New South Wales Supreme Court CITATION : Re United Medical Protection & Ors (No 7) [2002] NSWSC 865 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 2545/02 HEARING DATE(S) : 19/09/02 JUDGMENT DATE : 23 September 2002 PARTIES : United Medical Protection Limited (In Provisional Liquidation) - Plaintiff JUDGMENT OF : Barrett J COUNSEL : Mr J T Gleeson SC/Mr R A Dick - Plaintiff SOLICITORS : Freehills - Plaintiff CATCHWORDS : CORPORATIONS - winding up - direction to provisional liquidator LEGISLATION CITED : Corporations Act 2001 (Cth) Bailey v NSW Medical Defence Union (1995) 184 CLR 399 CASES CITED : Sanderson v Classic Car Insurance Pty Ltd (1985) 10 ACLR 115 Re United Medical Protection Ltd (No 3) [2002] NSWSC 488 DECISION : Direction given as sought - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J MONDAY, 23 SEPTEMBER 2002 2545/02 – UNITED MEDICAL PROTECTION LIMITED (IN PROVISIONAL LIQUIDATION) (NO 7) JUDGMENT 1 The applicant is the provisional liquidator of United Medical Protection Ltd ("UMP"). In that capacity he applies to the court for a direction as follows: "That the applicant would be justified in treating the persons referred to in paragraphs 6, 10 and 11 of the affidavit of David John Frank Lombe sworn 13 September 2002 as renewed members of United Medical Protection Limited (in provisional liquidation) ( UMP ), both for the purpose of the Constitution of UMP and the administration of the deed of indemnity between the Commonwealth of Australia, UMP, Australasian Medical Insurance Limited and the applicant dated 30 July 2002, provided those persons have returned completed renewal forms to UMP in the manner set out in paragraphs 15 to 18, 19(a) and (b), and 20 of the affidavit of David John Frank Lombe sworn 13 September 2002." 2 For reasons given by Austin J in Re United Medical Protection Ltd (No 3) [2002] NSWSC 488 at [26], the court may give directions to a provisional liquidator, if not under s.479(3) of the Corporations Act 2001 (Cth) (as to which there may be some doubt, as a matter of statutory construction), then in the exercise of the inherent jurisdiction. 3 The matter in relation to which the direction is sought concerns membership of UMP. Under article 17 of UMP's constitution, a person's membership subsists initially until the anniversary of the date of admission. Article 17 continues: "Thereafter unless terminated pursuant to this Constitution, the Board or any committee of the Board authorised in that behalf shall be entitled in its absolute discretion and subject only to giving at least 14 days prior notice to the Member of its intention to do so refuse to renew the membership of any Member with effect from the date on which the Member's current subscription expires (the 'expiry date') and in such event at the end of the expiry date such Member shall cease to be a Member." 4 What article 17 terms "subscription" is on an annual basis. It follows that, in the ordinary course (by which I mean in the absence of the operation of some other terminating or excluding provision), a member's membership subsists, in the first instance, for the initial year to which I have referred and continues thereafter unless and until the member is given notice that there will be refusal to renew, in which event the membership comes to an end at the conclusion of the then current year. There is thus what might be regarded as annual renewal in the absence of notice. 5 The main benefit of membership is a right to be considered for discretionary assistance under articles 69 to 77, including assistance by way of the obtaining of insurance from a provider other than UMP. Such rights, although set out in provisions of the constitution, are properly regarded as contractual rights under what the High Court has termed a "special contract" between the company and each member: Bailey v NSW Medical Defence Union (1995) 184 CLR 399. 6 The provisional liquidator has, with the approval of the court (given under s. 477(2B)), caused UMP to become party to a deed dated 30 July 2002 with the Commonwealth under which the Commonwealth will grant assistance to UMP, for the benefit of its members, but only in relation to members' requests for assistance notified by 31 December 2002. By that deed, the Commonwealth has agreed to give certain financial assistance in certain circumstances in respect of "New Business". That term is defined as follows: " ' New Business' means the underwriting and carrying on of business in relation to Renewed Policies or Discretionary Assistance in relation to Renewed Memberships." 