NIB Health Funds Ltd v Private Health Insurance Administration Council
[2002] FCA 40
•31 JANUARY 2002
FEDERAL COURT OF AUSTRALIA
NIB Health Funds Ltd v Private Health Insurance Administration Council [2002] FCA 40
ADMINISTRATIVE LAW – judicial review – procedural fairness – decision-making process of a statutory body of individuals – whether matter must be disclosed to party affected by decision where decision-maker disavows relevance of that matter and purports to exclude it from consideration – whether real risk that undisclosed matter influenced decision – whether any denial of opportunity to be heard on new matters – whether failure to make enquiries – whether irrelevant considerations taken into account such as to fetter decision-makers discretion – whether no “proper, genuine and realistic consideration” of some matters – whether other unlawful fetter on discretion or error of law – decision flawed
Administrative Decisions (Judicial Review) Act 1977 (Cth)
Judiciary Act 1903 (Cth) s 39B(1A)
Federal Court of Australia Act 1976 s 32
National Health Act 1953 (Cth)
Health Benefits Reinsurance (Trust Fund Principles) Determination 1998
Health Benefits Reinsurance (Trust Fund Principles) Amendment Determination 1999 (No1)
Health Benefits Reinsurance (Trust Fund Principles) Amendment Determination 2000 (No 1)
Dunlop v Woollahra Municipal Council [1975] 2 NSWLR 446 applied
Parramatta City Council v Hale (1982) 47 LGRA 319 applied
Telstra v Hurstville City Council (2000) 105 FCR 322 applied
Kioa v West (1985) 159 CLR 550 discussed and applied
Roderick v Australian & Overseas Telecommunications Corporation Ltd (1992) 39 FCR 134 applied
Johns v Release on Licence Board (1987) 9 NSWLR 103 discussed
Re Macquarie University; Ex parte Ong (1989) 17 NSWLR 113 discussed
Bromby v Offenders’ Review Board (1990) 22 ALD 249 discussed
Hall v Release on Licence Board (unreported, New South Wales Court of Appeal, 27 June 1989) referred to
Youssef v Minister for Immigration and Ethnic Affairs (1987) 14 ALD 550 referred to
Claro v Minister for Immigration, Local Government and Ethnic Affairs (1993) 119 ALR 342 referred to
Stollery v Greyhound Racing Control Board (1972) 128 CLR 509 referred to
Minister for Immigration and Multicultural Affairs; Ex parte Miah (2001) 179 ALR 238 discussed
Minister for Aboriginal Affairs v Peko Wallsend Ltd (1986) 162 CLR 24 referred to
Sean Investments Pty Ltd v MacKellar (1981) 38 ALR 363 referred to
Tickner v Bropho (1993) 40 FCR 183 referred to
Videto v Minister for Immigration and Ethnic Affairs (1985) 69 ALR 342 referred to
Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273 referred to
Prasadv Minister for Immigration and Ethnic Affairs (1985) 6 FCR 155 referred to
Khan v Minister for Immigration and Ethnic Affairs (1987) 14 ALD 291 referred to
Turner v Minister for Immigration and Ethnic Affairs (1987) 35 ALR 388 referred to
Teoh v The Minister for Immigration Local Government and Ethnic Affairs (1994) 49 FCR 409 referred to
Flentjar v Repatriation Commission (1997) 48 ALD 1 referred to
Tobacco Institute of Australia v NH&MRC (1996) 71 FCR 265 referred to
Bruce v Cole (1998) 45 NSWLR 163 referred to
Minister for Immigration and Multicultural Affairs v Anthonypillai [2001] FCA 274 referred to
NIB Health Funds Ltd v Private Health Insurance Administration Council
N971 of 2000ALLSOP J
SYDNEY
31 JANUARY 2002
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N971 of 2000
BETWEEN:
NIB HEALTH FUNDS LTD
APPLICANTAND:
PRIVATE HEALTH INSURANCE ADMINISTRATION COUNCIL
RESPONDENTJUDGE:
ALLSOP J
DATE OF ORDER:
31 JANUARY 2002
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.the applicant file and serve a draft copy of orders in accordance with the reasons for judgment published today within 7 days; and
2.the proceedings be stood over to a date to be fixed for the making of orders and for any argument concerning the form of those orders.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N971 of 2000
BETWEEN:
NIB HEALTH FUNDS LTD
APPLICANTAND:
PRIVATE HEALTH INSURANCE ADMINISTRATION COUNCIL
RESPONDENT
JUDGE:
ALLSOP J
DATE:
31 JANUARY 2002
PLACE:
SYDNEY
REASONS FOR JUDGMENT
This is an application for judicial review under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (the AD(JR) Act), s39B(1A) of the Judiciary Act 1903 and s 32 of the Federal Court of Australia Act 1976 of a decision of the Private Health Insurance Administration Council (the Council) made on 11 August 2000. The controversy between the parties now has two broad dimensions to it. The first is the judicial review of the decision referred to above. The second is an issue as to the constitutionality of subs 73BC(6) of the National Health Act 1953 (Cth) (the NH Act). References to legislative provisions in these reasons are references to provisions of the NH Act unless otherwise specified.
At the urging of the parties I decided that I would hear the judicial review aspect of the controversy first. This course may obviate the need to decide the constitutional question. To effect this, at the end of these reasons I set out a draft order under Order 29 Rule 2 of the Federal Court Rules providing for the separate determination of the judicial review question.
background and the constitution and functions of the respondent
The applicant conducts business as a private health fund insurer. Such business is conducted under, amongst other regulatory legislation, the NH Act. It is a registered health benefit organisation (RHBO) registered under Part VI of the NH Act.
