Australian Health Insurance Association Ltd v Esso Australia Ltd

AUSTRALIAN HEALTH INSURANCE ASSOCIATION LIMITED (formerly voluntary Health
Insurance Association of Australia Limited v. ESSO AUSTRALIA LIMITED
No. VG340 of 1992
FED No. 551
Insurance Number of pages - 35

(1993) 116 ALR 253
(1993) 7 ANZ Insurance Cases 61-195
(1993) 41 FCR 450

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Black(1) CJ, Northrop(2) and Sheppard(3) JJ

CATCHWORDS

Insurance - health insurance - National Health Act 1953 s 67 - offence to carry on health insurance business without registration - whether employee health care indemnity plan is health insurance business - whether proportionality of premiums to claims is necessary for "insurance" - whether plan run for benefit of employees and annuitants only is "business"

Constitutional Law - Insurance power - s 51(xiv) - power to be construed broadly

Jurisdiction - Federal Court of Australia - No express grant of jurisdiction - express grant of power - whether Court has jurisdiction

Words and Phrases - "insurance" - "business" - "health insurance business"

Constitution ss 51(xiv), 71, 75, 76, 77

National Health Act 1953 ss 4, 67, 67A, 68, 70, 71, 72, 72A, 73, 73A, 73BAB, 74B, 82G, 82ZM

Judiciary Act 1903 s 78B

Federal Court of Australia Act s 19

NM Superannuation Limited v Young (1993) 113 ALR 39

Re Barrett: Ex Parte Young v NM Superannuation Pty Limited (1992) 34 FCR 508

20th Century Insurance Co v Liberty Mutual Insurance Co 968 F 2d 747 (9th Cir 1992)

Independent Order of Oddfellows v The Commissioner of Taxation of the Commonwealth of Australia (1991) 173 CLR 417

Re Australian Industrial Relations Commissioner; Ex Parte Australian Transport Officers Federation (1990) 171 CLR 216

Carson v Minster for Education of Queensland (1989) 88 ALR 467

Aldridge v Booth (1988) 80 ALR 1

Truta v Avis Rent A Car System Inc 193 Cal App 3d 802 (1987)

Attorney-General for the State of New South Wales v Commonwealth Savings Bank of Australia (1986) 160 CLR 315

Parsons v Martin (1984) 5 FCR 235

R v Coldham; Ex Parte Australian Social Welfare Union (1983) 153 CLR 297

R v Holmes; Ex Parte Manchester Unity Independent Order of Oddfellows in Victoria (1980) 147 CLR 65

St Justins Properties v Rule Holdings Pty Ltd (1980) 40 FLR 282

Medical Defence Union Limited v Department of Trade (1980) 1 Ch 82

The Queen v Cohen: Ex Parte Motor Accidents Insurance Board (1979) 141 CLR 577

Department of Trade and Industry v St Christopher Motorists' Association Limited (1974) 1 WLR 99

State of Missouri, ex rel Farmer v Monsanto Company (1974) 517 SW 2d 129

In the Matter of the Mutual Life Insurance Company of New York v New York State Tax Commission 345 NY Supp 2d 475 (1973)

California-Western States Life Insurance Company v State Board of Equalization 312 F 2d 19 (1957)

Insurance Commissioner v Associated Dominions Assurance Society Pty Ltd (1953) 89 CLR 78

Melbourne Corporation v The Commonwealth (1947) 74 CLR 31

Australian National Airways Pty Ltd v The Commonwealth (1945) 71 CLR 29

The King v Commonwealth Court of Conciliation and Arbitration; Ex Parte Barrett (1945) 70 CLR 141

Gould v Curtis (1913) 3 KB 84

Jumbunna Coal Mine v Victorian Coal Miners Association (1908) 6 CLR 309

Prudential Insurance Co v Inland Revenue Commissioners (1904) 2 KB 658

HEARING

MELBOURNE

#DATE 12:8:1993

ORDER

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The orders made by the Honourable Mr Justice Jenkinson on 19 August 1992 be set aside.

3. The matter be remitted to the trial judge for further hearing to determine whether an injunction should be granted pursuant to s. 67A(1) of the National Health Act 1953 (Cth), and if so, on what terms.

4. The respondent pay the appellant's costs of the appeal and of the proceedings before the trial judge.

5. The costs of any further proceedings before the trial judge be in the discretion of the trial judge.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

BLACK CJ In an application to the Court made in reliance upon s. 67A of the National Health Act 1953 ("the Act"), the appellant, Australian Health Insurance Association Limited, claimed that the respondent, Esso Australia Limited ("Esso"), was carrying on health insurance business in contravention of s. 67(1) of the Act and sought an injunction restraining Esso from continuing to do so. The learned primary judge concluded that Esso was not carrying on health insurance business, as that term is defined in the Act, and accordingly dismissed the application. This appeal is from his Honour's judgment.

The relevant provisions of the Act and the facts, which were not substantially in dispute, are set out in the reasons for judgment of Northrop J which I have had the advantage of reading. Northrop J also discusses the history of the legislation and the purpose of s. 67(1).
The dispute between the parties centres around the conduct by Esso of what is known as the Esso Supplemental Health and Dental Care Plan (the "Plan"). The Plan is described by Esso in the Plan Summary as being provided by Esso as an optional benefit for employees and annuitants, and as being designed to assist them and their dependants in meeting the costs associated with hospital, in-hospital medical, paramedical and dental services. The Plan was said to be designed to integrate with Medicare and not with insurance from a registered health fund.
Membership of the Plan is open to all permanent full-time employees of Esso, to former employees who have retired (called annuitants) and to their eligible dependants. Persons eligible for membership must apply to be admitted but it is not suggested that any eligible person would ever be refused admission. Members of the Plan have an entitlement to payments by Esso in respect of the member's liability to pay fees or charges incurred during the year for hospital, medical, dental or other health care. In the case of "large expenses" payments are made to the institution or person providing the service.
There is what is termed an "annual deductible" which is a minimum level of expense that members are required to meet themselves, but there are carry-forward provisions to cover the situation in which the expenses of a member in a year are less than the annual deductible.
Premiums are payable by members but these by no means cover the whole cost of the Plan to Esso. In fact, Esso has decided that members' contributions should aggregate in each year about one fifth of the amount of claims. For example, in the 1990-91 "Plan year" there were claims of $2,255,000 and administration costs of $127,000 as against premiums of only $475,000, giving a cost to Esso (without regard to any taxation effect) of $2,152,000. When the proceeding commenced there were nearly 2,500 members of whom about 700 were annuitants.
The Plan is administered by Mercantile Mutual Employee Benefits Pty Ltd, which receives applications for membership, claims for the payment of benefits and premium payments made by annuitants. Employees' premiums are deducted from their salaries. Premiums from both classes of members are paid into a bank account of Esso from which money is paid to the administrator to meet, in part, the accepted claims for benefits.
The term "health insurance business" is defined by s. 67(4) of the Act to mean:

". . . the business of undertaking liability, by way of insurance:

(a) with respect to loss arising out of a liability to pay fees or charges in relation to the provision in Australia of hospital treatment or an ancillary health benefit; or

(b) with respect to, or with respect to the happening of an occurrence connected with, the provision in Australia of hospital treatment or an ancillary health benefit;

but does not include:

(c) accident and sickness insurance business;

(d) liability insurance business; or

(e) business of a kind prescribed for the purposes of this paragraph" (My emphasis)

The expressions in paragraphs (c) and (d) of the definition of "health insurance business" are themselves defined and in each case the definition follows the form of the definition of "health insurance business" in paragraph (a), in that it commences with the words: ". . . means the business of undertaking liability, by way of insurance . . . ." The word "insurance" is defined to mean:

". . . insurance to which paragraph 51(xiv) of the Constitution applies".

The primary judge was referred, as were we, to judicial and dictionary definitions of the word "insurance". His Honour concluded that although judicial definitions of the word admitted of a consideration other than the payment of money and of a consideration that might be inadequately proportioned to the nature of the risk, the magnitude of the inadequacy in the present case pointed strongly against the conclusion that Esso carried on a "business by way of insurance". His Honour considered that although Esso solicited membership of the Plan in ways that were similar to business advertising and conducted the Plan in a systematic business- like way in undertaking liability with respect to the losses comprehended by the Plan, those activities could hardly be described as a "business" of the respondent. Rather, he considered, the nature of the relationship between Esso and those whose membership it solicited, and the magnitude of the foreseen cost of the Plan to Esso, suggested the conclusion that what was being done was outside the meaning of the expression "the business of undertaking liability . . . with respect to" the losses comprehended by the Plan.
Before us, the appellant argued that the learned primary judge was in error in that he did not give effect to the object and purpose of the Act and accepted a definition of insurance that was too narrow. On the other hand, Esso argued, the separate ideas of "business" and "insurance" in the definition lend colour to each other. An activity calculated to make a loss for Esso for the purpose of providing a benefit to Esso's employees could not, counsel contended, properly be described as a business. The essence of insurance was that the estimated costs of foreseeable risks were spread across a number of people exposed to the risk, and the premium, the mechanism by which the risk was shared, was proportioned to the risk. Thus, drawing two strands of the argument together, counsel for Esso argued that to set premiums at a level that was calculated not to cover the risk, but was calculated to generate a loss, was uninsurance-like and unbusiness-like and that the activity could not properly be characterised as "insurance business".
I turn first to the concept of insurance to which the Act refers. The starting point must be the definition of insurance in s. 67(4). The subsection defines insurance by reference to paragraph 51(xiv) of the Constitution which gives the Parliament power to make laws with respect to:

"Insurance, other than State insurance; also State insurance extending beyond the limits of the State concerned"

In support of their argument about the essential nature of insurance, counsel for Esso referred to dictionary definitions, including the definition of insurance in the Oxford English Dictionary (2nd ed) as:

"The act or system of insuring property, life, etc; a contract by which the one party (usually a company or corporation) undertakes, in consideration of a payment (called a premium), proportioned to the nature of the risk contemplated, to secure the other against pecuniary loss, by payment of a sum of money in the event of destruction of or damage to property . . ., or of the death or disablement of a person . . ."

They also referred to MacGillivray and Parkington on Insurance Law, 8th ed (1988) which contains, at 1, the following observations about the definition of "contract of insurance":

"A useful working definition can be derived from that given by Channell J in Prudential Insurance Company v Inland Revenue Commissioners (1904) 2 KB 658. A contract of insurance is one whereby one party (the "insurer") promises in return for a money consideration (the "premium") to pay to the other party (the "assured") a sum of money or provide him with some corresponding benefit, upon the occurrence of one or more specified events. The elements of this definition must be elaborated."

