover is paid to secure the emergency ambulance benefit. I am not persuaded that the advertising of the fact that the contribution to Budget Cover would entitle a contributor to a tax rebate was Misleading conduct within s.52 of the Trade Practices Act. Nor do I consider that such advertising would be contrary to s.53(c) of that Act (see Hollis v. A.B.E. Copiers Pty. Limited (1979) 41 F.L.R. 141 at p.155). I should mention certain other arguments put on behalf of the H.C.F. In view of the conclusion at which I have arrived on the interpretation of s.159XA it is not necessary for me to express a final view on these other arguments. It was submitted that it was arguably correct to say that a - j4 - contribution to Budget Cover would entitle the contributor to a rebate and therefore it was not misleading to say so, though at worst it would be confusing. It was also submitted that the probability was that the rebate would in fact be allowed by the Commissioner of Taxation and accordingly it was not misleading to say so. In support of this latter argument reference was made to exchanges between the H.C.F. and the Deputy Commissioner of Taxation, New South Wales, in which H.C.P. was advised by telephone that the rebate would be allowed to contributors to Budget Cover. On 30 July 1981 a telex was sent by the Deputy Commissioner to H.C.F. ain the following terms: "The policy concerning claims for rebate in respect of contributions to hospital and medical contributions is as follows: (A) Contributions from 1 July 1981 to 31 August 1981 to tables which satisfy the standard 75% rebate and fall within the scope of basic hospital and basic medical cover will be allowable as a rebate. (B) In other cases, if the table is principally for services covered by the standard tables, contributions up to the level of a particular funds basic hospital and basic medical tables during the transitional period 1 July 1981 to 31 August 1981 will be allowable." It was also submitted that if H.C.F. advertised that the Deputy Commissioner of Taxation had advised it that he would allow a rebate, this would be unobjectionable. I find this argument elusive. If I had arrived at a different conclusion from the one I have on the interpretation of s.159XA and had - 15 - expressed it in my reasons it is by no means clear to me that the probabilities would remain undisturbed. If, on the other hand, I expressed no conclusion on the law, it may well be the Commissioner would maintain his attitude and allow the rebate. Of course, he is not bound by his statement and could change his attitude. In all the circumstances, I have considered it preferable that I should form a view on s.159XA and express it. Finally, it was argued on behalf of the H.C.F. that in any event the Court should not interfere as a matter of discretion. Reference was made to certain statements made by the Minister for Health from 1978 onwards. These statements were tendered in evidence. They were objected to and admitted subject to objection. In the statements the Minister announced a new policy which was operative from 1978 onwards of greater flexibility in relation to health funds encouraging them to be competitive and to vary the benefits provided. In particular, organisations were encouraged to allow "deductibles", that is to say, variations of the tables in which some items would not be covered. The policy revealed by these statements was in line with the policy disclosed by the Treasurer in announcing the changes operative from 1 September 1981 and the income tax rebate which would be allowed under amendments to the Income Tax Assessment Act as from 1 July 1981. I do not consider that I should decide this as a matter of discretion. The documents admitted subject to objection appear to me to have only a slight degree of relevance. I -16- will rule that I admit them but I note that I have not relied upon them in coming to a conclusion. Second Flaw It was submitted on behalf of the Commission that the statement contained in pamphlets issued by the H.C.F. which referred to medical benefits for certain services being "paid at Commonwealth benefit rate only" was misleading. The relevant passage from one of these pamphlets has already been set forth. Reference was made to ss.20B and 20E inclusive of the Health Insurance Act 1973. These sections deal with claims for Commonwealth medical benefits lodged with registered medical benefits organisations; with agreements being entered into between the Minister and such organisations for dealing with these claims; with reimbursement of organisations by the Commonwealth in respect of claims paid; and, with advances by the Commonwealth to such organisations which are to be kept in separate bank accounts. Reference was also made to the particular agreement dated 1 November 1978 entered into between the Commonwealth and the H.C.F. Under this agreement the H.C.F. undertook to institute and maintain procedures satisfactory to the Minister for the payment out of the funds of the organisation or out of advances under s.20E of all claims for medical benefits lodged with the organisation under s.20B by registered persons. The agreement also included provisions relating to payments by the Commonwealth to the H.C.F. -17 - It was submitted on behalf of the