The respondent Council is established and otherwise provided for under Part VIAA of the NH Act. The Council is a body corporate established by s 82B and consists of a Commissioner and at least two, but not more than four, other members: s 82C. At the time of the events in question the Commissioner was Mr Garry Richardson and there were four other members of the Council, Ms Anne McDonald, Ms B McNee, Mr Graham Rogers and Professor J Stoelwinder. The Council appoints a Chief Executive Officer (CEO): s 82PH, who shall, to the extent determined by the Council, manage the affairs of the Council and in so doing the CEO shall act in accordance with the policy of, and with any directions given by, the Council: s 82PJ. At the time of the events in question Mrs Gayle Ginnane was the CEO.
The functions of the Council are set out in s 82G. These functions include the administration of the Health Benefits Reinsurance Trust Fund (the Fund). The Fund is established and provided for under s 73BC. Under s 73BC RHBOs are required, under certain circumstances, to pay money into the Fund and are entitled, under certain circumstances, to receive payments from the Fund. Under subs 73BC(6) it is a condition of registration of an RHBO under Part VI of the NH Act that it shall participate with other RHBOs in the operation of the Fund by making payments into the Fund as the Council determines from time to time to be appropriate. Subsections 73BC(8) and (9) further provide for payments by RHBOs into the Fund and subs 73BC(12) provides that the Council may decide that an amount is to be paid out of the Fund to an RHBO.
The rules for the operation of the Fund are determined by the Minister in the form of written principles published in the Gazette: subss 73BC(5B) and (5D). The principles must include (a) principles for determining the method of, and the matters to be taken into account in, calculating the amounts to be paid into the Fund by RHBOs; and (b) principles for determining the method of, and the matters to be taken into account in, calculating the amounts to be paid out of the Fund to RHBOs: subs 73BC(5C). The Council is required to exercise its functions and powers in relation to the Fund in accordance with the principles: subs 73BC(5E). So, to understand how the Fund operates one needs to examine the principles. That understanding will illuminate the nature of the dispute in this case and its subject matter. I will return to these matters shortly. Before that, it is necessary to say something about the other functions of the Council.
The functions of the Council include what can be described as the prudential monitoring or supervision of RHBOs. The Council obtains regular reports from RHBOs about their financial affairs and status: paras 82G(1)(b) and (bb); it obtains from the Department data for modelling, evaluation and research: para 82G(1)(ba); it establishes uniform standards of reporting by RHBOs: para 82G(1)(c); it examines the financial affairs of RHBOs by inspection and analysis of their records and by independently valuing their assets: paras 82G(1)(d) and (e); it determines whether an RHBO is, or is about to be, in breach of minimum prudential reserve requirements provided for under s 73BAB and it is involved in recommendations to the Minister as to what action should be taken in the event of such a breach: paras 82G(1)(f) and (g); it is able to impose levies on RHBOs if one RHBO cannot meet its obligations: para 82G(1)(j); it can make statistics and financial information relating to an RHBO or RHBOs publicly available in accordance with its rules: para 82G(1)(m); and it advises the Minister about the financial operations and affairs of RHBOs: para 82G(1)(s).
As part of the above functions, the Council receives quarterly and annual financial information in specified format from RHBOs. Returns are, and have been for some years, provided by RHBOs on a quarterly basis which contain detailed information under and dealing with a profit and loss account, a capital account, solvency calculations, a balance sheet, details of investments, liquidity ratio, reconciliation of benefits. The Council thus receives and deals with a large body of financial information dealing with the financial position of RHBOs. Its functions require it to evaluate that information.
Its functions also include making information available to the public for the better understanding and utilisation of the health insurance system, eg paras 82G(1)(l), (la), (lb), (m) and (ma).
the operation of the Fund
The rules governing the operation of the Fund are underpinned by a policy of community rating. The Fund does not provide reinsurance in the accepted sense of that term as used in connection with general or life insurance. It is not a fund against which claims can be made to cover the effects of losses or primary claims beyond certain contractually defined limits. Rather, it is a mechanism whereby all RHBOs settle claims and entitlements arising from their payments in respect of aged and chronically ill patients. If a particular RHBO pays out a higher amount to such patients than the relevant benchmark, it receives money from the Fund. If an RHBO pays out a lesser amount to such members than the relevant benchmark, it is obliged to pay money to the Fund. The RHBOs settle their obligations to, or receive payment from, the Fund at the same times during the year. The payments are like those in a clearing house in that the respective rights and obligations of the RHBOs from and to the Fund create a net zero sum calculation. The combined payments by the indebted RHBOs equal the combined entitlements of the RHBOs entitled to payment. By this mechanism an averaging out of the financial burden of the aged and the chronically ill across all RHBOs is achieved.
The benchmark is calculated by the Council from information provided by RHBOs. At the end of each quarter, the Council collects information from all RHBOs in a nominated format. From this information the Council calculates the average benefits paid for the aged and chronically ill (each such category being defined) by dividing the total amount paid to such patients by the number of members (calculated in a particular way). That average (by State) is the benchmark for each State. An RHBO will pay to, or be paid a sum from, the Fund being the difference between its calculated average (its payments to such patients divided by its members) and the State average, multiplied by its membership.