7 The term "Renewed Membership" is in turn defined: " ' Renewed Membership ' means an Existing Membership that was renewed on terms that Discretionary Assistance will only be available in relation to Claims which are Notified on or before 31 December 2002." 8 "Existing membership" is one which was current on or before 29 April 2002 or became the subject of an automatic renewal under article 17 between 29 April 2002 and 29 June 2002. 9 In order to give effect to this arrangement in respect of members whose membership anniversaries fell in June 2002, the provisional liquidator sent to each, before 30 June, a document which was an offer the acceptance of which would will bring into existence a contract with the member incorporating terms related to a cut-off date of 31 December 2002 as envisaged by the definition of "Renewed Membership" in the deed. The offer did not specify the period during which it was open for acceptance. Some of the members accepted the offer on or before 30 June 2002. Others accepted it after that date. Some have not accepted. The same process has been followed or will be followed for memberships becoming subject to automatic renewal in July, August and September. Non-accepting members have been, or will be, given one last chance to accept. Each will be sent a letter saying that, if acceptance is not forthcoming within 21 days after that final reminder, the offer will not thereafter be available for acceptance and will be revoked. 10 The provisional liquidator takes the view that, in each case where a member has accepted the offer, that member satisfies the criteria for "Renewed Membership". Having reviewed the form of each document sent (or proposed to be sent) by the provisional liquidator to relevant members, including the "renewal pack", I consider that view to be correct. Completion and return of the relevant form by a member has brought (or will bring) into existence a contract between UMP and the member, supplementary to the "special contract" arising from the constitution, which embodies the "terms" that are to apply for the current subscription period. I accept that "renewed on terms that", in the deed's definition of "Renewed Membership", contemplates the creation of additional terms by contract in such a way that they form part of the totality of the contract between member and company applicable during the period until the next "expiry date" referred to in article 17 of the constitution. It makes no difference to this contractual position and the operation of the deed's definitions in relation to it that the supplementary contract is concluded before, on or after the day on which the membership anniversary fell. 11 The Commonwealth, as the party providing support under the deed of 30 July 2002, has a clear interest in the provisional liquidator's application. Its attitude is set out in a letter dated 18 September 2002 from the Australian Government Solicitor to the provisional liquidator's solicitors which was prepared for the express purpose of being tendered on the hearing of the application and became an exhibit. After referring to the proposal of the provisional liquidator to seek a direction and the terms of the direction, the letter said: "3. For the purposes of the Deed of Indemnity between the Commonwealth of Australia, Australasian Medical Insurance Limited, United Medical Protection Limited, and David John Frank Lombe, dated 30 July 2002 ( Deed of Indemnity ), the Commonwealth will treat those members described in paragraphs 6, 10 and 11 of the affidavit of David John Frank Lombe sworn 13 September 2002 in support of the Interlocutory Process, who have already returned their renewal forms after the renewal date as if they had renewed membership within the definition of 'Renewed Membership' in clause 1.1 of the Deed of Indemnity. 4. Further, the Commonwealth confirms that it proposes to treat those members who have not yet renewed their applications but who do renew (within the further period of 21 days) in response to a further letter sent in accordance with the proposal set out in paragraph 19 of the affidavit of Mr Lombe, as if they had Renewed Membership for the purposes of the Deed of Indemnity." 12 The direction the provisional liquidator seeks is appropriate. The course he proposes taking will be to the benefit of members and is approved by the only party who may conceivably be disadvantaged, being the Commonwealth. Furthermore, the judgment the court is asked to make is not one going to commercial merits: the question at hand is essentially a legal one: see Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115. I make a direction in the terms set out in paragraph 1 of these reasons. ********** Last Modified: 09/24/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.