Esso Australia Ltd v Australian Health Insurance Association Limited

[1994] HCATrans 249

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No MllS of 1993

B e t w e e n -

ESSO AUSTRALIA LTD

Applicant

and

AUSTRALIAN HEALTH INSURANCE

ASSOCIATION LIMITED (Formerly

VOLUNTARY HEALTH INSURANCE

ASSOCIATION OF AUSTRALIA

LIMITED)

Respondents

Application for special leave

to appeal

MASON CJ

TOOHEY J

McHUGH J

Esso(3) 1 11/3/94

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 11 MARCH 1994, AT 10.45 AM

Copyright in the High Court of Australia

MR J.W.K. BURNSIDE, ~: If the Court please, I appear with

my learned	friend, MR D.J. O'CALLAGHAN, for the
applicant.	(instructed by Middletons Moore &
Bevins)

MR G.rt. RITTER, QC: If the Court pleases, I appear with my

learned friend, MR R.D. SHEPHERD, for the

respondent. (instructed by Rigby Cooke)

MASON CJ:  Mr Burnside.

MR BURNSIDE: If the Court please. Esso employs a lot of

people around Australia. As part of its industrial relations policy, it agrees to cover their hospital

and medical expenses subject only to two

conditions. One is that people who want to

participate in this plan should meet the first $100

or so of their expenses themselves and the second

is that they make a contribution to Esso in respect

of its cost of conducting the plan. That

contribution is in the order of a couple of hundred

dollars a year. The evidence was that the

contribution amounts to approximately one-fifth of

the cost to Esso of conducting the plan.

As a consequence, the amount of the

contribution is very much less than would normally

be paid by individuals who go to registered health
insurance organizations. As a result of that, Esso
pays fringe benefits tax in relation to its conduct

of the plan.

The respondent in this case seeks to prevent

Esso from doing this. It says that Esso's conduct

is unlawful because Esso is not a registered

organization within the meaning of section 67 of

the National Health Act.

The simple question that first arises on this

application for special leave is whether, by

conducting a plan in that form in which the amounts

which Esso receives do not and are never intended

to be anything more than a token contribution to

the cost of the plan, that sort of conduct is

intended to be prevented by section 67.

Now, in our submission, the short answer to

the problem is to be found in the second reading

speech. In the second reading speech in response

to a question the minister said that the

amendments, which introduced section 67, were not

intended to affect employers who self-insured or

self-financed the health costs of their employees.

In our submission, although the limits of the notion of self-insurance are unclear, this is

plainly a case of self-insurance. The question for

Esso(3) 2 11/3/94

appeal is whether the Act discloses an intention to

prevent this sort of behaviour.

Now, it is our submission that the Act reveals

two policies. The first is the introduction of a

principle called "community rating" which was much

discussed in the Parliament but those words do not

in fact appear in the legislation. The essence of community rating is that health insurers, properly

so called, should not pick and choose their risks.

So, they cannot offer cheap insurance to people who

are young and healthy and offer more expensive
insurance or deny it altogether to people who are

old or in ill health. The principle of community rating, as implemented in the 1985 amendments, is

intended to prevent that sort of behaviour.

In connection with the Esso plan, that

principle has no application because, as appears in

the judgments of the court below, the Esso plan is

open to all employees, all retired employees and

the dependants of all of those people.

Furthermore, there are flow-on periods sufficient

to enable people who leave Esso to get into another

health insurance plan if it has a start-up period

or a waiting period.

So, the first principle of community rating, in our submission, simply has no bearing on the

operation of Esso's plan and the principle of

community rating would not be advanced by holding

that Esso's plan is caught by section 67.

The second principle which is introduced into

the provisions can broadly be described as

providing for the prudential management of the

funds. Now, the funds are the funds established

and operated by registered organizations. In order for an organization to be registered, it has to put before the applications committee details of the

way in which its fund will operate including the

levels of contributions the fund will ask for, the

level of administrative expenses it expects, the

level of claims that it expects and so on.

Fundamental to the idea of the funds which are

to be prudentially managed is that they are made up

of the premium income which is derived from

participants. That, we would say, is entirely

consistent with the idea of insurance as generally

understood. Generally speaking, insurance is a

devise of collecting together premiums from

individuals who may or may not encounter a

particular risk so as to provide a pool from which

individuals can be recompensed if the risk accrues

to them.

Esso(3) 3 11/3/94

Now, the policy of prudential management of

the funds also has no application to an employer in Essa's position, for this reason: it is no part of the plan that the contributions by members of the

fundkwill ever be enough to pay the claims, and the

fund will therefore, from a very early time, hit

zero and will stay at zero because all of the

premiums are exhausted in the first few months of
the relevant year and thereafter all claims and the
costs of running the scheme are met from Essa's

general resources.