Thus, if an RHBO provides the Council with quarterly financial information which mistakenly overestimates what sums it has paid to such patients a number of things will follow: first, the State average of such payments will be too high; secondly, the average of the RHBO providing the false information will be too high; thirdly, the RHBO providing the false information will be better off than it should be – either receiving more, or paying less, than in fact it would have received or paid had correct information been provided; and, fourthly, the other RHBOs will be worse off – either receiving less or paying more.
how this dispute arose
The subject matter of the dispute here arises from the fact that in 1998 and 1999 the applicant wrongly and mistakenly told the Council an underidentification of how much it paid to its aged and chronically ill patients. The miscalculation in each year was somewhat over $10m, that is over $20m for the two years. It is unnecessary to be precise about identifying by how much overpayment was made by the applicant as a result of these errors. Neither party saw that precise calculation as relevant. It suffices to say that to make that precise calculation, calculations of the State averages and the applicant’s averages would have to be revisited, but that the applicant would receive some millions of dollars back and that the other RHBOs would have to pay money back in amounts which in total equalled the payment to the applicant.
Upon discovering its errors the applicant sought a repayment from the Council. On 11 August 2000 the Council decided to refuse the applicant’s request for a recalculation and repayment. It is that decision which is the subject of judicial review in these proceedings.
the facts – an outline
It is now necessary to set out in a little more detail the facts of this matter.
The applicant’s business is predominantly carried on in New South Wales. It is the sixth largest RHBO in Australia and the fourth largest in New South Wales. As at 30 June 1998, 1999 and 2001 the applicant had 159,959, 165,263 and 228,262 members, respectively. Most of these members lived in New South Wales.
On 26 June 1998 the then Commissioner of the Council made a determination under subs 73BB(1) which required RHBOs to lodge data with the Council on membership and benefits paid, on a quarterly basis. The format of the form was called a PHIAC 1 return. The form of this return has varied over time as details of the operations of the Fund changed in accordance with Ministerial determinations made under s 73BC.
PHIAC 1 returns are lodged by the 28th day of the month following the end of the quarters ending 31 March, 30 June, 30 September and 31 December. The returns are signed by the public officer of the RHBO who must state that the information contained therein is true and correct. An independent auditor is required to provide an auditor’s certificate in accordance with Australian Accounting Standards in respect of each year’s returns.
The Council uses the information in the PHIAC 1 returns to calculate the reinsurance obligations and entitlements of the RHBOs. In another document, called a PHIAC B report, the Council sends to all RHBOs a copy of the information used for the reinsurance calculation.
In July 1998 all RHBOs were reminded by the Council of, amongst other things, the requirement for “reinsurance transactions” (which I take to be referring to payments to the aged and chronically ill) to be audited by external auditors for the four quarters to 30 June 1998.
Prior to then, in February 1998, the Council provided to all RHBOs a revised audit programme for use by their external auditors in relation to the audit of “reinsurance transactions”.
As changes were made to health insurance arrangements in 1999, with consequential changes to the PHIAC 1 returns, the Council sent updated audit guidelines revised by PricewaterhouseCoopers to all RHBOs. As part of these changes the external auditors of the RHBOs became obliged to certify the accuracy of the information in each PHIAC 1 return.
This regime makes plain what is otherwise apparent as a matter of common sense, that the accuracy and reliability of the information provided by the RHBOs, upon which the net zero sum calculation is made between competing RHBOs, is an important matter for the smooth and businesslike operation and management of the Fund and for the efficient planning and running of the affairs of each RHBO.
The applicant filed PHIAC 1 returns for the nine quarters covering the periods 1 July 1997 to 30 June 1998, 1 July 1998 to 30 June 1999 and 1 July 1999 to 30 September 1999.
In relation to each of those quarters, the Council collated the information from the applicant and the 43 other RHBOs and made the relevant calculations leading to payments to or from all RHBOs.
In October 1999 the errors were discovered by the applicant. The history of how the errors came about is set out in some detail in the request for an adjustment delivered by the applicant to the Council on 6 July 2000. What follows is taken from that document. Some elements of what follows may well be the subject of some disagreement as between the applicant and the Council, in particular as to matters of fault. It is unnecessary to descend to the detail or merits of such disagreement. It is appropriate however, in the light of the issues and submissions of the parties, to have an understanding of the applicant’s explanation of the problem.
In mid-1997 the applicant was required to write programme changes for its in-house computer software. In 1998, while conducting its 1998 audit of the applicant’s PHIAC 1 returns, the auditors detected a discrepancy between the reinsurance benefits on the returns and those calculated by the auditors on their computer programme. Discussion took place between the auditors and officers of the applicant. It was thought that the lesser amount of claims in the PHIAC 1 returns had been brought about by a decline in membership. After some investigation, the auditors and the chief financial officer of the applicant concluded that the level of reinsurance benefits in the returns (which had declined from the previous year) was explained by the applicant’s membership profile. It was concluded that the figures were “reasonable”.
In conducting the 1999 audit, a similar discrepancy was found. By the time of the audit certificate in late September 1999, a similar conclusion was reached about the level of the reinsurance benefits paid. Indeed, a review in late September by the auditors and the chief financial officer led to the conclusion that the level of claims was consistent with industry figures and the previous year (1998) and that the 1999 PHIAC 1 returns (for the four quarters ending 30 June 1999) were “reasonable”.
A further investigation was made in October 1999. This revealed an error in the software programme which was made at the time of the programme changes in June 1997. This error had led to certain reinsurance benefits which had been paid not being identified as such.
By way of explanation, the applicant claimed that, to a degree, shortness of time allowed by the Council in implementing the changes in 1997 may have contributed to the error being made.