In the elaboration that follows the learned authors state that the purpose of a contract of insurance is to organise the sharing among a large number of persons of the cost of losses that are likely to happen only to some of them, or to happen at an earlier time to some than to others. The text continues (at 1-2):

"It is therefore characteristic of the contract that the amount of the premium is not intended to be equivalent to the value of the insurer's actual performance (if any) but is calculated in relation to the likelihood that performance will be required (or will be required within a certain time). This characteristic distinguishes contracts of insurance from certain others. Thus a contract by which an engineer undertakes to repair a machine whenever it breaks down is clearly not a contract of insurance if the engineer is to be remunerated in accordance with the amount of work done. If, however, the remuneration is fixed without regard to the amount of work done, it is a consideration of the type of an insurance premium and the contract may be one of insurance."

And so, the respondent contends, the activities of Esso in relation to the Plan cannot, in any event, involve undertaking liability by way of insurance because, although there are premiums, they are not proportioned to the risk and are set to cover only part of the risk.
Leaving to one side for the moment whether Esso carries on the business of undertaking liability, there could be no doubt that Esso undertakes liability by way of insurance were it not for the fact that the premiums are not proportioned to the risk. Esso promises a member of the Plan in return for a money consideration, called a premium in the Plan summary, that it will pay the member money or a corresponding benefit upon the occurrence of specified events. Within the limits provided for in the Plan, indemnity is provided against the loss suffered by a member when the member incurs hospital or other health-related expenses. Subject to the adequacy of the premium, what is involved is clearly insurance: see R v Holmes; Ex parte Manchester Unity Independent Order of Oddfellows in Victoria (1980) 147 CLR 65 at 69 per Mason J.
It is understandable that in some, though not all, dictionary definitions of insurance, the proportionality of the premium to the risk is included as an element. In a definition, rather than in an elaboration of the topic, the proportionality of the premium may help to distinguish the concept of insurance from other concepts but it is not an indispensable element. Thus, Clark, The Law of Insurance Contracts (1989) at 7, referring to the definition of insurance in MacGillivray, observes:

"The calculation of the amount of premium on the basis of the chance that the contingency will occur, rather than the actual cost of the contingency after the event, is said to distinguish insurance contracts from repair contracts, but does not distinguish the latter from mutual insurance. Further, the calculation of the premium according to the particular risk has been denied as an essential element of insurance. Commissioner of Internal Revenue v. Treganowan 183 F 2d 288, 291 (1950)."

The correct position is outlined in Colinvaux's Law of Insurance, 6th ed (1990) at 131 where attention having been drawn to the fact that a premium may be a consideration other than a money payment, as for example in mutual insurance, it is stated:

"A premium is in no respect a prerequisite of a contract of insurance: all that is necessary is the undertaking by the insurer for good consideration. The policy may be by deed, in which case no premium or other consideration flowing from the insured is necessary to render the insurer bound. The premium more usually, however, takes the form of a money payment. It has been defined as `a price paid adequate to the risk,' but the adequacy of the premiums is purely the insurer's concern. The amount of the premium may be of assistance, however, in showing the scope of the policy, for it is measured by the insurer's estimate of the risk formed upon an average of his previous experience of similar risks . . . "

In any event, suppose an insurance company decided, for the purpose of attracting custom in a particular segment of its insurance business, to lower its premiums so that they were less than an actuarial apportionment to the risk would require. It could not sensibly be suggested that the transactions in which lower premiums were charged did not involve undertaking liability by way of insurance, and the reason why it could not be so suggested is that the essence of the relationship between insurer and insured would remain, namely the relationship of indemnity in the context of contingent loss.
The judgment of Mason J in R v Cohen; Ex parte Motor Accidents Insurance Board (1979) 141 CLR 577 bears upon the present question. In that case the issue was whether the Motor Accidents Board, established by the Motor Accidents (Liability and Compensation) Act 1973 (Tas) was engaged in the business of insurance so that its employees were persons "employed in the business of insurance" within the meaning of a union's eligibility rule. Mason J (with whom Gibbs, Stephen, Murphy and Aickin JJ agreed) considered that the Board was so engaged when it performed its functions under Part III of the Act, which required the Board to indemnify the owner or user of a motor vehicle against liability incurred in respect of death or bodily injury caused by or arising out of the use of the vehicle, although not when it performed its functions under Part IV of the Act, which provided for the payment of scheduled benefits to injured persons. Mason J noted that the context in which the expression "business of insurance" was used was that of the eligibility clause of a union's rules and said (at 587):

"The expression is, in such a context, no doubt intended to have a wide meaning and it should be interpreted and applied in accordance with its ordinary and popular denotation rather than with some narrow or formal construction. Thus the question is whether, as a matter of ordinary usage, the Board can properly be said to be in `the business of insurance'."

His Honour concluded that it could not be doubted that the activities of the Board under Part III fell within the ordinary and popular understanding of the word insurance. Central to his Honour's conclusion was the circumstance that the Board was obliged to provide indemnity to an owner or driver against common law liability incurred by him in respect of death or bodily injury caused by or arising out of the use of a motor vehicle in Tasmania. His Honour, noting that the obligation was not strictly conditioned on the payment of a premium, observed that the Board was entitled to recover payments it had made in certain circumstances where a premium had not been paid and that there were legislative provisions designed to ensure that premiums were paid and appropriate cover afforded in relation to all motor vehicles registered in Tasmania (at 587-588). I would not conclude, however, from his Honour's discussion of premiums, that had the premiums covered only part of the cost of the scheme with the balance being funded from Government sources, Mason J would have reached any different conclusion. Having discussed what might be the position if the question had to be looked at as a matter of legal analysis, his Honour said (at 588):

"But, however that may be, the fact that the Board is required to indemnify the owners and users of motor vehicles in respect of third party liabilities associated with motor vehicle accidents, is certainly sufficient to justify the conclusion that the Board's function under Pt III of the Act is that of `insurance', in the popular sense of that term."

In discussing how the question might be resolved if it were one of legal analysis rather than popular meaning, Mason J said that the nature of the obligation imposed on the Board under Part III was at least analogous to the nature of the obligation imposed upon the insurer under a third party insurance policy in the context of motor vehicle insurance and said (at 588)<:

"There is much to be said for the view that it is the relationship of indemnity that exists between insurer and insured, rather than the source of that relationship, that is the essence of the concept of insurance, so that it matters not whether the relationship arises by statute or by contract."

In the present case, too, although obviously for quite different reasons, the word insurance should not be construed in a narrow or formal way, it being defined in the Act by reference to a grant of legislative power in the Constitution and there being nothing in the context of s. 51(xiv) or elsewhere in the Constitution to indicate that a narrower rather than a broader interpretation was intended: see Jumbunna Coal Mine v Victorian Coal Miners Association (1908) 6 CLR 309 per O'Connor J at 367-368; R v Coldham; Ex parte Australian Social Welfare Union (1983) 153 CLR 297 at 313-314.
Moreover, although perhaps not directly reflecting on what is "insurance to which paragraph 51(xiv) of the Constitution applies", the judgment of Fullagar J in Insurance Commissioner v Associated Dominions Assurance Society Pty Ltd (1953) 89 CLR 78 shows that the insurance power is broad in scope. Fullagar J said (at 87):

"It seems to me that the power to make laws with respect to insurance must include power to prescribe conditions upon which any person, natural or artificial, may carry on an insurance business of any kind. It must include power to require such persons to be registered and to provide security for the due performance of their obligations to insured persons, to maintain funds to answer those obligations . . . and so on. . . Further, the whole relation of an insured is within the scope of the power, and the power must extend to providing for the enforcement of contractual obligations and for the creation and enforcement of further obligations."

When considering the concept of insurance to which a head of legislative power in the Constitution applies it must of course be remembered that the Constitution confers powers "expressed in general propositions wide enough to be capable of flexible application to changing circumstances": per Dixon J in Australian National Airways Pty Ltd v The Commonwealth (1945) 71 CLR 29 at 81.
When the term "insurance" is used in the Constitution it cannot, in my view, be taken to be so restricted as to exclude from its scope transactions that have all the characteristics of insurance except the suggested need for the premium to be proportionate to the risk. That would involve a limitation on the scope of the power that could not have been intended because it would exclude from possible legislative regulation transactions having every outward appearance of insurance and serving, from the viewpoint of the policyholder, every function of insurance and involving the creation of rights indistinguishable from those created by a policy of insurance in respect of which the premiums were, in fact, proportioned to the risk.
Moreover, paragraph (xiv) of s. 51 refers to "State insurance". It does so in terms that make it clear that "State insurance" is a species of insurance within the genus to which the paragraph refers. State insurance must at least include insurance of a type offered by a State as insurer: cf Melbourne Corporation v The Commonwealth (1947) 74 CLR 31 in relation to State banking within the meaning of paragraph (xiii). State insurance was known in the Australasian colonies and of its nature involves the possibility of being partially funded from State resources rather than wholly from premiums. Indeed, in New Zealand The Government Annuities Act, 1869 (later amended and renamed The New Zealand Government Insurance and Annuities Act 1869 and 1870) established a form of government life insurance and provided, by s. 11, for payment out of the Consolidated Fund in the event that the funds paid into the Public Account under the authority of the Act were insufficient to discharge the amounts payable.
A State might decide to offer insurance to the public and to fund it partly by premium income and partly from the resources otherwise available to it. It could hardly have been intended to exclude from potential regulation transactions of this nature, bearing the outward appearance of insurance and creating the same rights, simply because they were not intended to be fully funded by premium income.
I therefore conclude that in the conduct of the Plan, Esso does undertake liability by way of "insurance" as that word is defined in s. 67(4) of the Act by reference to paragraph 51(xiv) of the Constitution. The liabilities undertaken by way of insurance are plainly with respect to losses of the type comprehended by the definition of health insurance business.
But does Esso, in the conduct of the Plan, carry on health insurance "business", that is to say, in the words of the definition in s. 67(4), "the business of undertaking liability by way of insurance with respect to loss arising out of a liability" of the type to which the definition refers? (Here and elsewhere in these reasons I have not found it necessary to consider part (b) of the definition of health insurance business).
In Re Australian Industrial Relations Commissioner; Ex parte Australian Transport Officers Federation (1990) 171 CLR 216, another case involving the eligibility rule of a union, it was said in the joint judgment of Mason CJ, Gaudron and McHugh JJ (at 266) that:

"Of all words, the word `business' is notorious for taking its colour and its content from its surroundings: see Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355, at pp 378-379. Its meaning depends upon its context."

