FEDERAL COURT OF AUSTRALIA Manchester Unity Friendly Society in NSW Limited v Private Health Insurance Administration Council [2000] FCA 768 ADMINISTRATIVE LAW – judicial review – whether irrelevant consideration taken into account – whether relevant consideration not taken into account – whether decision was within power of decision maker – use of policy in decision making – whether policy inconsistent with principles determined pursuant to statute – whether policy imposed arbitrary restriction on decision maker – whether decision maker was in a fiduciary relationship with the respondent. National Health Act 1953 (Cth): s 73BC(5B), (5C) & (5E), s 73BC(6) & (8) s 73BC(12), s 82G(1)(r) MANCHESTER UNITY FRIENDLY SOCIETY IN NSW LIMITED v PRIVATE HEALTH INSURANCE ADMINISTRATION COUNCIL V 498 of 1999 GOLDBERG J MELBOURNE 8 JUNE 2000 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 498 of 1999 BETWEEN: MANCHESTER UNITY FRIENDLY SOCIETY IN NSW LIMITED (ACN 087 648 771) Applicant AND: PRIVATE HEALTH INSURANCE ADMINISTRATION COUNCIL Respondent JUDGE: GOLDBERG J DATE OF ORDER: 8 JUNE 2000 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The application is dismissed. 2. The applicant pay the respondent's costs of the application including reserved costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules IN THE FEDERAL COURT OF AUSTRALIA DISTRICT REGISTRY V 498 of 1999 BETWEEN: MANCHESTER UNITY FRIENDLY SOCIETY IN NSW LIMITED (ACN 087 648 771) Applicant AND: PRIVATE HEALTH INSURANCE ADMINISTRATION COUNCIL Respondent JUDGE: GOLDBERG J DATE: 8 JUNE 2000 PLACE: MELBOURNE REASONS FOR JUDGMENT Introduction 1 The applicant, Manchester Unity Friendly Society Limited, has applied to the Court pursuant to the provisions of the Administrative Decisions (Judicial Review) Act 1974 (Cth) to review the decision of the respondent, Private Health Insurance Administration Council ("the Council"), made on 19 May 1999 under Private Health Insurance Administration Council Rule No 4. The Council's decision was in the following terms: "I refer to your submission to Council dated 27 April 1999 requesting that an adjustment be paid to your organization for the 1996/97 financial year. Council has considered the submission for an adjustment of $982,957 for the 1996/97 financial year and has decided not to make a determination under the Private Health Insurance Administration Council Rule No 4 that an adjusting amount be paid to your organization. Having regard to your submission, Council did not consider that exceptional circumstances as required under Council Rule No 4 did exist. The adjustment of $276,169 for the financial year 1997/98 will be made in the June Quarter reinsurance transaction." The effect of the decision was that the Council decided not to exercise its power pursuant to clause 4 and clause 5 of Rule No 4 to make a determination under s 73BC(12) of the National Health Act 1953 (Cth) ("the Act") that an amount be paid out of the Health Benefits Reinsurance Trust Fund ("the Trust Fund") to the applicant. 2 The application was heard at the same time as applications to review similar decisions of the Council by Australian Unity Health Limited (V 393 of 1999) Queensland Teachers Union Health Fund Limited (V 392 of 1999) and Government Employees' Health Fund Ltd (V 391 of 1999). The four applicants were represented by the same solicitors and counsel. The issues which are to be resolved are common to each application as in each case the Council's decision was in the same terms save for the amount of the adjustment sought and the years to which the adjustments related. 3 Apart from the facts particular to the applicant, the findings of fact, reasoning and conclusions I have reached in the application by Australian Unity Health Limited ([2000] FCA 769) apply equally to this application and I incorporate those findings of fact, reasoning and conclusions in these reasons for judgment. Background 4 The applicant is a registered health benefits organisation ("RHBO") and carries on a health insurance business. On 1 July 1999 the applicant became a public company. As at 30 June 1999 the applicant had a total of 36,169 policies covering 71,049 people in all States, but mainly in New South Wales and the Australian Capital Territory. The applicant customarily receives payments from the Trust Fund, rather than making payments to the Trust Fund, as it has a comparatively large number of claims that are subject to reinsurance. The applicant has a high proportion of members aged 65 years and over. This group represents around 25% of the applicant's policy holders but it receives over 50% of the total hospital benefits paid by the applicant. 5 Returns containing data on membership and benefits paid to members were submitted to the Council by the applicant on a quarterly basis as required. On 27 April 1999 the applicant submitted reinsurance adjustment claims to the Council for the periods from the March quarter 1995 to the June quarter 1997 and from the September quarter 1997 to the September quarter 1998. The adjustments sought by the applicant for the period from the March quarter 1995 to the June quarter 1997 totalled $982,957.09. 6 The claims for reinsurance adjustments were made after the applicant was informed by its computer software supplier, Sanderson Wacher Pty Ltd (formerly Wacher Pty Ltd) ("Wacher") that an error had been detected in the software which calculated the eligible claims for reinsurance. The software is specific to the health insurance industry and allows the applicant to calculate the reinsurance amounts it would be eligible to claim from the Trust Fund. The applicant was the first health fund to install this software in February 1995 and other health insurance funds have subsequently installed the same software. The applicant subjected the software to extensive testing for eighteen months prior to its implementation. In accordance with the Council's requirements, the applicant's accountants verified the accuracy of the reinsurance allocations when they conducted end of financial year audits for each of the 1995, 1996 and 1997 years. This testing found no errors in the system. 7 In June 1998 Wacher advised the applicant that discrepancies had been detected in the reinsurance allocations performed on the computer system. Adjustments were made to the system by Wacher, but difficulties were still experienced. The applicant advised the Council of the discrepancies in the allocations as soon as it became aware of them, although an adjustment claim was not submitted because of the continuing difficulties with the computer system. 8 A formal claim for adjustment, based on the discrepancies found in the software by Wacher, was made by the applicant by letter to the Council dated 27 April 1999. Attached to that letter were documents setting out the amounts claimed for the March quarter 1995 to the June quarter 1997, seeking a net adjustment of $982,957.09, and from the September quarter 1997 to the September quarter 1998, seeking a net adjustment of $276,169.33. The amounts claimed were verified by the applicant's accountants as being a true and fair view of the net amounts underclaimed during the two periods. 9 On 19 May 1999 the Council notified the applicant that an adjusting amount would not be paid out of the Trust Fund for any part of the 1996/97 financial year. By letter dated 22 July 1999 the Council stated that its refusal to pay an adjusting amount in respect of any part of the 1996/97 year also applied to the 1995/96 financial year. 10 For the reasons given in the application by Australian Unity Health Limited against the Council ([2000] FCA 769) the application will be dismissed with costs. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg. Associate: Dated: 8 June 2000 Counsel for the Applicant: Mr J W K Burnside QC and Mr S Senathirajah Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the Respondent: Mr R R S Tracey QC and Mr T J Ginnane Solicitor for the Respondent: Phillips Fox Date of Hearing: 20 March 2000 Date of Judgment: 8 June 2000