The understatement of the reinsurance claims was $10,006,046 for the 1998 year and $10,887,165 for the 1999 year. There was also an understatement for the quarter ended 30 September 1999. An adjustment has been made in respect of this last-mentioned error and this matter was not the subject of the impugned decision made on 11 August 2000.
In early November 1999 the managing director of the applicant, Mr Colin Rogers, spoke to the Council’s CEO, Mrs Ginnane, and told her of the errors and sought a meeting as a matter of urgency. That meeting took place on 11 November. At the meeting, Mr Rogers was told of the need for, and the required content of, an application for adjustment. A short letter from the auditors was provided to Mrs Ginnane at the meeting explaining that the computer programme had not extracted all reinsurance benefits paid.
Later in November 1999, the applicant advised the Council of the amounts involved. Mrs Ginnane indicated the need for a different auditor to certify the submission for adjustment.
In mid-December 1999 the Council wrote to all RHBOs in the following terms:
PHIAC has been advised by NIB Health Fund that it has understated reinsurance benefits on their PHIAC 1 returns by $10,006,046 for the year ended 30 June 1998 and $10,887,165 for the year ended 30 June 1999.
NIB has been informed that the PHIAC Council will need to make a decision regarding any adjustments. The registered organisation will need to make a submission in respect of a request for adjustment to PHIAC in terms of the Minister’s Determination dated 30 September 1999.
This information is brought to your attention on the basis that, if the Council should accept NIB’s request for adjustment to reinsurance, it could impinge on the financial position of other organisations.
On 31 January 2000, the applicant provided a submission to the Council. It consisted of a five page letter signed by Mr Rogers, the managing director of the applicant, a fourteen page document entitled “Report on Underclaim of Reinsurance Claims” and certificates from different auditors in relation to adjusted PHIAC 1 returns for the eight quarters in the years ending 30 June 1998 and 30 June 1999.
There is no issue but that these adjusted PHIAC 1 returns are correct.
The five page letter signed by Mr Rogers reflected legal advice said to have been taken. It is unnecessary to examine the terms of the submission in any detail, save to note the following matters. First, the applicant sought to explain the computer error in a way partially exculpatory of itself, by stating the following:
2.The cause of the software error leading to the understatements of NIB’s reinsurance claims in the 1998 and 1999 returns was not entirely of NIB’s making. A material contributing cause of the error was the very limited time allowed in connection with the new PHIAC 1 form to be submitted by RHBOs from the September 1997 quarter, and PHIAC’s requirement that the information be provided in the modified form. PHIAC’s notice in relation to the new return was dated 2 June 1997, applicable 1 July 1997. NIB changed its software program in response to PHIAC’s notice to include data that was not relevant to the procedure for making payments in to the Fund. Implementing the changes to NIB’s software and the software error occurred within the same timeframe. This submission is not intended to be an exercise in attributing blame, but merely to give some explanation for what must be an error of unprecedented proportion never envisaged by whatever legislative scheme might be applicable.
3.PHIAC was nevertheless in a better position than NIB to realise that NIB was significantly understating its reinsurance claims in the 1998 and 1999 returns insofar as PHIAC could compare the information in NIB’s returns with information in other RHBOs’ returns.
Secondly, the applicant emphasised that its strict legal position “under the general law” was that it was entitled to be repaid sums overpaid as a result of a mistake. That position was set out in seven paragraphs on the fourth and fifth pages of Mr Rogers’ letter, the seventh paragraph of which stated:
By reason of the foregoing legal considerations, it becomes unnecessary to address the “exceptional circumstances” provisions of the 1999 Determination.
The reference to “exceptional circumstances” in this paragraph was to one aspect of the operation of the Fund under the then prevailing principles determined by the Minister. Under the Health Benefits Reinsurance (Trust Fund Principles) Determination 1998 and the Health Benefits Reinsurance (Trust Fund Principles) Amendment Determination 1999 (No1) the Council was able to calculate (or recalculate) the reinsurance obligations and entitlements after the expiry of a defined time period (which here applied) only if “exceptional circumstances” applied. The phrase was given content by the second of the determinations just mentioned.
What the applicant was saying in the submission was that it was entitled to refund (by payment or deferred credit) of the overpayment as a matter of general law and that it was unnecessary to address the issue of exceptional circumstances which was thrown up by the abovementioned Ministerial Determination.
I should add at this point that the Fund, when constituted, had placed in it a nominal sum to allow the operation of a bank account. Once moneys were and are received from RHBOs pursuant to the reinsurance calculations they were and are paid out at about the same time. So, the overpayments made by the applicant in 1998 and 1999 were not retained by the Council, but were in effect paid out to other RHBOs entitled to payment in the zero sum operation of each quarterly calculation.
Mrs Ginnane, the CEO of the Council, considered the applicant’s submission. The submission was included in the board papers for a meeting of the Council on 14 April 2000. Also within the board papers for that meeting was a draft letter to the applicant prepared by Mrs Ginnane. The draft letter was in substantially identical form to that sent by the Council to the applicant after the meeting. At the meeting the Council resolved:
·Not to accept NIB’s argument for adjustment as made in its current submission; but
·To provide NIB with an opportunity to put an argument of “exceptional circumstances” to the Board.
The draft letter of Mrs Ginnane presented to the Council and the letter sent to the applicant both contained the following:
…
On 14 April 2000 the Council declined to consider whether to make a determination for an adjustment payment in accordance with the Health Benefits Reinsurance (Trust Fund Principles) Amendment Determination 1998 (“the Determination”) in respect of NIB.