The context in which the word appears here is legislation that is intended to regulate health insurance business so as to impose prudential requirements and also so as to give effect to the principle of community rating. The community rating principle involves, in essence, that those engaged in health insurance business should accept for insurance the whole range of risks: the healthy, the sick, the young and the old. The policy is that it should not be open to an insurer to accept only those who constitute a good risk and so to charge lower premiums, leaving others to insure, at higher premiums, those who are likely to make larger or more frequent claims. Section 73BF, which provides for cases in which a registered organisation refuses to admit a person as a contributor on the ground of health, is a clear manifestation of this policy.
In this context the notion of carrying on business should not receive a narrow interpretation, for a wide range of activities could run counter to the policy of the Act. For that purpose it would not matter greatly, and perhaps not at all, whether the business activity in question was conducted as part of some larger business or whether or not is was conducted for a profit.
Indeed, for registered organisations (with exceptions in the case of existing organisations) there is to be no return of a profit to members or shareholders: see s. 68(2); cf s. 68(2A), which makes special provision for certain organisations carried on for the purpose of profit. And see: R v Cohen; Ex parte Motor Accidents Board, per Mason J at 588-589 and R v Holmes; Ex parte Manchester Unity Independent Order of Oddfellows in Victoria per Mason J at 72. Clearly, in the present context, the absence of a profit from the activity cannot disqualify the activity as a business within the meaning of the Act. Nor, in my view, having regard to the context, can it matter that an activity is carried on as part of a much broader activity.
The evidence before the learned primary judge showed, as one would expect, that the conduct of the Plan required substantial administrative activity, most of which was carried out on Esso's behalf by another company for a fee. Claim forms needed to be prepared, the forms transmitted to the administrator, and claims assessed and then paid. Records needed to be kept. The Plan was of course kept under review by Esso and changes made from time to time. Employees were encouraged to join the Plan and the benefits available under the Plan were advertised within Esso. There was a substantial membership of some 2500 employees and some 700 annuitants. Although small in relation to Esso's overall resources, considerable sums of money were received and considerable sums paid out.
It is of course true that Esso provides the Plan as a benefit to its employees, at the cost to its business in an immediate monetary sense, for the overall purposes of good employee relations and for the good of its business as a whole. But this does not, in my view, make the insurance activity any the less a business in itself when, as here, it is a well-organised and quite complicated activity, readily identifiable within the larger business. Furthermore, Esso does receive premiums for the cover its provides and although the premium income offsets only a relatively small proportion of the total cost to the company the amounts involved are not insignificant.
In considering the statutory context and the purpose of the legislation, the particular circumstances of Esso should not obscure the broader question posed by that context and purpose. There was not, and doubtless could not be, the slightest suggestion that members of the Esso Plan would ever fail to receive the benefits Esso promised it would pay them on the occurrence of the specified contingencies. Nor was there any suggestion that there was any need, in the case of Esso, for there to be a special fund with special protection. But the same could not be said of every employer who, if the argument advanced on behalf of Esso were correct, could likewise provide employee benefits in form of health insurance without being registered. There are from time to time corporate collapses on a spectacular scale and collapses on a less spectacular scale are commonplace. The very nature of insurance as a protection against loss if and when it occurs, and not least the nature of insurance against hospital expenses, suggests that in legislation requiring those who carry on the business of insurance to be registered, and thus to be subject to statutory regulation, the word "business" should not receive a narrow construction.
The fact that the Esso Plan does not discriminate between people on the ground of their state of health and extends membership to retired people as well as to active members of the workforce, and also includes dependants, should likewise not obscure the issue. The policy of the legislation to provide for community rating also suggests that the word "business" should not receive a narrow construction because, absent any application of the Act, a provider of health insurance would be under no obligation to apply the principles of community rating.
I accept the submission of counsel for Esso that the separate ideas of "business" and "insurance" in the definition of health insurance business lend colour to each other and that the whole of the definition must be considered. Moreover, the expression used in the definition is not "undertaking liability by way of insurance" but "the business of undertaking liability by way of insurance", and so in the definition in s. 67 something narrower than merely engaging in the activity of undertaking insurance may be meant: cf Cohen, per Mason J at 589.
Nevertheless, the word "insurance" must be taken in its defined meaning and the word business must take colour from its context. Looking at the definition as a whole, but still bearing in mind its elements, I am of the view that the nature and extent of the activity carried on by Esso in relation to the Plan requires the conclusion that Esso has carried on the business of undertaking liability, by way of insurance, with respect to losses of the type to which the definition of health insurance business refers. As it is common ground that Esso is not a registered organisation it follows that I consider that the evidence required the conclusion that Esso had acted in contravention of s. 67(1) of the Health Insurance Act 1953.
I should add that in support of his submissions, Mr Burnside QC, senior counsel for Esso, referred the Court to cases decided by the courts in the United States and in Canada. This case turns on the particular language of the Health Insurance Act taken in its own context and governed by the definitions in s. 67, and in these circumstances the North American cases are of limited assistance.
During the hearing of the appeal the question was raised whether the Court had jurisdiction to hear an application for an injunction to restrain a breach of s. 67 of the Act.
The appellant contended that jurisdiction was conferred upon the Court, either expressly or impliedly, by s. 67A (1) of the Act, which provides:

"67A. (1) Where, on the application of the Minister, the Council or any other person, the Federal Court of Australia is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute a contravention of subsection 67(1), the Court may grant an injunction in such terms as the Court determines to be appropriate."

No other source of jurisdiction was suggested, there being no general conferral of jurisdiction upon the Federal Court with respect to matters arising under laws made by the Parliament. Section 82ZM(1) of the Act expressly provides that the Court (defined as the Federal Court of Australia) has jurisdiction to hear and determine applications under Part VIA of the Act and to make orders in respect of those applications. That jurisdiction is not expressed to extend beyond Part VIA and it is Part VI that is relevant to the present case.
The Parliament may of course define the jurisdiction of the Federal Court with respect to any matter arising under a law made by it: Constitution s. 76(ii) and s. 77(i). By s. 19(1) of the Federal Court of Australia Act 1976 it is provided that:

"The Court has such original jurisdiction as is vested in it by laws made by the Parliament."

There is a distinction between the conferral of jurisdiction and the grant of a power. Jurisdiction in this context means the authority a court has to decide a matter and power goes to the exercise of that authority. Without authority there can be no valid exercise of power: see St. Justins Properties v Rule Holdings Pty Ltd (1980) 40 FLR 282 at 284; Parsons v Martin (1984) 5 FCR 235 at 240-241.
It is suggested that s. 67A merely confers a power and that this follows from the language used in s. 67A(1) and the reference in subsections (4) and (5) to the manner in which the "power of the Court to grant an injunction" may be exercised.
It is of great importance that when the Parliament intends to confer jurisdiction on a court it should make its intention plain and an express referral to jurisdiction in the familiar terms employed in s. 82ZM has this effect. But desirable though such an unmistakable conferral of jurisdiction is, it cannot be the only way in which Parliament can express its intention that a court should have authority to decide a particular class of matter. The question is one of construction.
The intention of the Parliament revealed by s. 67A(1) is in my view plain enough. It is clear that the Parliament contemplated that injunctions may be granted in appropriate cases to enforce the scheme of which s. 67 is a critical part. Interim injunctions are also contemplated for the same purpose: see s. 67A(2). It is also clear that unless s.67A(1) confers jurisdiction to hear and determine an application of the nature described in s. 67A(1), the whole section is devoid of effect since there can be no exercise of any of the powers it confers or that are conferred by the Federal Court of Australia Act without the conferral of jurisdiction to do so. In these circumstances I see no difficulty in concluding that s. 67A, with its use of the expression "may grant an injunction", confers jurisdiction to hear and determine a class of matter to be defined by reference to that section. The circumstance that the jurisdiction extends no wider than the grant of an injunction (which may be on such terms as the Court determines to be appropriate) does not to my mind require the conclusion that no authority has been conferred to hear and determine applications for such injunctions.
The nature of the jurisdiction conferred by s. 67A(1), circumscribed as it is by reference to the remedy, makes it understandable that subsections (4) and (5) should refer to the "power of the Court to grant an injunction" and I would not conclude from the use of this expression in the subsection that no more than a useless power was intended to be conferred by s. 67A(1). Nor do I consider that the grant of jurisdiction in familiar language in s. 82ZM for the purposes of Part VIA requires the conclusion that the different language of s. 67A(1) should not be taken to confer jurisdiction. For one thing, s. 67A(1) relates to one particular matter, of narrow compass; it was not the intention of the Parliament to confer jurisdiction with respect to a whole range of matters, as was the intention in Part VIA.
I would therefore allow the appeal with costs. Having concluded that Esso had not contravened s. 67(1), the primary judge did not have to consider whether an injunction should be granted, and if so on what terms. Those are matters upon which the parties would doubtless wish to be heard further. I would therefore remit the matter to the learned primary judge for further hearing on the question of relief.

JUDGE2

NORTHROP J The issue sought to be raised by this appeal is whether the respondent, Esso Australia Ltd ("Esso"), is carrying on health insurance business in contravention of sub-section 67(1) of the National Health Act 1953. The learned trial Judge, Jenkinson J, held that it was not. Australian Health Insurance Association Ltd ("the Association") appeals from that judgment. At the hearing of the appeal, the Court raised the question whether it had jurisdiction to hear and determine the initial application before the Court and thus this appeal. A consideration of that question will be deferred until later in these reasons.

Section 67 of the National Health Act was inserted into that Act by s14 of the Health Legislation Amendment Act 1985 (Act No 70 of 1985) and came into operation on 1 September 1985. Immediately before then there was no s67 in the National Health Act.
At all relevant times Part VI of the National Health Act was headed "Health Benefits Organizations" and consisted of sections 66 to 82 inclusive. In addition, s4 of the National Health Act contained definitions of words and phrases appearing in Part VI. Part VI contained provisions for the registration and regulation of health benefits organisations. In substance s68 enabled an organisation to apply for registration as a registered health benefits organisation. Many detailed conditions had to be complied with before such an organisation could be registered. Upon registration, the affairs of a health benefits organisation were subject to detailed regulation in accordance with the provisions of Part VI, Part VIAA and Part VIA of the National Health Act. Nowhere in that Act, however, does there appear a definition of the phrase "health benefits organisation".

The problem can be illustrated by a reference to the provisions of the National Health Act currently in operation. Sub-section 68(1A) provides that an organisation may apply for registration as a registered health benefits organisation. The Act contains detailed provisions prescribing the conditions to be complied with and how the application is to be dealt with. Sub-section 73(1) provides:

"73.(1) The Minister may, after considering the report of the Committee in relation to an application under section 68 other than an application to which section 68A relates, grant, subject to such terms and conditions (if any) as the Minister thinks fit, or refuse, the application."