So the principle that the fund should be

prudentially managed is not capable of having any

sensible or useful operation in connection with a

scheme such as Essa's.

TOOHEY J:  Would this judgment stand in the way of your

client providing insurance on a non-contributory

basis?

MR BURNSIDE:  We do not know. I would have said, "No, it

does not" except for the fact that

Mr Justice Sheppard raised the question and said he

would not decide the question whether a fund or a

plan, which did not ask for premiums, would or

would not be caught by section 67.

The central question is whether this operation

can be characterized as the business of health

insurance. Now, our argument below and our

argument will be on appeal that business, generally

understood, involves usually a notion of seeking to

make a profit or, at least, seeking to avoid a

loss. Of course, there are exceptions and it

depends on the context.

Insurance generally involves a notion that

premiums provide the pool from which claims will be

met. It is possible to find an exceptional case

where that is not so. There is no decided

authority in Australia in which the question has

arisen. If a person offering to meet someone

else's expenses does so deliberately and designedly

to make a loss for the collateral purpose of

improving employee relations, does that put them in

the business of insurance? The question has been

dealt with in American courts and dealt with in a

way that adopts Essa's position in this litigation.

In answer to Your Honour Justice Toohey, the

problem then arises that on the decision of the

Full Federal Court, it is not altogether clear

whether the absence of any premium would take
Esso's operations outside the reach of the words

"the business of health insurance". There was

emphasis placed on the fact that it conducts this

Esso(3) 4 11/3/94

operation in an organized and businesslike way,but
for its deliberate loss. There was reference to
the fact that it is conceivable at the outer
reaches of the notion of insurance that there may

not be a premium received, that consideration may

be otherwise than by cash payment or that the

agreement may be binding by reason of being in a

deed. So, the short answer is we do not know.

In our submission, the absence of any clear authority on this question, coupled with the

presence of American authorities which, we would

say, support our position, make this an ideal case

for testing what is meant by the words in

section 67 of the National Health Act.

We point out in our outline that not only is

the question open in the sense that it has not been

decided in any case in Australia but it is of great

importance precisely because of the matter that

Your Honour Justice Toohey raises. There are other

major employers in Australia who also offer health

benefit plans for their employees. We do not have

details about whether they ask for contributions

from employees and, if they do, what is the level

of them. At the foundation of this case is the
question whether any sort of premium is enough to
convert an activity into the business of insurance,

even if the premium was only 50 cents a year or

10 cents a year, a mere peppercorn to provide a

binding agreement.

We would submit that it is an extraordinary

application of the provisions of the National

Health Act to say you are not allowed to offer

health cover for 50 cents a year; you may do it for

nothing. Alternatively, you cannot do it for

50 cents a year but you can do it if you register

and charge the full tariff.

TOOHEY J:  That may be a problem with the drafting of the

legislation. It may be curable by legislative

change.

MR BURNSIDE: With respect, no, Your Honour, because the

question is what do the words mean "the business of

health insurance"?

TOOHEY J: True, but the definition itself has various

exclusions.

MR BURNSIDE: Yes, it does.

TOOHEY J: It is not beyond the wit of the draftsman, I

suppose, to embrace your situation within one of

those exclusions.

Esso(3)	11/3/94
MR BURNSIDE:	Of course, the draftsman could turn his mind

to a number of individual possibilities.

TOOHEY J:  I am not suggesting that is a great consolation

to you but iL may be that that is the difficulty,
it lies in the particular language of the

definition.

MASON CJ:  Mr Burnside, it does not seem to me that this

question of interpretation is a question which is

perhaps worthy of the attention of this Court.	It
is a straightforward question of statutory
interpretation.	The resolution of it raises no

question of general principle. Is it not, par
excellence, a question which when determined should

stay at the level of the Full Court of the Federal

Court?

MR BURNSIDE: With respect, no, Your Honour. First, because

it does involve the interest of a large number of
people, the 2000-odd people who participate in

Esso's plan and the unknown number of people who

participate in the plans of other employers.

MASON CJ: But that can be said of a lot of questions of

statutory interpretation: that a large number of people are affected by the outcome. It does not

seem to me that that converts it into a question

which should come to this Court.

MR BURNSIDE:  The second answer we would make is that

although it appears to be a straightforward

question of statutory interpretation - that is

right in one sense - it is a very difficult one.

MASON CJ: True, but often the simplest questions of

statutory interpretation are difficult ones. But,

again, difficulty, inherent difficulty of the

question does not necessarily mean that it comes to

this Court, and it is difficult because it is

possible that the mind might go either way on a

question of this kind.