…3.1Your letter to PHIAC dated 28 January 2000 does not base the claim for recognition of overpayment on the “exceptional circumstances” adjustment provisions of the Determination as amended in 1999. Rather, NIB’s claim is put on the basis that the overpayment is recoverable under the general law as being paid by mistake. It is asserted that the Determination cannot validly override this position at law and that, in any case, it does not purport to do so.
3.2PHIAC rejects this interpretation. The intention of s.73BC of the National Health Act 1953 (“the Act”) is to displace the general law and provide through the Determination the only circumstances in which a payment may be made out of the fund.
…
3.5NIB is entitled to make a submission that circumstances exist that bring it within the operation of the Determination such as to entitle it to a payment out of the reinsurance fund in respect of the 1998 and 1999 financial years.
3.6However, as NIB has not placed before the Council arguments in support of a case that would justify the exercise of the Council’s discretion under the Determination to make a payment out of the fund, PHIAC has not considered whether NIB is entitled to such a payment out of the Fund.
…
At this meeting of 14 April 2000 the board requested a report from Mrs Ginnane. The minutes record the following:
Mrs Ginnane briefed the Board on the NIB Reinsurance submission. In the discussion of the issues, the Board asked that management conduct an internal review of NIB’s operations and performance, addressing the attributes required of a well run fund, and provide the Board with a qualitative and quantitative analysis at the next Board meeting.
The next meeting of the Council was on 5 May 2000. No further submission or application had as yet been received from the applicant. On 5 May 2000 Mrs Ginnane “tabled [her] draft management report, entitled ‘Draft NIB Management Review Report’ and spoke to it.” (See the affidavit of Mrs Ginnane 9 April 2001 para 116.) Neither the existence nor content of this document was made known to the applicant prior to the commencement of these proceedings. That state of affairs provides the factual foundation for one of the main arguments of the applicant to the effect that it was denied natural justice or procedural fairness in the making of the decision later, on 11 August 2000. For that reason the contents of that draft report should be described in some detail. I will refer to it hereafter as the Draft Management Report.
The Draft Management Report commenced with the following paragraph:
Background
The Board asked for a review of NIB’s Management at the Board meeting of 14 April 2000. This assessment provides some background on the fund and a view of the management based on the information presented to PHIAC as part of the submission regarding the reinsurance error and other matters over the last four years.Financial and other information was then provided about the applicant. Next, under the heading “Standard of Reporting”, the following appeared:
Generally NIB’s reporting has been good. The fund lodges its returns on time although the accuracy of the reinsurance returns (PHIAC 1) we now know to have been inaccurate for the two years up to 30 June 1999. Financial reporting has been of an appropriate quality.
NIB has not been meeting the HIC’s reporting requirements on HPPA’s and MPPA’s until recently.
The reinsurance error at the heart of this issue was detected by audit. However NIB, according to their report, decided that the audit program was wrong. It would appear to be a fundamental reporting problem that this issue was never raised with PHIAC. It is of concern that a fund could write off an audit program without even discussing it with the sponsor.
Then, under the heading “IT Systems”, four paragraphs appeared which dealt with this computer error and other aspects of the applicant’s “IT Systems” and other examples of “IT problems”.
Then, under the headings “Internal Audit” and “External Audit” the following appeared:
Internal Audit
There is no evidence of an internal audit program either in the report on reinsurance or in any other material. The reinsurance error that occurred was explained away by an internal review. There does not appear to be an ongoing review and checking process and this is confirmed from other information.External Audit
Forsythe’s of Newcastle has done the external audit for some years. During the meeting with NIB when this error was first brought to PHIAC’s notice and during the visits in relation to the new standards, it was clear that the auditor is very closely involved with the Board and management. It may be that this relationship is too close and NIB would benefit by a change in auditor, if only to provide a genuine arms length review of the organization.It was for these reasons that PHIAC required the audit in relation to this error be done by another company.
Then, under the heading “Reinsurance”, comments were made both of a general nature and in relation to the recently reported calculation problem. The following was stated:
The reinsurance reporting was incorrect from July 1997 until December Quarter 1999 when the September Quarter 1999 was corrected and NIB sought an adjustment in relation to the years 1997/98 and 1998/99.
PHIAC was provided with unqualified audit certificates for those years, although we now know that the auditors detected the error and NIB senior management discounted it.
NIB has also been prominent in complaining about the unfairness of the reinsurance system and active in encouraging acceptance of the Risk Based Capitation system because it would have improved their position in relation to other funds. The risk based capitation model is however flawed by the NIB error, which is sufficiently large to make the model wrong.
I think it is reasonable to assert that NIB lacks understanding of the principles behind the reinsurance system, despite the fact that it is a fundamental factor in running any health insurance business. The fact that the error was explained away without apparent resort to any other checking mechanism is an indicator of that lack of understanding.
Next, under the heading “Lack of Planning”, comments were made clearly dealing with the recently reported calculations problem:
The change in PHIAC reporting which required a programming change for NIB, resulting in the reinsurance error, was not a last minute change. It related to the introduction of two new categories of membership, single parent families and couples.
The Minister announced the changes in late 1996 and PHIAC produced a Circular (No 62 of 4 December 1996) informing funds that there would be new reporting requirements relating to the extra membership categories. Funds were going to need to change their IT systems to deal with the new categories even if they did not sell such types of products. PHIAC then provided a detailed circular listing the changes on 30 May 1997 with the changes to take effect with the September Quarter reporting.
In effect NIB had 6 months to plan the system change which all other funds managed successfully.