In order to understand these provisions, reference must be made to the definitions contained in s4 of the National Health Act. Under sub-section 68(1A) an organisation only may apply for registration. Under s4 of the National Health Act, unless the contrary intention appears, the word "organization":

"means a society, body or group of persons, whether corporate or unincorporate, which conducts a health benefits fund, a medical benefits fund or a hospital benefits fund;"

For present purposes, it can be accepted that a corporation is a body corporate within the meaning of that definition.
But to come within the definition, a body corporate must conduct a health benefits fund or one of the other two specified funds. Neither the phrase "health benefits fund", nor the other funds mentioned are defined, but it would appear that the essence of the requirement is that there must be a fund. The word "fund" is not defined. The phrase "registered hospital benefits organization" is defined to mean "an organization registered under Part VI for the purpose of conducting a hospital benefits fund or hospital benefits funds." Similar meanings are given with respect to a registered medical benefits organization and a registered hospital benefits organization. In all cases however, the "society, body or group of persons" must conduct a fund of the specified type. A registered organization is defined to mean "an organization registered under Part VI."
Section 4 of the National Health Act contains definitions of "basic private table" or "basic table" in relation to a registered health benefits organization, "basic hospital benefits table" or "basic table" in relation to a registered hospital organization and "basic medical benefits" or "basic table" in relation to a registered medical benefits organization. These definitions are long and are directed to the benefits payable to a contributor of a fund in the event of the contributor becoming liable to pay expenses in relation to health benefits, medical benefits or hospital benefits. The word "contributor" is defined as follows:

"in relation to a health benefits fund, a medical benefits fund or a hospital benefits fund conducted by a registered organization, means a person who is a contributor to that fund in accordance with the rules of that organization;"

Any fund registered under Part VI must have rules relating to that fund. Section 70 constitutes a Registration Committee which must consider any application for registration or for permission to carry on business as a registered health benefits organisation, see sections 70, 71 and 72. It is noted that the current form of these sections were enacted after 1985. Under s72A, in making a recommendation to the Minister with respect to the registration of the organization, or for permission to carry on business as a registered health benefits organization, the Committee is required, among other things, to take into account the following:

"(a) the number of persons who contribute, or are likely to contribute, to the relevant fund or funds of the organization;

(b) the rates of contributions to that fund or those funds;

(c) the rules of the organization relating to that fund or those funds and, in particular, whether those rules contain appropriate provisions, having regard to the provisions of this Act;

(d) in respect of that fund or each of those funds - the ratio that the likely amount of the management and administrative expenses in respect of the conduct of that fund bears to the likely amount of contributions to that fund; or

(e) any other matter that the Minister or the Committee, as the case may be, considers relevant, having regard to the public interest."

A reference to the provisions of the National Health Act makes it clear that one of the policies of the Act is to ensure the prudential management of health benefits funds and to protect the interests of contributors to those funds. Provisions contained in Part VI, Part VIAA and Part VIA make this clear. An administrative body is constituted to oversee the activities of registered organisations and many powers are conferred allowing the Executive to exercise control over registered organisations. The Private Health Insurance Administration Council is constituted with wide ranging functions, see s82G. These provisions make it clear that registered organisations must establish funds into which premiums paid by contributors to the funds are to be placed. The integrity of the funds must be maintained. A useful summary of the nature of registered organisations and hospital benefits funds appears in the Annual Report 1990-91 by the Council on the operations of the Registered Health Insurance Organisations. In the introduction of the Report the following appears in "Part A", "REPORT ON ORGANISATIONS' FINANCIAL OPERATIONS".

"Legislative requirements

This report has been prepared by the Private Health Insurance Administration Council in accordance with the requirements of section 82PA of the National Health Act that provides:

(1) The Council shall, as soon as practicable after 30 September in each year, give the Minister a report on the operations of registered organisations during the year ending on 30 June in that year.

(2) The report shall include, in respect of each health benefits fund conducted by a registered organisation during the year to which the report relates, the following information in respect of the fund:

(a) contributions payable to the fund;

(b) other amounts payable to the fund;

(c) fund benefits payable out of the fund;

(d) management expenses;

(e) other amounts payable out of the fund;

(f) the balance of the fund as at the end of that year;

(g) details of how the reserves of the fund have been invested;

(h) such other information as the Minister requires to be included.

(3) The Minister shall lay each report under this section before each House of the Parliament within 15 sitting days of that House after it is received by the Minister. Under sub-section 82L(2) of the National Health Act registered organisations are required to furnish within 3 months after the end of each financial year, or within such further time as the Council allows, such financial accounts and statements in respect of that year as the Council requires to be furnished for use in preparing the report required by section 82PA. The figures contained in this report have been extracted from organisations' audited 1990-91 accounts and statements submitted to the Council."

In 1984, it was not mandatory for a person to be registered as an organisation under Part VI of the National Health Act in order to perform the function of a health benefits fund. As a result, a number of persons performed that function without being registered. In some cases, the operators of the fund limited the persons eligible to become contributors to those who were considered to be good risks. The Government considered this gave those operators an unfair advantage over registered organisations. To avoid this, the Government adopted the principle of what is described as community rating health insurance. This was done, essentially, by inserting s67 into the National Health Act. Sub-section 67(1) provides:

"67(1) A person (other than a registered organization) shall not carry on health insurance business."

In his second reading speech, the Minister said:

"Those people who wish to have private hospital health insurance cover should be able to obtain it at affordable contribution rates and on reasonable terms and conditions. The only way this can be achieved is through the principles of community rating which ensure that the good risks assist in carrying the bad risks to equalise contribution rates. For this to occur there must be an adequate pool of good risks, and the costs of health care must be contained. The Government has been concerned that the principle of community rated health insurance under which organisations registered under the National Health Insurance Act are obliged to operate, is being steadily eroded by cheaper 'risk-rated' insurance being offered to good risks by insurers not registered under the National Health Act. The threat to the community rated insurance not only comes from the risk rating life and general insurers but also from registered funds opting out of community rated insurance because of their concerns at the loss of good risks.

The Government recognises that, in most areas of insurance, risk rating is an appropriate commercial practice. However, health insurance has important social welfare implications other forms of insurance do not have. The Government is committed to the concept of community rated health insurance, and for this reason clause 15 of this Bill requires all health insurers to comply with the requirements of the National Health Act. In clause 16 legislative changes are proposed to facilitate the registration of commercial insurers. In particular, they will retain the right to distribute profits to shareholders.

Mr Deputy Speaker, I do not believe that any existing risk rated insurer who chooses to register will be disadvantaged in complying with the statutory requirement of maintaining reserves equivalent to at least two calendar months' contribution income. This should be well within the working capital capacity of any viable business undertaking. Similarly, I do not consider that the registration requirements of the National Health Act will place any administrative burdens on the insurers. If a body registers under the National Health Act, its health insurance activities will be subject to that Act only."

Section 67, as inserted into the National Health Act by Act No 70 of 1985, is a long section. The policy is made clear by sub-section 67(1) when considered in relation to the regulatory powers contained in Part VI, Part VIAA and Part VIA. The prohibition contained in sub-section 67(1) is enforced by what can be described as draconian penalties. Sub-section 67(2) makes the contravention of sub-section 67(1) a criminal offence and imposes a penalty, if the person is a body corporate, of not exceeding $20,000 in respect of each day that person contravenes sub-section (1) including the day of conviction or any subsequent day.
Sub-section 67(4) contains a number of definitions of words and phrases appearing in s67. In s67 the phrase "health insurance business", means:

"the business of undertaking liability, by way of insurance:

(a) with respect to loss arising out of a liability to pay fees or charges in relation to the provision in Australia of hospital treatment or an ancillary health benefit; or

(b) with respect to, or with respect to the happening of any occurrence connected with, the provision in Australia of hospital treatment or an ancillary health benefit; but does not include:

(c) accident and sickness insurance business;

(d) liability insurance business; or

(e) business of a kind prescribed for the purposes of this paragraph;"

A number of words and phrases used in that definition are also defined in sub-section 67(4), but for present purposes it is sufficient to refer to one definition. "Insurance" is defined to mean "insurance to which paragraph 51(xiv) of the Constitution applies". This definition is not helpful since that reference is to a head of power to make laws conferred upon the Commonwealth Parliament, namely power to make laws with respect to "(xiv) Insurance, other than State insurance; also State insurance extending beyond the limits of the State concerned." This definition is included for the obvious reason to ensure that s67 of the National Health Act is within the limits of the constitutional power of the Commonwealth.
A further comment is made. The definition of the phrase "health insurance business" makes it clear that the activity so defined is an activity which normally is one of the activities carried on by a health benefits fund, or in other words, a registered organization. Hence, by reason of its ability to control the activities of registered organizations with respect to their rules, administration and funds, the Government can ensure the application of the principle of community rating.
As stated at the beginning of these reasons, the issue sought to be raised by this appeal is whether Esso is carrying on health insurance business in contravention of sub-section 67(1) of the National Health Act. In support of their submissions, counsel for the Association relied strongly on the policy of that Act as expressed in the provisions of Part VI and illustrated by the extract from the second reading speech set out earlier in these reasons. That submission begs the question. It does not assist in deciding the issue. It is only if Esso is carrying on health insurance business that the principle of community rating would apply. If it is not carrying on health insurance business, that principle can have no application.
At no time before 28 June 1989 did the National Health Act contain any provision vesting original jurisdiction in the Federal Court to hear and determine applications under Part VI of that Act and in particular s67 of that Act. Since 1976, when what is now Part VIA was first inserted into the National Health Act (see Act No 16 of 1976), s82ZM has by express terms conferred jurisdiction in the Federal Court (and formerly the Australian Industrial Court), to hear and determine applications under that Part. By s27 of Act No 95 of 1989, s67A was inserted into Part VI of the National Health Act. That section came into operation on 28 June 1989. Section 67A is set out in full:

"67A. (1) Where, on the application of the Minister, the Council or any other person, the Federal Court of Australia is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute a contravention of subsection 67(1), the Court may grant an injunction in such terms as the Court determines to be appropriate.

(2) Where in the opinion of the Court it is desirable to do so, the Court may grant an interim injunction pending determination of an application under subsection (1).

(3) The Court may rescind or vary an injunction granted under subsection (1) or (2).

(4) The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised:

(a) whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind; and

(b) whether or not the person has previously engaged in conduct of that kind.

(5) The power of the Court to grant an injunction requiring a person to do an act or thing may be exercised:

(a) whether or not it appears to the Court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing; and

(b) whether or not the person has previously refused or failed to do that act or thing."

Quite clearly, subsection 67A(1) confers a power on the Federal Court. In fact, this is made clear by a reference to subsections (4) and (5) where the phrases "The power of the Court to grant an injunction ..." are used. There is still no express provision contained in the National Health Act vesting jurisdiction on the Federal Court to hear and determine applications under Part VI of the National Health Act. Presumably proceedings alleging a criminal offence against s67 would be heard by a State court of summary jurisdiction; see s4H of the Crimes Act 1914 and the provisions of the Judiciary Act 1903 and in particular sub-section 68(2) of that Act. An offence under s67 of the National Health Act is not an indictable offence; see s4H of the Crimes Act and s135B of the National Health Act.
It is the absence of any express vesting of jurisdiction in the Federal Court to hear and determine an application under s67A that gives rise to the issue whether this Court had jurisdiction to hear and determine this proceeding.
By an application issued out of the Federal Court on 20 May 1991, the Association sought injunctions restraining Esso from carrying on "the business known as the Esso Supplemental Health and Dental Care Plan to the extent that the carrying on of the business contravenes s67 of the National Health Act 1953". The nature of the Health Plan appears from the Plan Summary set out in the Health Plan as follows:

"Plan Summary

The Esso Supplemental Health and Dental Care Plan is provided by the Company as an optional benefit to employees and annuitants. It is designed to assist you and your dependants in meeting the costs associated with hospital, in-hospital medical, paramedical and dental services.

