FEDERAL COURT OF AUSTRALIA Gordian Runoff Limited, in the matter of Gordian Runoff Limited [2016] FCA 344 File number: NSD 316 of 2016 Judge: ALLSOP CJ Date of judgment: 22 March 2016 Catchwords: INSURANCE — general insurance — application for dispensation of requirement for distribution of approved summary of scheme pursuant to s 17C of the Insurance Act 1973 (Cth) Legislation: Insurance Act 1973 (Cth) s17C Cases cited: QBE Insurance (Australia) Ltd, in the matter of Division 3A of Part IIIA of the Insurance Act 1973 (Cth) and QBE Insurance (Australia) Ltd [2015] FCA 1223 Insurance Australia Limited [2004] FCA 524; 139 FCR 450 Date of hearing: 22 March 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 21 Counsel for the Applicant: Mr N J Owens Solicitor for the Applicant HWL Ebsworth Lawyers Solicitor for the Australian Prudential Regulatory Authority: Mr D Tran, APRA ORDERS NSD 316 of 2016 GORDIAN RUNOFF LIMITED, IN THE MATTER OF GORDIAN RUNOFF LIMITED ABN 11 052 179 647 GORDIAN RUNOFF LIMITED ABN 11 052 179 647 Applicant JUDGE: ALLSOP CJ DATE OF ORDER: 8 APRIL 2016 THE COURT ORDERS THAT: 1. Pursuant to s 17C(5) of the Insurance Act 1973 (Cth) (the Act) the need for the Applicant to comply with s 17C(2)(c) of the Act is dispensed with on condition that the Applicant complies with Orders 2 to 8 below. 2. The Applicant, prior to the date on which the Scheme documents are to be made available for public inspection, cause a copy of the approved summary of the proposed Scheme to be sent by pre-paid post to all persons identified, as at that date, as affected policyholders that have been identified from records and from the publicly available sources for which the Applicant has an address. 3. The Applicant, prior to the date on which the Scheme documents are to be made available for public inspection, cause an advertisement providing notification of the proposed Scheme to be placed in the following publications in addition to the Gazette and newspapers, approved by APRA in circulation in each State and Territory of Australia: (a) The Government Gazette; (b) New South Wales – The Sydney Morning Herald; (c) Victoria – The Age; (d) Queensland – The Courier-Mail; (e) Western Australia – The West Australian; (f) South Australia – The Advertiser; (g) Tasmania – The Mercury; (h) Northern Territory – The Northern Territory News; (i) ACT – The Canberra Times; and (j) National – The Australian Financial Review 4. The Applicant, prior to the date on which the Scheme documents are to be made available for public inspection, cause an advertisement providing notification of the proposed Scheme to be placed in the following publications in addition to the Gazette and newspapers, approved by APRA in circulation in each State and Territory of Australia: (a) Law Society of NSW - Law Society Journals; (b) Victorian Law Society - Law Society Journals or the online publication of Friday Facts; (c) Queensland Law Society – the Proctor; and (d) Lloyds List - Maritime Intelligence | Informa (the international edition) 5. The Applicant, prior to the date on which the Scheme documents are to be made available for public inspection, cause a copy of the: (a) proposed Scheme; (b) summary of the proposed Scheme; and (c) report by Sandra O'Sullivan of Enstar Australia Limited to be made publically available on the Applicant's website www.enstardivision3a.com.au/poseidon 6. The Applicant make a copy of the proposed Scheme and any report upon which it is based available for public inspection for a period of at least 15 business days (between the hours of 9:00 am and 5:00 pm Monday to Friday), prior to the date on which the proposed Scheme is to be confirmed by the Court, at the locations approved by APRA under Prudential Standard GPS 410 in each State and Territory in which an affected policyholder resides. 7. The Applicant forward copies of the Scheme, the summary of the Scheme and the Actuarial report to the WorkCover Authority of NSW and notify it of the impending application prior to the date on which the proposed Scheme is to be confirmed by the Court. 8. The Applicant provide, upon request, to any policyholders that identify themselves as such, a copy of the Scheme Documents free of charge. 9. The Applicant pay the costs of the proceedings of APRA to date, as agreed or assessed to date. 10. The application be stood over to a date to be fixed and the Applicant through its lawyers have liberty to approach the Associate of the Chief Justice or the National Operations Registrar to fix a date for hearing. REASONS FOR JUDGMENT ALLSOP CJ: 1 This is an interlocutory application for dispensation from compliance in full with s 17C(2)(c) of the Insurance Act 1973 (Cth) (the Act). 