It was in that context of over three pages of discussions of the operations of the applicant intertwined with a discussion of how the recently reported error arose and responsibility for this that Mrs Ginnane stated the following about her views of the applicant under the headings, “NIB Board” and “Board and Management – Summary”:
NIB Board
I have not met the full Board of NIB but have had a number of meetings involving Board members, most recently during the visit to explain the solvency and capital adequacy standards. My observation is that the Managing Director is very dominant in relation to the Board and generally, the Board as a whole tends to defer to him. I would suspect that corporate governance is somewhat lacking and certainly, given this issue of reinsurance, there does not appear to have been any major action taken internally by the Board in relation to an error of $21 million to hold anyone accountable for that error.The Board, at 30 June 1999 comprised of the following:-
·John Moore – Company Chairman since 24 March 1986, Director since 1970 (ASA, ACIS, Investment Adviser, Morgan Stockbroking Ltd)
·Ronald G Hooker – Director since 1972 (Retired)
·Colin Rogers – Managing Director, Director since 1990 (FCPA , ACIS, ACIM)
·John Graham – Director since 1977 (Consultant)
·John Larkin – Director since 1992 (Company Director)
·Grahame Cannon – Director since 1998 (Investor)
The organisation has Investment, Remuneration and Audit sub-committees.
Board and Management – Summary
I think there is sufficient evidence to suggest that NIB’s Board and Management lacks understanding of key components of the industry in which they are operating.NIB’s management:
·lacks a fundamental understanding of reinsurance which is a major factor in private health insurance
·does not plan adequately
·lacks an internal audit system
·needs to change its external auditor
·had IT system problems which were significant, at least until recently
·is not fully accountable for their errors.
The NIB Board does not obviously have a corporate governance system in place and are perhaps too close to the managing director and do not exert sufficient independent influence to ensure that members’ interests remain paramount.
The minutes of the Council meeting of 5 May 2000 record the following under the heading “NIB Management Review”:
Mrs Ginnane advised the Board on the background to the NIB Health Fund and on PHIAC’s view of the management of the Fund based on information presented to PHIAC as part of NIB’s submission on its recent reinsurance error and other matters over recent years.
The Board considered Mrs Ginnane’s report. The Board requested that the management seek appropriate assurance from NIB that the difficulties that lead to the reinsurance error had been fully addressed and that there were now in place such governance and systems procedures, including adequate audit arrangements, to ensure similar errors would not re-occur. A suitable draft letter to NIB is to be prepared by PHIAC’s lawyers and be available for consideration at the next Board meeting.
I leave to one side for the moment the explanations of the respondent Council and Mrs Ginnane for the fact that the applicant was not informed of the existence and content of this document and of the views of Mrs Ginnane contained within it. It is sufficient at this point to note that in her second affidavit of 12 June 2001 Mrs Ginnane, in discussing the Council meeting of 14 April, referred to two “issues” – the first being the request for an adjustment and the second being “the source and cause of the NIB error”. Mrs Ginnane said in this affidavit (para 8):
… The Council was concerned as to how an error of such magnitude could occur and remain undetected for an extended period of time by NIB. Council requested this review result in a qualitative and quantitative analysis report of NIB operations and also that the report should address the attributes one would expect of an efficient and effective organization. Council requested the report to be presented at the next Council Meeting.
It should also be noted that Mrs Ginnane said in her affidavit of 9 April 2001 (para 118) that the report requested on 14 April 2000, being it was said “an assessment of the management of NIB”, was not completed by 5 May 2000 and was “never completed”, “instead” the document referred to in [45] to [52] above was tabled. What the Council called for at the meeting of 14 April 2000 was recorded in the minutes and is set out in [44] above.
The next Council meeting was held on 9 June 2000. Mrs Ginnane said in her affidavit of 9 April 2001 that she briefed the Council on “NIB reinsurance issues”. The Council expressed a concern wider than merely the applicant’s position and problems. The minutes of the meeting record the following under the heading “NIB Reinsurance Update”:
Mrs Ginnane briefed the Board on the NIB reinsurance issue. She circulated a letter, dated 1 June 00, from NIB’s lawyers advising that they had been delayed in their preparation of NIB’s claim and that they expected the material to be lodged in time for PHIAC’s consideration in July 00.
The Board believed that the matter raised a number of general issues that not only involve NIB but also 3 or 4 other funds for which reinsurance adjustments have been of concern. In the circumstances, a thorough review of the reinsurance audit and certification process across the industry is considered necessary.
Accordingly, the Board asked that management undertake a general review of the reinsurance audit and certification process.
Essentially, the Board wants to be satisfied that all funds are aware of their obligations under reinsurance, that Fund Boards sign-off on the accuracy of their reinsurance audits, and that the overall industry process is sufficiently robust to ensure the future integrity of the reinsurance arrangements.
In late June 2000 solicitors for the applicant informed Mrs Ginnane of the advanced state of preparation of a submission for an adjustment and the applicant’s intention to have this submission available before the Council’s next board meeting on 14 July 2000. It also sought confirmation (which shortly thereafter was given) that the relevant principles governing the Council’s consideration of the matter were no longer those referred to in the Ministerial Determinations mentioned in [39] above and which threw up the notion of “exceptional circumstances”, but those contained in the Ministerial Determination of 3 May 2000. The changes had been made by the Health Benefits Reinsurance (Trust Fund Principles) Amendment Determination 2000 (No 1). That Determination included Part 3A, entitled “Adjusting Calculations”. Section 3A.1 of the Determination provided:
3A.1 Calculation of appropriate payment may be adjusted
(1)If, after a calculation (the primary calculation) is made under section 2.6 or 3.3, the Council receives information (new information) on a matter mentioned in subsection 2.2(1) that, if received earlier, would have affected the result of that calculation, the Council may make a further calculation taking account of the new information.