The Plan is designed to integrate with Medicare and not with insurance from a Registered Health Fund. If you remain covered by a Registered Health Fund, the benefit payable under the Company Plan will be calculated having regard only to that portion of your expenses which is not reimbursed by your Registered Health Fund. It is intended to continue the provisions of this Plan. However, the Company reserves the right to change or terminate the Plan at any time."

The pleadings define the issue raised between the parties, namely whether in creating and conducting the Health Plan, Esso is carrying on health insurance business in contravention of s67 of the National Health Act. This involves the proper construction of the defined meaning of health insurance business namely "the business of undertaking liability, by way of insurance", with respect to the matters referred to in paragraphs (a) and (b) of that definition and whether, on the facts found, Esso is carrying on business of that type. In these reasons, the matters referred to in paragraphs (a) and (b) of the definition of health insurance business will be described as "health benefits".
The facts are not really in dispute. Esso is engaged in the petroleum industry. The following extract from the reasons for judgment of Jenkinson J sets the stage for a consideration of the issue:

"The respondent employs a large number of persons in the conduct of its business in the petroleum industry. There was no evidence, or submission, that the respondent has engaged in undertaking liability by way of insurance except in respect of its employees' health care. Since 1982 the respondent has invited its employees to participate in a health care plan. At first no financial contribution was required of the employee. For a time the payments to employees, in respect of their medical and like expenses, under the plan were made by an insurance company in performance of a contract between the company and the respondent. But since the substantial amendment in 1985 of the national health care legislation the respondent has undertaken a direct liability to its employees to make the payments, and has made it a condition of membership of the plan that each member pay the respondent periodically a sum of money which the respondent applies to defray part of the expense of providing the benefits to which members are entitled under the plan."

His Honour then made extensive reference to the terms of the Health Plan. It is not necessary to repeat these references. It is sufficient to give a summary of them. Employees of Esso have the option of participating in the Health Plan by making an annual payment. They can withdraw from the Health Plan at any time. The benefits can be obtained with respect to the employee only or with respect to the dependants of the employee as well but this involves a higher payment. After retirement, former employees may continue to participate in the plan. As retirees, the former employees are referred to as annuitants. The payments made by employees to participate in the Health Plan are much less than would be paid to a health benefits fund for similar benefits.
It is quite clear that the Health Plan is designed by Esso as an offer made to its employees as a part of their terms of employment with Esso. Payments made by employees participating in the Health Plan are not paid into a health benefits fund to be distributed in accordance with the normal principles of insurance law. They form part of the general assets of Esso. Esso pays the claims made by and allowed to participating members. In his reasons, Jenkinson J referred to the payment of claims as benefits. His Honour said:

"The premiums are applied towards defraying the cost to the respondent of providing the benefits. Mercantile Mutual Employee Benefits Pty Ltd is employed by the respondent to administer the Plan. Applications for membership, claims for benefits and premium payments by "annuitants" are sent by members to Mercantile Mutual Employee Benefits Pty Ltd., which is described in the booklet as "the Plan Administrator". Employees' premiums are deducted from their salaries. Premiums from both classes of members are paid into a bank account of the respondent, from which money is paid to Mercantile Mutual Employee Benefits Pty Ltd to meet, in part, accepted claims for benefits. In respect of the four years ended 30 June 1991 the amounts of accepted claims, of the cost of administration by Mercantile Mutual Employee Benefits Pty Ltd, of premiums received, and of the cost to the respondent (without regard to any taxation effect) were as follows: "Plan Year" Claims Adminis- Premiums Cost tration

1987-1988 $1,693,000 + $160,000 - $310,000 = $1,543,000 1988-1989 $1,939,000 + $200,000 - $393,000 = $1,746,000 1989-1990 $2,450,000 + $110,000 - $437,000 = $2,123,000 1990-1991 $2,500,000 + $127,000 - $475,000 = $2,152,000 When the proceeding commenced there were nearly 2500 members of whom about 700 were "annuitants". The value of the respondent's assets exceeded three and a half billion dollars and it was earning profits of more than four hundred million dollars per annum."

It is difficult to see the relevance of the facts referred to in the last paragraph. The issue is to be decided without consideration of whether Esso is a large or small corporation, financially sound or not. What must be decided is whether the activity undertaken by it pursuant to the provisions of the Health Plan constitutes the business of undertaking liability by way of insurance with respect to health benefits. Esso, in carrying on business in the petroleum industry and employing a large number of persons, is undertaking liability to pay those persons large sums of money by way of wages, holiday pay, long service leave pay and many other benefits. The fact that Esso or another employer may not be able to meet similar liabilities does not affect the nature of the business of the employer. One thing is clear. The liability undertaken by Esso to make the payments under the Health Plan is not met, and is not intended to be met, from the payments made by employees and annuitants who participate in the Health Plan. To this extent, the Health Plan is the very antithesis of the concept of insurance.
Of necessity, Esso each year pays out substantial amounts from its other assets to meet its liability under the Health Fund. The amounts so paid by Esso are set out in the column headed "Cost" in the table set out earlier in these reasons. These are raw figures but they establish this fact.
His Honour also said:

"The respondent informs itself, by the investigations and analyses of its own employees and a committee of its directors as well as by engaging the administrator to analyse and report on it upon claims, of the likely future incidence and magnitude of claims. And it has been the respondent's informed decision that members' contributions should aggregate each year an amount about one fifth of the amount of claims. Part VI of the National Health Act 1953 contemplates the carrying on of health insurance business in the statutorily defined sense either for profit to the "individual members or share holders" of a registered organization or without profit: see and compare paragraphs 68(2)(b) and (c) and 68(2A)(b). At 30 June 1991 two registered organizations were carrying on health insurance business for profit and the other 52 registered organizations did not seek profit. Part VI does not provide a context by reference to which the meaning of the word "business" is limited to activity with a view to profit."

Counsel for Esso contended that a business had to be something undertaken by a person with the intention or purpose of making a profit. This is not necessarily so. It must be accepted that many persons engage in a business with the intention or purpose of making a loss in that business. The reasons for this may vary but one reason could well be that the person undertaking the business desires to make a loss to enable it to be set off against income received from other sources and so reduce a liability to pay income tax. For the purposes of this appeal, the question is whether, in engaging in the activities specified in the Health Plan, Esso is engaging in health insurance business as defined. The activity is part of its business in the petroleum industry. It is an activity undertaken by Esso within its wider business operations and is for the benefit of its employees and former employees.
The word "business" can have many different meanings. In any particular case, its meaning depends upon the context in which it is used. A very useful discussion of this is contained in The Queen v Cohen and Others; Ex parte Motor Accidents Insurance Board (1979) 141 CLR 577. In that case, the phrase "the business of insurance" appeared in the eligibility clause of an organisation of employees. The question was whether employees of the Motor Accidents Insurance Board were entitled to be members of the organisation. This depended upon whether the Board was engaged in "the business of insurance". At pp587-590 Mason J, as he then was, considered the meaning to be given to the word "business" in that phrase in that context. He held that the meaning to be given to it depends upon ordinary usage. The long passage should be read in full. His Honour said at p588:

"Moreover, it is, in my opinion, correct to say that when the Board performs its function of insurance under Pt III of the Act, it carries on "the business of insurance". The word "business" is, of course, one of wide import, although the precise scope of its meaning will always depend upon the context in which it appears. Here, as I have said, the question is one of its ordinary and popular denotation. Thus I do not think, contrary to the argument for the Board, that the word "business" in the present case merely contemplates commercial enterprises which are in competition and which are conducted for profit. Rather, it denotes the idea that some person, body or organization is engaged in the activity or undertaking of insurance. Once this definition or understanding of the word "business" is accepted, it follows that certain features of the Board and of the scheme which it administers do not conclude the issue of whether the Board is in "the business of insurance". Thus, for example, it cannot be decisive that the Board is a statutory body nor that it is not out to make a profit (see s.11(3) of the Act)."

At p589 His Honour said:

"It was argued for the Board that its functions under the Act should be considered, not in isolation, but in their totality and that, if this was done, it could not be said that the "business" of the Board was that of insurance. The simple answer to this argument is that it is quite possible, as in the present case, for a person or body to be engaged in several activities, one of which can properly be described as "the business of insurance". It is in my opinion, a misconceived approach to attempt to characterize the functions of the Board in their totality, and there is certainly nothing in the present case which warrants such an approach. If, as I have concluded, the Board is indeed engaged in "the business of insurance" under Pt III of the Act, it is nothing to the point that the Board is not so engaged under Pt IV."

This latter quotation is relevant to the fact that Esso is engaged in many businesses but this does not, of itself, prevent it from engaging in the business of insurance. It is noted further that in Cohen, it was held that the activities of the Board under Part III of the relevant Act constituted the business of insurance but not the activities under Part IV. Under Part IV, compensation in the form of scheduled benefits were paid to those injured in motor vehicle accidents. At p589 His Honour said in respect of Part IV:

"The scheme thus established is not one of insurance, since it involves no indemnity in respect of common law liabilities and, indeed, operates irrespective of the existence of those liabilities."

This passage is of importance to the present appeal when considering whether Esso, when engaging in the activities under the Health Plan, is undertaking liability by way of insurance.
It is clear that a person (being an employer) does not carry on health insurance merely by undertaking liability incurred by its employees with respect to loss arising out of a liability to pay fees or charges in relation to the provision in Australia of hospital treatment or any of the other matters referred to in the definition of health insurance business contained in s67 of the National Health Act. The activity of undertaking liability must be "by way of insurance". This means by way of insurance being insurance to which paragraph 51(xiv) of the Constitution applies. This requirement is a limitation on the meaning to be given to the word "insurance" as used in the phrase "by way of insurance". The word "insurance" is often used in a sense which does not come within the meaning of insurance in the Constitutional sense. Thus, in the phrase, "self insurance", the word insurance cannot have the defined meaning. Likewise a statement "I will take my umbrella as insurance in case it rains" cannot have that meaning. An interesting illustration of the use of the word "insurance" in a non-Constitution sense appeared in the financial section of the Melbourne Age on 21 May 1993. The first paragraph of the column headed "Comment" read: "It is now clear why Westpac was so keen last year, and then again earlier this year, to secure a big slab of the preference shares issued by the BHP treasury stock vehicle, Beswick. It wasn't simply good banking, but insurance against the need to come back to the market for fresh equity."
Counsel were unable to refer the Court to any discussion by the High Court on the meaning of the word "insurance" in its constitutional sense. The Court was referred to Insurance Commissioner v Associated Dominions Assurance Society Pty Ltd (1953) 89 CLR 78. That was a matter heard and determined by Fullagar J and did not raise any issue as to the constitutional validity of the Life Insurance Act 1945-1950. More or less by way of aside, Fullagar J said at p87:

"I can feel no doubt that the Life Insurance Act of the Commonwealth is, regarded as a whole, a law with respect to "insurance" which is authorized by s51(xiv) of the Constitution. Life insurance is, and was in 1900, a well recognized kind or class of "insurance"."