2 The interlocutory application is made in support of an originating application brought pursuant to s 17F of the Act for the transfer of business from Poseidon Insurance Co Pty Ltd (Poseidon) to Gordian RunOff Limited (GRO) in circumstances to which I will come in a moment. 3 The application is supported by the Australian Prudential Regulation Authority (APRA) and the evidence in support of the application is contained substantially within the affidavit, dated 17 March 2016, of the Chief Executive and Financial Officer of Enstar Australia Limited, Ms Sandra O'Sullivan. 4 I will begin by a very brief description of the background to this application. 5 GRO is an Australian corporation and a wholly-owned subsidiary of Enstar Group Limited (Enstar). GRO is authorised under the Act to carry on general insurance run-off business in Australia. 6 Poseidon is also an Australian corporation and also a wholly-owned subsidiary of Enstar. Poseidon was and is authorised to carry on insurance business in Australia. It ceased underwriting business in February 1992 and has been in run-off ever since. 7 Poseidon wrote a niche book of marine workers' compensation insurance covering tug boat operators and stevedores from 1955 to February 1992. Poseidon's business has been in run-off for nearly 25 years. 8 By the present application, GRO seeks orders pursuant to s 17C(5) of the Act dispensing with compliance with s 17C(2)(c) in relation to the scheme to transfer Poseidon's business to GRO. 9 On the court file there are helpful submissions of Mr Owens in relation to the proper approach to take under this provision. I dealt with some of these issues in QBE Insurance (Australia) Ltd, in the matter of Division 3A of Part IIIA of the Insurance Act 1973 (Cth) and QBE Insurance (Australia) Ltd [2015] FCA 1223. It is unnecessary, in my view, to set out questions of principle in detail as they are well-known. 10 The step that is requested is that s 17C(2)(c) not be complied with. That provision requires that an approved summary of the scheme be given to every affected policyholder. 11 That apparently large dispensation is to be given because the evidence of Ms O'Sullivan, with which APRA is familiar and which I have read carefully, reveals that the proposed conditions of the dispensation will, as best as can be possibly done, see all affected policyholders notified. Thus what will be required, pursuant to the orders, is the most complete possible notification which is likely to reach every affected policyholder i.e. a person holding a policy of insurance that is affected by the scheme: See Insurance Australia Limited [2004] FCA 524; 139 FCR 450, 456 [19]-[20]. 12 Ms O'Sullivan's affidavit deposes to GRO's extensive portfolio of run-off business carried on through it and related entities. It also identifies the business of Poseidon. 13 Poseidon was a small licenced run-off insurer in Australia incorporated in 1955 and, as I said, it ceased writing business in February 1992. It underwrote only workers' compensation for marine-related enterprises covering tugs and stevedores. Poseidon's liabilities under the insurance policies it issued are protected by a series of indemnities provided by international marine protection and indemnity clubs (P&I Clubs). In addition, Poseidon received an indemnity from Poseidon's previous majority shareholder, The Standard Club Limited (one of those P&I clubs) in the event that the other clubs failed to pay Poseidon any amounts owed pursuant to their underlying indemnities. 14 In 2015, Kenmare Holdings Limited (Kenmare) acquired 100 per cent of the issued and outstanding share capital of Poseidon. Kenmare is a wholly-owned subsidiary of Enstar. Thus, by this, in 2015 Poseidon's run-off became part of the Enstar's business and what is wished to be done is to place that business into GRO. Poseidon does not have any employees and the governance of Poseidon and the management of its claims have been outsourced to Enstar since 2 November 2015 i.e. since Kenmare bought the shares in Poseidon. The proposed scheme, which I will not treat in detail today, is to transfer the business of the run-off from Poseidon to GRO. 15 The small size of Poseidon's portfolio has motivated APRA to agree, at the moment, to have the evidence supporting