(2)Unless subsection (3) applies, a further calculation may be made only if the new information is received by the Council:
(a) during the financial year in which the particular quarter concerned occurs; or
(b) within the period provided under subsection 82L(2) of the Act for the giving of the report, described in that subsection, that relates to the particular quarter concerned.
(3)A further calculation may be made as a result of new information received later than is allowed under subsection (2) if the Council is satisfied that:
(a)the new information demonstrates that, in preparing its report in respect of information that the Council is required to acquire under subsection 82G(1) of the Act, the registered organisation made a significant error; and
(b)it is in the best interests of registered organisations generally, and good administration of the Fund, that a further calculation be made. [emphasis added]
Thus, it was agreed in 2000 between the applicant and the Council, subject to the argument based on restitutionary principles at general law, and it was common ground before me, that the decision of the Council as to a readjustment was one found in paras 3A.1(3) referred to in [57] above. Further, given that there was no debate about whether there was a “significant error” for paragraph 3A.1(3)(a), the real question for the Council was whether it was in the best interests of “registered organisations generally” and “the good administration of the Fund” that a further calculation be made for paragraph 3A.1(3)(b).
As I have earlier explained, a readjustment of a calculation previously made potentially affected all RHBOs and not merely the RHBO which made the mistake leading to the readjustment. If such a readjustment were made it could (as here) give rise to a not insignificant liability upon other RHBOs to make further payments to the Fund. Also, the operation of the Fund itself might be disturbed by the need for large payments otherwise than in the course of a quarterly settling of accounts in the regular zero sum calculation. For these reasons the Determination operative after May 2000 provided for staggered payments. This was set out in sections 3A.2 and 3A.3 of the principles which contained the following provisions:
3A.2 Determination of adjustment payments
If a further calculation made under section 3A.1 shows that a payment made under subsection 73BC(6) or (12) was not appropriate the Council may determine:
(a)under subsection 37BC(6) – that an adjusting amount is an appropriate payment in relation to the registered organisation concerned; or
(b)under subsection 73BC(12) – that an adjusting amount is to be paid to the registered organisation concerned.
3A.3 Application of adjustment payments
(1)In general a determination under section 3A.2 takes effect in the first reinsurance settlement period for the registered organisation concerned that follows the making of the determination:
(a)if subsection 73BC(6) applies – as an appropriate payment in relation to that organisation; or
(b)if subsection 73BC(12) applies – as an amount to be paid to that organisation.
(2)However, if the Council is satisfied that the financial stability of the registered organisation, or the Fund, would be unreasonably affected by the application of subsection (1), the determination takes effect as payments (proportional, or as otherwise decided by the Council) in:
(a)the reinsurance settlement period mentioned in that subsection; and
(b)as many subsequent reinsurance settlement periods as the Council determines to be reasonable.
[emphasis added]
The phrase “unreasonably affected” used in subs 3A.3(2) was defined in section 3A.3 to mean:
(a)in the case of an organisation having to pay an adjusting amount subsection 73BC(6) of the Act – that the amount of the payment is so large that, in the opinion of the Council, the financial stability of the organisation would be at risk; or
(b)in the case of a payment having to be made under subsection 73BC(12) of the Act – that the amount of the payment would be greater than 1% of the amount, at the time the determination is made, of the State or Territory pool of the Fund from which the payment is to be drawn.
[emphasis added]
On 6 July 2000, by email, and on 7 July 2000, by hand, the applicant delivered to the Council a request for further calculations and determination of adjustment payments. The request was in the form of an eight page letter signed by Mr Colin Rogers, the managing director of the applicant and an enclosed sixteen page report.
The request was for a recalculation and adjustment under the Ministerial Determination. However, the request was expressed to be “without prejudice to NIB’s legal rights in respect of PHIAC’s decision and reasons as set out in your letter dated 19 April 2000, in respect of NIB’s previous submission.” In other words, the applicant was maintaining its claim to its legal right of repayment under the general law based on its mistake in overpaying.
I will return to an examination of the contents of the request when I deal with the contention by the applicant that the respondent Council’s reasons display, when compared with the content of the request, a failure to accord the applicant procedural fairness, (see [132] et seq below).
One further matter should be noted at this point. The request stated, on page 2 of Mr Rogers’ letter, the following about the basis of the request:
I should record at the outset, NIB’s position that the amendments gazetted on 3 May 2000 are applicable to these requests. NIB’s position accords with the obiter views expressed by Justice Goldberg in paragraph 23 of his reasons for judgement [sic] in Australian Unity Health Ltd v PHIAC [2000] FCA 799. It also appears to be the current view of PHIAC, as reflected in the terms of your letter dated 29 June 2000 to our Solicitor, Mr Paul Anicich at Sparke Helmore.
Since the issue does not appear to be in dispute, NIB has not developed its position on that issue here. If, contrary to NIB’s understanding, PHIAC is inclined to take a different view on the relevance of the latest amendments to NIB’s requests, NIB would wish to be heard on the matter prior to PHIAC finalising its position on those requests.
...The request was not dealt with at the next meeting of the Council on 14 July 2000, there being insufficient time to consider it. The minutes of this meeting record that the board asked that the Council’s legal advisers be requested to attend the next meeting to brief the board on the applicant’s request.