It follows that the Court, in this case, must consider what constitutes "insurance" in the context of the Constitution and in the context of the phrase "the business of undertaking liability, by way of insurance" in the National Health Act.
In Cohen, Mason J said at p587:

"In considering whether the Board is engaged in "the business of insurance", it should be recognized at the outset that we are concerned with the use of that expression in the eligibility clause of a trade union's registered rules. The expression is, in such a context, no doubt intended to have a wide meaning and it should be interpreted and applied in accordance with its ordinary and popular denotation rather than with some narrow or formal construction. Thus the question is whether, as a matter of ordinary usage, the Board can properly be said to be in "the business of insurance"."

There, no constitutional limitation needed to be considered.

There is no doubt that a person may undertake a liability to do something in the future. Most executory contracts come within this category. Thus a person may supply a computer to a purchaser under a contract by which the seller undertakes a liability to repair the computer in the event of defects developing. In common language, that could be described as insurance, but it would not be "insurance" under the Constitution. Any contract of guarantee would come within the same category.
There is no evidence before the Court relating to the nature of "insurance" as referred to in the Constitution. The standard text books seem to go straight into discussions of the "contract of insurance" on the assumption that insurance depends upon the existence of a contract. In Cohen, Mason J suggests the liability imposed upon an insurer may be by way of statute and need not be based upon contract. The text, MacGillivray and Parkington on Insurance Law, 7th Ed 1981 commences with a consideration of a contract of insurance. Chapter 1 is headed "Definition of Insurance and Insurable Interest". Para 1 is as follows:

"1. "Contract of insurance" - definition A satisfactory definition of "contract of insurance" is elusive, but the use of the phrase to define the ambit of recent regulatory legislation has made the task of attempting it inescapable. A useful working definition can be derived from that given by Channell J in Prudential Insurance Company v Inland Revenue Commissioners (1904) 2 KB 658. A contract of insurance is one whereby one party (the "insurer") promises in return for a money consideration (the "premium") to pay to the other party (the "assured") a sum of money or provide him with some corresponding benefit, upon the occurrence of one or more specified events. The elements of this definition must be elaborated."

Para 2 relates to the element of "premium" and goes to an essential aspect of the concept of insurance. Para 2 is as follows:

"2. "Premium" The purpose of a contract of insurance is to organise the sharing among a large number of persons of the cost of losses which are likely to happen only to some of them (or to happen at an earlier time to some than to others). It is therefore characteristic of the contract that the amount of the premium is not intended to be equivalent to the value of the insurer's actual performance (if any) but is calculated in relation to the likelihood that performance will be required (or will be required within a certain time). This characteristic distinguishes contracts of insurance from certain others. Thus a contract by which an engineer undertakes to repair a machine whenever it breaks down is clearly not a contract of insurance if the engineer is to be remunerated in accordance with the amount of work done. If, however, the remuneration is fixed without regard to the amount of work done, it is a consideration of the type of an insurance premium and the contract may be one of insurance."

The important aspect of this passage is the statement that the purpose of a contract of insurance is to organise the sharing among a large number of persons of the cost of losses which are likely to happen only to some of them or, in some cases, at difficult times.
The topic "Insurance" is contained in Halsbury's Laws of England 4th Ed Vol 25. Introducing the topic, the contract of insurance is highlighted, see para 1 and the following paragraphs.
The Dictionaries are helpful in this respect. The meaning accepted by the trial Judge was that given in the Oxford English Dictionary (2nd Ed) as follows:

"4. Comm (a) The act or system of insuring property, life, etc; a contract by which the one party (usually a company or corporation) undertakes, in consideration of a payment (called a premium) proportioned to the nature of the risk contemplated, to secure the other against pecuniary loss, by payment of a sum of money in the event of destruction of or damage to property (as by disaster at sea, fire, or other accident), or of the death or disablement of a person; the department of business which deals with such contracts."

Similar definitions appear in the Shorter Oxford Dictionary and the Macquarie Dictionary. Insurance, as a noun, is the act or system of insuring property, life etc. These days the subject matter of insurance has widened. For present purposes, insurance includes the act or system of undertaking liability for loss, but there must be a subject matter to be insured and an insurable interest in the person insured.
Traditionally, insurance arose from a contract. These days it may arise from legislation; see, for example, Cohen. Traditionally, a payment, called a premium, had to be made to obtain the benefit of the insurance. The insurer undertook the risk and persons who undertook these risks originally did so by grouping together in the form of a society or a similar group. Normally, it was expected that premiums paid would form a fund to constitute a pool from which payment of claims could be met. Legislation developed to provide for the regulation of insurers with respect to the funds created by the payment of premiums. The National Health Act is a good example of this type of legislation. It must be remembered that a fund is not a business, see for example Independent Order of Odd Fellows of Victoria v The Commissioner of Taxation of the Commonwealth of Australia (1991) 173 CLR 417 especially at p423. That passage is in relation to a particular legislative provision but it has implications applicable to this case. The Court, Mason CJ, Brennan, Dawson Toohey and McHugh JJ, said:

"The criterion of assessability of the income of a friendly society is its derivation from eligible insurance business s116G(1). Eligible insurance business is neither a Fund nor a sum of money; it is business consisting in the issuing of or the undertaking of liability under eligible insurance policies or business in relation to the issuing of or the undertaking of liability under eligible insurance policies, s116E. Income derived from any other business of a friendly society is outside s116G(1). In applying the criterion, it is erroneous to treat a business or a fund as if it had a legal personality. If that error be made, it facilitates the making of the further error that moneys transferred to the No 2 Fund belong beneficially to the Benefit Funds from which they were transferred. Then it is but a short step to treat the income derived from investment of those moneys as the income of the respective Benefit Funds and hence derived from the respective businesses in respect of which the Funds were constituted. The basic fallacy in this chain of reasoning is that it overlooks the fact that at all material times the money belongs to IOOF alone."

Since 1982 the respondent has invited its employees to participate in a health care plan. At first no financial contribution was required of the employees. For a time the payments to employees under the Plan, in respect of their medical and like expenses, were made by an insurance company in performance of a contract between the company and the respondent. After the Act was substantially amended in 1985, the respondent assumed direct liability to its employees to make payments to them for amounts incurred for hospital and medical treatment. The respondent has made it a condition of membership of the Plan that each member pay the respondent periodically a sum of money which the respondent applies to defray part of the expense of providing the benefits to which members are entitled under the Plan.
His Honour referred to a booklet which states the terms of the Plan relevant to the determination of the appellant's application. The booklet discloses that membership of the Plan is open to all permanent full-time employees (including permanent employees who are employed on a part-time basis) and "annuitants" of the respondent and their eligible dependants i.e. an employee's spouse and his or her dependent children. Children cease to be covered after reaching the age of 17 years, unless they are full-time students and not married, in which case they may be covered until they are 25 years of age. The word "annuitant" is not defined. His Honour said that usage of the word in the booklet indicates that it refers to a former employee whose employment has been terminated by retirement. This is common ground.
The Plan is administered for the respondent by Mercantile Mutual Employee Benefits Pty. Limited ("Mercantile Mutual") which it retains for this purpose. Applications for membership, claims for benefits, and premium payments by annuitants are sent by members to Mercantile Mutual, which is described as "The Plan Administrator". Premiums are deducted from employees' salaries. Premiums from both classes of members are paid into a bank account of the respondent from which money is paid to Mercantile Mutual to meet, in part, expected claims for benefits. A tabulation included in his Honour's judgment shows that the premiums received in this way account for approximately 20 per cent of the amount needed to meet claims. In the year 1990/91 claims and administration costs amounted to $2.627 million. The premiums received in respect of this year amounted to $475,000 with the result that there was a deficiency of $2.15 million. The results for the 1987/88, 1988/89 and 1989/90 years were in similar proportion. In the first of these years premiums amounted to $310,000 and the net cost to the respondent was $1.543 million. In the 1988/89 year, the figures were $393,000 and $1.746 million, and for the following year $437,000 and $2.123 million.
When the proceeding before his Honour commenced, there were nearly 2,500 members of the Plan of whom about 700 were annuitants. The value of the respondent's assets exceeded $3.5 billion and it was earning profits of more than $400 million per annum.
His Honour said that the respondent informed itself of the likely future incidence and magnitude of claims. It decided that members' contributions should aggregate each year an amount of about one-fifth of the amount of the claims. The figures to which I have referred indicate that that is approximately the proportion which the amount of premiums bears to the overall costs of the scheme to the applicant.
His Honour referred to the meaning of "insurance" in the Oxford English Dictionary (2nd ed.), (1989). It is there defined, inter alia, as a contract by which one party, usually a company or corporation, undertakes, in consideration of a payment called a premium "proportioned to the nature of the risk contemplated" to secure the other against pecuniary loss by payment of a sum of money in the event of destruction or damage to property or of the death or disablement of a person. The words from the definition which are in inverted commas are the words which were stressed both by his Honour and by counsel for the respondent. It was submitted that the respondent was not carrying on the business of health insurance because its payment of benefits to employees and others far exceeded the amounts received by way of premiums. Plainly the premiums were not proportioned to the nature of the risk contemplated. Counsel for the appellant contended that this was not an essential element of insurance.
"Insurance" is similarly defined in the Macquarie Dictionary (1987) as the act, system, or business of insuring property, life, the person, etc. against loss or harm arising in specified contingencies in consideration of "a payment proportionate to the risk involved". On the other hand, the Shorter Oxford Dictionary, 3rd ed., 1955, does not include similar words. "Insurance" is said to be the act or system of insuring property, life, etc.; a contract by which the one party, in consideration of a payment called a premium, agrees to secure the other against pecuniary loss, by payment of a sum of money in the event of destruction of or damage to property or of the death or disablement of a person. To similar effect is Chambers Twentieth Dictionary (1979).
Because one is referred to para. 51(xiv) of the Constitution by the definition of "insurance" in s.67, one needs to consider the meaning of "insurance" for the purposes of that paragraph. The power conferred on the Parliament to legislate in respect of insurance is a power to legislate in respect of insurance, other than State insurance. It may also legislate in respect of State insurance extending beyond the limits of the State concerned. Although the paragraph has been touched upon in some contexts by the High Court, the question of the ambit of the power has not directly arisen for determination. The matter is discussed in a number of constitutional texts. In Legislative Executive and Judicial Powers in Australia, W. Anstey Wines, 5th ed. (1976), the author says (at 155) that insurance may be shortly defined as the act of providing against loss or damage which may be caused by a contingent event. He goes on to give examples of types of insurance mentioning fire, accident, marine, indemnity, life, and endowment. He adds that, as in the case of banking, the federal power extends to any form of insurance throughout the Commonwealth save and except insurance carried on by State governments and confined to the limits of the State. He also says that the power would not be limited to the types or kinds of insurance known in 1900. "Insurance", he says, is a word indicating a genus of legal relationships and, to it, the doctrine of generic interpretation would apply.
The matter is also discussed in The Constitution of the Commonwealth of Australia Annotated, R.D. Lumb, 4th ed. (1986). The author refers (para. (282) at 127) to Wynes. Lumb says (para. (283) at 127-8) that insurance may be defined as the act of providing against loss or damage caused by a contingent event. He then refers to a number of Commonwealth statutes which have dealt with insurance.
In The Australian Constitution, P.H. Lane (1986), it is said (at 146) that the essence of insurance consists in a contribution or premium paid by the insured and a payment by the insurer on an indemnified contingency, whether the relation between the insured and insurer be contractual or not; it is said that compulsory third party insurance illustrates the latter. Reference is made to The Queen v. Cohen; Ex parte Motor Accidents Insurance Board (1979) 141 CLR 577 (at 588). That authority will be discussed a little later.
The editors of MacGillivray and Parkington on Insurance Law, 8th ed. (1988), say (at (1)) that a satisfactory definition of "contract of insurance" is elusive, but that the use of the phrase to define the ambit of recent regulatory legislation has made the task of attempting it inescapable. Reference is made to the decision of Channell J in Prudential Insurance Co.. v. Inland Revenue Commissioners (1904) 2 KB 658. The only question in that case was whether a contract of insurance involving payment to a person on his attaining the age of 65 was a policy of insurance within the meaning of stamp duty legislation. It was held that it was. Channell J said that the first requirement of insurance is that a payment of a sum of money is to be payable upon the happening of a certain event. "Certain" is not used in the sense of an event which necessarily must happen but in the sense of the event being one specified in the policy. His Lordship continued (at 663):-