the transfer provided by Ms O'Sullivan, rather than requiring the expense of an independent actuary's report. Ms O'Sullivan's report concludes that the proposed transfer will not have a materially detrimental impact on the policyholders of either the transferring policies or GRO. 16 The question of the policyholder information is also dealt with by Ms O'Sullivan in her affidavit. She has had searches conducted to identify and verify the names and addresses of all the affected policyholders. Each policy from 1955 to February 1992 issued by Poseidon was reviewed and a policy card for each policy recorded. The shipping company, the policy name, the policy number, the policyholder's postal address and various dates on which the policyholder renewed the policy were entered as cards that were kept contemporaneously in the ordinary course of business. The policy record cards were manually handwritten as well as typewritten. They were held in a binder and the information was managed by the solicitors, HWL Ebsworth Lawyers (Ebsworths), or their predecessors in professional practice who, until recently, managed the outsource services of Poseidon. The binder kept by Ebsworths contained the complete list of all historical policies underwritten by Poseidon, as far as Ebsworths were aware. 17 Ms O'Sullivan instructed that all details on the policy cards be manually entered onto a spreadsheet for record-keeping. That task was completed and reviewed by her staff and a total of 358 individual policies were entered on the spreadsheet. The data was sorted by policyholder names and addresses. The conclusion was the 358 individual policies were held by 29 policyholders. Most of the policies issued by Poseidon are terminated or no longer on risk. There is the possibility of latent long-tail exposure. However, for each of the 29 policyholder names, internet searches were performed to determine the policyholder's current status, for instance with ASIC and the current address of the entity. 18 Ms O'Sullivan's affidavit refers to the internet searches undertaken and the search for information about all policyholders. There were 2 policy holders for which the combination of searches to which she deposes could not be positively identified. Of the 29 potential affected policyholders, only 5 remain registered companies, 22 have been deregistered and one is under external administration, that being Port Jackson Stevedoring Proprietary Limited, for whom an address is available. Further, there is one that is untraceable. It is proposed to communicate with all known and traceable affected policyholders, together with all indemnifiers, being the P&I clubs mentioned in paragraph 40 of Ms O'Sullivan's affidavit. These are: (a) American Steamship Owners Mutual Protection and Indemnity Association, Inc; (b) Assuranceforeningen Skuld; (c) Gard P&I (Bermuda) Ltd; (d) The Britannia Steam Ship Insurance Association Limited (e) The London Steam-Ship Owners' Mutual Insurance Association Limited; (f) The North of England Protecting & Indemnity Association Limited; (g) The Shipowners' Mutual Protection & Indemnity Association (Luxembourg); (h) The Standard Club Ltd; (i) The Steamship Mutual Underwriting Association (Bermuda) Limited; (j) Sveriges Ångfartygs Assurans Förening I The Swedish Club; (k) United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited; and (l) The West of England Ship Owners Mutual Insurance Association (Luxembourg) 19 APRA has examined the application and has entered into correspondence with the Applicant about the details of steps to be taken and supports the interlocutory application after that correspondence. Not only will there be notification to such affected policyholder as have been identified (being the vast majority of them), GRO will also place a notice of the scheme into a variety of publications listed in the orders, which should, if it be the case that the Ebsworths data were inadequate, enable any other party who may be a policyholder to become aware of the scheme. 20 In the circumstances deposed to in the affidavit of Ms O'Sullivan, and having considered the submissions by Mr Owens in support of the interlocutory application, and in the light of APRA's support, the Court is prepared to make the orders sought by the parties. 21 It is to be noted that there has been some minor modification to the form of the orders as they were pronounced on 22 March 2016. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop. Associate: Dated: 8 April 2016