MR BURNSIDE: This Court in two other cases has turned its

mind to the collocation of words "business of

health insurance" in a quite different context and

in a context that does not help the resolution of

this problem. Both cases concern the application

of union rules. We would submit that this case is

of equal importance.

MASON CJ: Yes. It makes one doubt whether we were right to

take up the earlier cases, particularly when it is

apparent, as you say, that the decisions in the

earlier cases throw no light on the expression used

in this case.

Esso(3)	6	11/3/94
MR BURNSIDE:	They throw no light on it for this reason:	in

neither of those cases was there any question about

the adequacy of the premiums which were being

received by the people who were said to be engaged

in the business.

McHUGH J:  But in those cases we had no option but to take

them. Were they not by way of prerogative writ?

MR BURNSIDE:  Yes, I think Your Honour is right. There is

one other thing we would say in relation to the

importance of dealing with the matter. The

respondent says that what we have done is unlawful.

The Act provides a penalty of $20,000 a day if, in

fact, we have contravened section 67. There is

clearly a rational chance that if matters remain

here we will be prosecuted. I have not worked out

eight years at $20,000 a day but it is probably a

large number and it seems likely that we will be

back here on a matter which will involve, no doubt, a very large amount of money if those circumstances occur. This is an ideal opportunity, in our

submission, to put the matter beyond doubt and, if

we are right in our contentions, to avoid that

unfortunate result.

There is, of course, another question which

arises. It is the question which was raised by a member of the Full Federal Court which is whether,

in any event, the Federal Court had jurisdiction to

deal with the matter. The problem arises this way:

section 67A grants the Federal Court power to grant

an injunction if 67 is contravened. It plainly

confers a power. It does not, in terms, confer

jurisdiction. Sections 67 and 67A appear in

Part VI. That section plainly confers power but

does not confer jurisdiction.

By contrast, in Part VIA, section 82ZM

expressly confers jurisdiction on the Federal Court

to hear matters arising under that part.	Now, the
contrast in drafting style is striking and the

inference which, in our submission, is almost

irresistible, is that Parliament has failed to

confer on the Federal Court jurisdiction to make

orders under Part VI.

McHUGH· J:  Did not Lord Diplock deal with a similar argument

in The "Siskina"? I think it is in 1979 AC.

MR BURNSIDE:  I cannot answer that question, Your Honour.

At least, I cannot say what he said about it.

McHUGH J:  I think the English legislation conferring

jurisdiction on the supreme court had a similar

section and there was no express conferral of

jurisdiction. If my recollection is right, His

Esso(3) 7 11/3/94

Lordship did not have much trouble seeing that that

gave the court jurisdiction.

MR BURNSIDE:  I understand that, Your Honour. It is a

question of statutor~ construction and it is an unusual circumstance that in this Act there are several sections that confer jurisdiction in

relation to several parts and one section does it

and another does not do it. In our submission, the

inference, unattractive though it may be, is

nevertheless plain, that Parliament has failed to

confer jurisdiction. I do not embrace it with enthusiasm as an argument that has got a great

merit but if the court has no jurisdiction - - -

McHUGH J:  I had the impression you did not run the

argument.

MR BURNSIDE:	I did not raise it.
McHUGH J:	You did not raise it.

MR BURNSIDE: Yes. But a member of the court raised it on

appeal and we made submissions about it. The point

is that whether we have enthusiasm for it or not,

if the point is good, the whole proceeding is

flawed.	Those are our submissions, if the Court
please.

MASON CJ:  Yes, . thank you, Mr Burnside. We need not trouble

you, Mr Ritter.

The applicant seeks special leave to appeal on

two grounds. The first is that the Full Court of

the Federal Court was wrong in holding that the
applicant conducts "health insurance business"

within the meaning of section 67(1) of the National

Health Act 1953 (Cth). That question is a

straightforward question of statutory

interpretation raising no matter of general

principle. For that reason, it would not be

appropriate to grant special leave to appeal on

that ground.

As to the second ground, which is a point of

jurisdiction, we consider that the decision of the

majority in the Full Court of the Federal Court was

plainly right. The application for special leave

to appeal will therefore be refused.

MR RITTER:	I would ask for an order for costs for the respondent.
MASON CJ:	You cannot oppose that, Mr Burnside?
Esso(3)	11/3/94
MR BURNSIDE:	No, Your Honour.
MASON CJ:	The ~pplication is refused with costs.

AT 11.07 AM THE MATTER WAS ADJOURNED SINE DIE

Esso(3) 9 11/3/94