"That I think is the first requirement in a contract of insurance. It must be a contract whereby for some consideration, usually but not necessarily for periodical payments called premiums, you secure to yourself some benefit, usually but not necessarily the payment of a sum of money, upon the happening of some event. Then the next thing that is necessary is that the event should be one which involves some amount of uncertainty. There must be either uncertainty whether the event will ever happen or not, or if the event is one which must happen at some time there must be uncertainty as to the time at which it will happen. The remaining essential is that which was referred to by the Attorney-General when he said the insurance must be against something. A contract which would otherwise be a mere wager may become an insurance by reason of the assured having an interest in the subject-matter - that is to say, the uncertain event which is necessary to make the contract amount to an insurance must be an event which is prima facie adverse to the interest of the assured. The insurance is to provide for the payment of a sum of money to meet a loss or detriment which will or may be suffered upon the happening of the event."

Later he said (at 664):-

"A contract of insurance, then, must be a contract for the payment of a sum of money, or for some corresponding benefit such as the rebuilding of a house or the repairing of a ship, to become due on the happening of an event, which event must have some amount of uncertainty about it, and must be of a character more or less adverse to the interest of the person effecting the insurance."

In Gould v. Curtis (1913) 3 KB 84 Cozens-Hardy MR disapproved (at 92) the last sentence in a case concerning an endowment policy, but otherwise did not dissent from what Channell J had said.
What Channell J said has been referred to with approval in a number of other authorities. These include Department of Trade and Industry v. St. Christopher Motorists' Association Limited (1974) 1 WLR 99, Medical Defence Union Limited v. Department of Trade (1980) 1 Ch 82 and Re Barrett; Ex parte Young v. NM Superannuation Pty. Limited (1992) 34 FCR 508 (at 522-3), and, on appeal, in NM Superannuation Limited v. Young (1993) 113 ALR 39. The Full Court's reversal of Von Doussa J's decision in this last matter is not of relevance for present purposes. Burchett J (at 46) made some criticism of another aspect of Channell J's judgment in the Prudential case. But I do not understand Burchett J to have departed from the general statements made by Channell J about the nature of insurance. Indeed, what his Lordship said seems to have become something of a classic statement about this matter.
In the St. Christopher Motorists' Association case, Templeman J (as Lord Templeman then was) was concerned with an association the members of which were entitled to benefits if an event occurred which prevented their driving their vehicles. The benefits were the provision of a car and driver for a specified period after the event occurred. The only question was whether payment of money was required before it could be said that the company was carrying on an insurance business. His Lordship said that it was not material to the question whether an insurance business was being carried on, that the benefit due in the event of a member becoming entitled to receive it was not payable in money but was to be provided for in a different form. He referred extensively to what Channell J had said in the Prudential Insurance Company case and applied Channell J's definition to the case before him.
His Lordship was, however, careful to point out (at 106) that there may be some contracts of guarantee or maintenance which might at first sight appear to have some resemblance to "the definition laid down by Channell J and which, on analysis, are not found to be true contracts of insurance at all."
The most relevant authority in Australia is the decision of the High Court in The Queen v. Cohen; Ex parte Motor Accidents Insurance Board (supra) referred to by Lane (op cit at 146). It was held by a majority of the Court that the Motor Accidents Insurance Board established by a Tasmanian statute was, in relation to some of its activities, engaged in the business of insurance. The case arose in the context of the construction of the eligibility clause in the rules of a trade union registered as an organisation under the Conciliation and Arbitration Act 1904. The relevant part of the clause provided that the union should consist of an unlimited number of members employed or usually employed "in the business of insurance ..." The principal judgment was delivered by Mason J (as he then was). It was agreed in by the other judges of the Court except Barwick CJ who dissented (at 579-81).
Mason J emphasised (at 587) that, in considering whether the Board was engaged in the business of insurance, it was necessary to recognise at the outset that the Court was concerned with the use of that expression in the eligibility clause of a trade union's registered rules. His Honour said that the expression, in such a context, was intended to have a wide meaning and it should be interpreted and applied in accordance with its "ordinary and popular denotation" rather than with some narrow or formal construction. The question was whether, as a matter of ordinary usage, the Board could properly be said to be in "the business of insurance".
Later his Honour said (at 588-9):-

"Moreover, it is, in my opinion, correct to say that when the Board performs its function of insurance under Pt. III of the Act, it carries on 'the business of insurance'. The word 'business' is, of course, one of wide import, although the precise scope of its meaning will always depend upon the context in which it appears. Here, as I have said, the question is one of its ordinary and popular denotation. Thus I do not think, contrary to the argument for the Board, that the word 'business' in the present case merely contemplates commercial enterprises which are in competition and which are conducted for profit. Rather, it denotes the idea that some person, body or organization is engaged in the activity or undertaking of insurance. It was argued for the Board that its functions under the Act should be considered, not in isolation, but in their totality and that, if this was done, it could not be said that the 'business' of the Board was that of insurance. The simple answer to this argument is that it is quite possible, as in the present case, for a person or body to be engaged in several activities, one of which can properly be described as 'the business of insurance'. It is in my opinion, a misconceived approach to attempt to characterize the functions of the Board in their totality, and there is certainly nothing in the present case which warrants such an approach."

I referred earlier to MacGillivray and Parkington (op cit ). It will be recalled that in the passage quoted from this work (at (1)) the editors said that the elements of the definition must be elaborated. They went on to say, when dealing with the premium, (at (1)-(2)):-

"The purpose of a contract of insurance is to organise the sharing among a large number of persons of the cost of losses which are likely to happen only to some of them (or to happen at an earlier time to some than to others). It is therefore characteristic of the contract that the amount of the premium is not intended to be equivalent to the value of the insurer's actual performance (if any) but is calculated in relation to the likelihood that performance will be required (or will be required within a certain time). This characteristic distinguishes contracts of insurance from certain others. Thus a contract by which an engineer undertakes to repair a machine whenever it breaks down is clearly not a contract of insurance if the engineer is to be remunerated in accordance with the amount of work done. If, however, the remuneration is fixed without regard to the amount of work done, it is a consideration of the type of an insurance premium and the contract may be one of insurance."

In the course of his judgment in Re Barrett, von Doussa J referred to the 7th edition of MacGillivray and Parkington (at (3) where there is to be found a statement similar to that which has been quoted from the 8th. edition. His Honour said (at 523):-

"A contract of insurance is a contract upon speculation: see Carter v. Boehm (1766) 3 Burr 1905 at 1909; 97 ER 1162 at 1164; Re Commonwealth Homes and Investment Co. Ltd. (1943) SASR 211 at 231. It is a characteristic of a contract of insurance that the amount of the premium is not intended to be equivalent to the present value of the insurer's actual performance: see MacGillivray and Parkington, p 3. And conversely the insurer's actual performance, the payment of the sum insured on the happening of the contingency, is not intended to be equivalent to the value of the moneys paid to the insurer by way of premium.

That a contract of insurance involves an element of speculation is not, of course, a sufficient criterion for distinguishing a contract of insurance from contracts of some other kind. There is an element of speculation in contracts of suretyship and in warranties as to the quality or performance of chattels, but the absence of an element of speculation which carries a risk to the putative insurer that the contract may be worth more or less than the value of the premiums received indicates that the contract is not one of insurance."

It is to be noted that, when dealing with the premium in more detail later in the work, the editors of MacGillivray and Parkington (op cit) said at (368) that the amount or adequacy of the premium in relation to the risk run was a matter for the insurer "rather than a court", and, I would add, the insured. This statement is in line with what is said in Colinvaux's Law of Insurance, 6th ed. (1990) (at 131), namely:-

"A premium is in no respect a prerequisite of a contract of insurance: all that is necessary is the undertaking by the insurer for good consideration. The policy may be by deed, in which case no premium or other consideration flowing from the assured is necessary to render the insurer bound. The premium more usually, however, takes the form of a money payment. It has been defined as 'a price paid adequate to the risk,' but the adequacy of the premium is purely the insurer's concern. The amount of the premium may be of assistance, however, in showing the scope of the policy, for it is measured by the insurer's estimate of the risk formed upon an average of his previous experience of similar risks, together with an allowance for office expenses and other charges and profit."

A number of United States cases referred to in argument provide support for the primary Judge's conclusion that the respondent does not carry on health insurance business. I do not refer to them all, but I should mention three. The first of these is California-Western States Life Insurance Company v. State Board of Equalization 312 P 2d 19 (1957). This was a case concerning the payment of a tax under protest on the amount of payroll deductions representing a company's employees' contribution into the company's voluntary retirement plan. It was held that the payroll deductions were not taxable under provisions taxing gross premiums received by insurers upon business done in the State of California.
The decision is a decision of the District Court of Appeal for the Third District of California. The judgment was written by the presiding justice, Van Dyke J. His Honour said that the evidence showed that the employee contributions were markedly lower than amounts which would have to be paid under formal group annuity policies to a company issuing such policies, whether paid wholly or partly by employer and employee, and that, viewed in this way, employee contributions were not calculated by actuarial methods commonly used in the insurance world. Van Dyke J said (at 20):-

"... the trial court arrived at the correct result. Regardless of the noted similarities in so many of the provisions contained in the plan to those found in annuity policies regularly sold by insurers, the great dissimilarity which inheres in the total absence of profit motive - never ignored by successful insurers - compels a conclusion that the establishment and maintenance of respondent's employees' retirement plan cannot be classified as insurance business done by it in this state. Such was not its purpose and such was not its nature. Had this plan been established and maintained by an employer who was not an insurer, we think no one would contend that it was an insurance contract or that its establishment and maintenance constituted the doing of insurance business. The fact that respondent is an insurer is not competent to alter either the purpose or the nature of its employees' retirement plan."