Commission that in respect of the Commonwealth benefits the H.C.F. was a mere conduit pipe for Commonwealth benefits and accordingly it was misleading to suggest as the brochure did that these payments for medical services were a benefit which was obtained from H.C.F. by contributing to its Budget Cover. For H.C.F. it was argued that the relationship between H.C.F. and a contributor was a contract of insurance (In re Oddfellows in Victoria (1980) 55 A.L.J.R. 27 per Mason J. at p.30). It was said that it was a term of this contract that the H.C.F. would pay the relevant medical benefits at Commonwealth rates and that the H.C.F. contracted to do so. It was not misleading conduct to agree or to offer to agree to do so. It was submitted that the fact that the Commonwealth funded or assisted the organisation to make the payments under its contract did not alter that position. It was pointed out that the Commonwealth assisted in other directions as well, for example, in relation to certain chronically ill patients (see Health Act 1953, ss.73BB et seq.). In any event it was said the reference to benefit at Commonwealth rates, while it could have been otherwise expressed, was clear enough and not misleading. No contributor would be led into thinking that by contributing to Budget Cover he would receive Commonwealth benefits twice. - 18 - I have come to the conclusion that the statement regarding payment at Commonwealth benefit rates only for certain services 1s not misleading. Third Flaw It was submitted on behalf of the Commission that the statements in H.C.F.'s advertisement to the effect that entry into Budget Cover would automatically cover the contributor after 1 September 1981 were misleading. It was argued that this statement implied that there was a present qualification whereas this was not so. For H.C.F. it was submitted that such a statement was a standing contractual offer liable to be performed if accepted. I have come to the conclusion that H.C.F. intended to be, and would be, bound by its statement though the details of its new cover have yet to be approved by the Minister. H.C.F. would be obliged to use its best endeavours to secure ministerial approval. I am of the view that the statements made are not misleading. Fourth Flaw The argument on behalf of the Commission under this heading was directed to supporting the making of an order in terms of paragraph 6 which was added by leave to the Commission's original application. What was sought in this paragraph in effect was an order restraining H.C.F. from advertising that after 1 September it will legally be able to - 19 - and will offer a medical and/or hospital benefits table, the benefits provided under which will be less than the benefits to be provided under the basic hospital and/or medical benefits tables as defined in the National Health Act operative after 1 September 1981 and the contributions to which will be tax rebatable in part or in total. It was submitted on behalf of the Commission in support of this claim that after 1 September 1981 Budget Cover would not be legally permissible. Reference was made to the Health Acts Amendment Act 1981 (No.118 of 1981). It was argued that it was misleading to speak of automatic transfer to a new Budget Cover plan. There was no such plan. For H.C.F. it was submitted that the advertising gave no details as to what the benefits would be under the new cover. The new cover would have to be approved by the Minister but the H.C.F. was binding itself to take the necessary steps to secure approval for a new plan and would do so. The statements made were not misleading. The evidence was that it is the intention of the H.C.F. to transfer all Budget Cover contributors to a new table which will ensure continuity of health insurance cover. By letter of 26 June 1981 the H.C.F. sought the approval of the Department of Health to its new proposals. So far no response has been received. It appears to me that the statements made by H.C.F. in its advertising are in the nature of a standing offer which H.C.F. will be liable to honour. I do not consider the statements contravene the Trade Practices Act. In the result I note the continuing undertaking given by H.C.F. to the Court in the same terms as were given at the interlocutory hearing on 31 July last. I order that H.C.F. refrain from displaying any poster referring to contributions to its Budget Cover as entitling a contributor to an income tax deduction or referring to deductibility but I note that it will be sufficient compliance with this order if H.C.F., no later than 4.00 p.m. on 18 August 1981, despatches to each of its branch offices, its agents and employers concerned, a telegram requiring them to discontinue any display of H.C.F. posters containing such references. Although I have noted an undertaking and made an order in relation to the references to deductibility and deduction, the discussion of this aspect of the matter both at the interlocutory stage and at the hearing occupied but a minor part of the proceedings. In the proceedings as a whole the H.C.F. has, in the main, been successful and should, in my opinion, have the greater part of its costs. The order which I will make is that the Commission pay to the H.C.F. four- fifths of its costs including reserved costs.