The other cases to which I refer are In the Matter of the Mutual Life Insurance Company of New York v. New York State Tax Commission 345 NY Supp 2d 475 (1973), a decision of the Court of Appeals of New York, and Truta v. Avis Rent A Car System Inc. 193 Cal App 3d 802 (1987), a decision of the Court of Appeal for the First District of California. Amongst other things the Court in the Truta case said (at 811-2):-

"'A statute designed to regulate the business of insurance ... is not intended to apply to all organizations having some element of risk assumption or distribution in their operations. The question of whether an arrangement is one of insurance may turn, not on whether a risk is involved or assumed, but on whether that or something else to which it is related in the particular plan is its principal object and purpose.' (12 Appleman, Insurance Law and Practice

(1981) 7002, p 14, footnotes omitted.) This is because 'insurance regulatory laws are not properly construed as aimed at an absolute prohibition against the inclusion of any risk-transferring-and-distributing provisions in contracts for services or for the sale or rental of goods. In short, the presence of a small element of insurance, if one wishes to call it that, closely associated with the predominant element of the transaction - the element that gives the transaction its distinctive character - does not conclusively demonstrate that the transaction is within the reach of insurance regulatory laws.' (Keeton, Insurance Law

(1971) 8.2(c), p 552.)

In analyzing whether a contract constitutes insurance it is advised that two inquiries be made: 'To what extent, in each case, did the specific transactions or the general line of business at issue involve one or more of the evils at which the regulatory statutes were aimed? And were the elements of risk transference and risk distribution, characteristic of transactions at which the regulatory statutes were aimed, a central and relatively important element of the transactions or instead merely incidental to other elements that gave the transactions their distinctive character?' (Keeton, op cit, supra.)"

Reference may also be made to the decision of the United States Court of Appeals in 20th Century Insurance Co. v. Liberty Mutual Insurance Co. 968 F 2d 747 (9th Cir 1992) at 751-2. There the correctness of the Californian decision to which I have referred was assumed rather than decided.
I do not think that, in the context of the Constitution and, thus in the context of this case, it would be correct to construe the word "insurance" or the expression "health insurance business" narrowly any more than it would have been to construe the words "in the business of insurance" narrowly where it appeared in the eligibility clause of the trade union rules in question in Cohen's case. It should be given a wide meaning so long as that meaning accords with popular usage and understanding of the term.
Of course the phrase "health insurance business" needs to be considered as a whole. The definition of the expression in subsec.67(4) of the Act serves to emphasise that the activity in question must be "the business of undertaking liability by way of insurance". Unless what the respondent does involves it in carrying on an insurance business within the meaning of the section, the Act will have no application to it. The concepts of both "business" and "insurance" require consideration.
It was submitted to us that in normal usage a person could not be said to be carrying on a business unless it was intended to carry it on for profit. In the context of the words here in question, I would reject that submission. There are many businesses which are not carried on for profit, but with the intention of making a loss. One has only to instance businesses carried on at a loss for the purpose of gaining income tax advantages to realise that this must be so. In any event, it does not seem to me to be correct, for the purposes of this case, to adopt the view that one looks at business activity in the sense of an overall activity of a person or undertaking. I think that assistance in this respect is to be derived from what Mason J said in Cohen's case. In the quoted passages from his judgment, he referred to the fact that the word "business" is one of wide import, and also said that it would be a misconceived approach to attempt to characterise the functions of the Board there under consideration in their totality. It was quite possible for a person or body to be engaged in several activities some of which might not be, and others of which would be, properly described as the business of insurance or, I would add, a business of some other specific kind.
Substantial emphasis was placed by counsel for the respondent on the fact that the benefits provided for under the respondent's plan were benefits intended to improve the terms and conditions of employment of the respondent's employees. But, although this is a matter to be taken into account, it cannot be conclusive. A large employer such as the respondent here will not infrequently undertake activities which are designed to provide improved terms and conditions of employment or working conditions. For instance, it is commonly the case that a factory will have within it a canteen for employees who may purchase meals and other commodities at prices which are substantially subsidised by the employer. Employers may also provide fitness or child minding centres, again substantially subsidised, for the benefit of their employees. It would not be a misuse of language to say, in respect of activities such as these, that the employer was carrying on the business of operating a canteen or a fitness or child minding centre, notwithstanding that the employer had no intention of making a profit out of the activity and that its only purpose was to benefit its employees from whom it might take only a small or even nominal payment.
It seems to me that the critical question in the present case is the one which his Honour identified. Is there here a business of insurance, notwithstanding that the premium income provides only a fraction of what is required to meet claims and administration expenses? His Honour thought that there was not and it was essentially for this reason that he dismissed the appellant's application. Support for his view is to be found in the definitions of insurance in both the Oxford English Dictionary and the Macquarie Dictionary to which I have referred. It is also to be found, at least indirectly, in the United States authorities which have been earlier discussed.
On the other hand, no support for it is to be found in any of the Australian or English cases to which I have referred nor in any of the texts which I have consulted. Both MacGillivray and Parkington (at (368)) and Colinvaux (at 131) contain statements which tend to deny the statements in the dictionaries that a premium proportioned to the nature of the risk is a characteristic or an element of a contract of insurance. I think that the explanation for such statements may be that, as a matter of practice, an insurance company endeavours to calculate its premiums on the basis of the likely amount of its liabilities in respect of the type of business it is undertaking. Certainly that is what usually occurs.
Nevertheless, in what I have earlier written, I have concluded, firstly, that one ought not construe the word "insurance" narrowly and, secondly, that it should have its common or popular meaning. Popular meanings of words are usually to be found in dictionaries and not in legal texts. Frequently, if there is a difference between the dictionary meaning and the meaning given by judges and legal commentators, it will be the dictionary which reveals the popular meaning and the legal texts the legal meaning. That will be particularly so where modern dictionaries contain the definition. Here the requirement that there be a premium proportioned to the risk in question appears in two dictionaries, one Australian and one English, both published in the 1980s.
It seems to me that the difficulty in this case lies in the way in which one reconciles the apparent differences between the dictionaries and the legal texts. One matter that I think it important to take into account is that the legal texts, when dealing with this matter, are not being particularly legalistic. Indeed, it is not really the law's understanding of the concept of insurance which is being expounded. The texts, like the dictionaries, are attempting to give their own version of what common or popular understanding of the expression "insurance" involves. They are describing business practice and are attempting to give guidance on what the boundaries or limits of the expression are. The dictionaries, on the other hand, although also dealing with business practice are, as I have said, saying what is usual rather than what is essential. They are dealing with the common case without attempting to set the outer limits.
If the matter is looked at in this way, as I think it should be, it is the legal texts which give the best guidance as to the meaning of the expression. On this basis, the fact that the premium is not proportionate to the risk is of no moment. If the contract in question otherwise has the hallmarks of an insurance contract, the contract will be one of insurance notwithstanding that the premiums payable bear no relationship to the risk undertaken.
As mentioned at the beginning of this discussion, the ultimate question is whether the respondent is engaging in "health insurance business" or to pick up the terms of the definition of that expression in subsec.67(4), is engaged in the business of "undertaking liability by way of insurance ...". I am satisfied that it is. Subject to the question of the adequacy of the premium, the contract between the respondent and its employees as evidenced by the Plan is in every other way a contract of insurance. It secures to the employees in question the payment of a sum of money upon the happening of an event which may or may not happen and is thus uncertain and, which, if it does happen, will be adverse to the employees' interests. The inadequacy of the premium or payment being an irrelevant factor, as I have concluded it is, it follows that in the context of the section, the respondent is engaged in the business of providing health insurance for its employees.
In reaching my conclusion, I have given attention to some other matters. In the course of their submissions, counsel for the respondent emphasised that the benefits provided were provided to employees and their dependants, and to former employees. These benefits were paid as part of the employees' terms and conditions of employment. I agree that that is so but, as earlier indicated, I do not perceive why the scheme under which those benefits are provided may not also involve the employer in carrying on health insurance business. The benefit will be provided pursuant to the contract of employment but it will also be provided pursuant to a contract of insurance.
In the course of their submissions, counsel for the appellant made detailed reference to the provisions of the Act concerning organisations registered under it. These are to be found in Parts VI, VIAA, VIA and VIB which are entitled respectively, "Health Benefits Organizations", "Private Health Insurance Administration Council", "Conduct and Supervision of the Affairs of Registered Organizations" and "Merger of Health Benefit Funds". I do not refer to the detail of these provisions but, in passing, I mention ss.67 and 67A, which are the sections involved here, s. 68 providing for applications by organisations for registration as health benefits organisations or to carry on health insurance business, s.73A providing for conditions of registration of an organisation, s.73BAB providing for minimum reserves and s.74B providing for the conduct of health benefit funds.
These provisions are designed to protect the community generally and, particularly, members of the community who wish to undertake private health insurance. The provisions are intended to ensure, so far as possible, that organisations providing these benefits will be viable and properly managed. In the present case there is no organisation apart from the respondent itself and no separate fund. The respondent simply pays Mercantile Mutual what is required to meet its commitments under the Plan.
I have taken these various matters into account. Obviously they are important. But it is the words of the statute which must be construed. Unless the respondent is carrying on "health business insurance" within the meaning of s.67 of the Act, the Act will not affect the Plan. I have not therefore found assistance from the general consideration of the purpose and policy of the Act as revealed by a consideration of its overall provisions. It is upon the critical words in s.67 that I have concentrated.
Before I conclude, I wish to make one thing clear. This case has involved the question of whether the respondent, by making available the benefits it does, is carrying on health insurance business. I do not regard the decision at which I have arrived as necessarily giving guidance as to what the position may be in respect of other schemes of this kind but differently constituted. What the position would be if no premium at all were payable by the employees or, if the premium paid by them was truly nominal, I do not decide. I am mindful of statements in the texts to which I have referred to the effect that a contract of insurance may exist although no premium is payable or in circumstances where the consideration for the policy is not a premium paid in money but some other form of consideration. Nevertheless, I do not think it possible to lay down any general rule. Each case must be considered in the light of its own facts and circumstances.
There are two matters which remain to be mentioned. The first concerns the jurisdiction of the Court to hear this matter. In this respect I am in agreement with what the Chief Justice has said and have nothing to add. The second concerns notices sent to the various attorneys-general pursuant to the provisions of s.78B of the Judiciary Act 1903. In the course of my consideration of this matter, I have taken into account the written submissions made by the Solicitor-General for the Commonwealth and the written responses to those submissions made by counsel for the parties. I have not found it necessary to refer to the detail of any of these submissions.
In the result, I would allow the appeal. I agree with the orders proposed by the Chief Justice.

[1993] FCA 551

12 AUGUST 1993