Prior to the next board meeting on 11 August 2000, Mrs Ginnane considered the request and met with the Council’s solicitors, Phillips Fox. She came to the view that the request should be rejected. She prepared, in consultation with solicitors from Phillips Fox, three documents of some importance. The first was a board briefing paper of a little over one page which contained a recommendation that the applicant’s request be rejected, that the enclosed draft reasons be provided by way of explanation for that decision and that the Council should write to the Chairman of the applicant seeking assurances to prevent a re-occurrence of the problem. The second was a short draft letter informing the applicant of the decision. The third was a document of a little over nine close typed pages of draft reasons for the decision.
The briefing paper was entitled “NIB Reinsurance” and contained the following:
Recommendation:
That the Board should not make an adjustment for NIB,That the attached statement of reasons be provided to NIB in explanation of PHIAC’s decision, and
That PHIAC should write to the Chairman of NIB seeking assurances that the appropriate systems have been put in place to prevent a re-occurrence.
Background
The Board is aware that NIB wrote to PHIAC on July 6 requesting that PHIAC use its discretion to make an adjustment in relation to an error reported by NIB for the years ended 30 June 1998 and 30 June 1999. A copy of the request is attached at pages 118-133 for reference.PHIAC has considered NIB’s request carefully however on balance the arguments presented by NIB are outweighed by:
·The precedent which could be caused by allowing an adjustment after the period considered by the Minister’s determination and the signal that would send to the industry,
·While the source of error for NIB is different from the current Federal Court case involving four funds, PHIAC is maintaining its consistency in acting in accordance with the Minister’s Determination
·Good governance of other funds who have acted appropriately in providing correct data
·Funds which have managed their affairs and budgeted for contribution rates in good faith on the reported reinsurance outcomes.
A draft Statement of Reasons for PHIAC’s decision is attached at pages 134-144.
…
Earlier this year the Board considered that PHIAC should write to NIB seeking an assurance that NIB had put in place the appropriate mechanisms such as internal audit to minimise the likelihood of future error. This letter should now be drafted and sent to the Chairman of the Board. It may be appropriate to suggest that NIB seek a new auditor in the light of information provided in NIB’s report that the auditor discovered the error and accepted NIB’s explanation without any qualification to the audit report.
The draft decision was substantially identical, with only minor exception, to the decision and reasons sent to the applicant under cover of letter dated 11 August 2000. Section 1 of the decision set out the statutory and factual background as well as the essential findings. The latter included findings that the applicant made a significant error for the purposes of para 3A.1(3)(a) of the relevant Determination (see [57] above) and that the Council was not satisfied “that it is in the best interests of registered organisations generally, and good administration of the Fund, as required by para 3A.1(3)(b), that a further calculation be made.”
Section 2 of the decision then listed 23 documents being “evidence or other material on which findings were based.” These did not include the Draft Management Report.
Section 3 of the decision was entitled “Reasons for the Decision”. The first subsection of section 3, section 3.1, dealt with the effect of Part 3A and was as follows:
3.1.1Part 3A of the Determination as inserted by Amending Determination No.1 of 2000 is the legislation applicable to the calculation of any adjustment of the amount payable in to the Fund by NIB. Support for this view is to be obtained from the decision of Goldberg J in Australian Unity Health Ltd v PHIAC, Federal Court of Australia, 8 June 2000.
3.1.2The new information provided by NIB was not received by PHIAC within the period referred to in section 3A.1(2). Accordingly, if a further calculation is to be undertaken, PHIAC must be satisfied of the matters referred to in section 3A.1(3).
3.1.3Having regard to the amount that NIB understated in reinsurance claims for the 1998 and 1999 financial years and the effect on NIB’s financial affairs and contributors of the payment by NIB to the Fund in 1998 and 1999 as a result of that error, PHIAC is satisfied that NIB made a significant error as referred to in paragraph 3A.1(3)(b).
3.1.4PHIAC notes that there are two requirements specified in section 3A.2(3)(b) in relation to which it must be satisfied while they may be thought to be interrelated, PHIAC must nonetheless be satisfied that undertaking a further calculation is in the best interests both of registered organisations generally and the good administration of the Fund.
Section 3.2 of the reasons paraphrased and summarised the applicant’s arguments.
Section 3.3 of the draft reasons, and the reasons sent to the applicant, are different in one minor respect. Given the importance of the reasons I set out in full section 3.3 of the reasons sent to the applicant. The sentence in bold in para 3.3.12 below is in the reasons as sent, but not the draft reasons.
3.3PHIAC’s Conclusion
3.3.1PHIAC has paid careful attention to and considered the comprehensive arguments put by NIB in support of this claim. However PHIAC has rejected the claim because those arguments do not take into account the following matters which, in PHIAC’s view outweigh the arguments advanced by NIB.
3.3.2PHIAC notes that the Determination was amended on 18 April 2000 by the deletion of the requirement that a RHBO has to establish “exceptional circumstances” before its contribution to the Fund in relation to a previous year could be recalculated. The more general requirement now specified is first that the RHBO demonstrate that it made a significant error.
3.3.3As indicated previously, the nature of NIB’s miscalculation was of such size and had such an impact on NIB and its members that it could properly be described as “significant”.
3.3.4Secondly, the amended Determination requires PHIAC to conclude that the best interests of registered organisations generally and good administration of the Fund require a further calculation. No factors are set out in the Determination to guide PHIAC in reaching a conclusion on these matters. PHIAC has accordingly had regard to its understanding of the purpose of the Act and the Determination in relation to the Fund and the interests of RHBOs. It has also drawn upon its experience in administering the Fund and the knowledge that it has acquired in carrying out its statutory functions of the management practices of RHBOs generally.
3.3.5These factors have persuaded PHIAC to follow the general policy that certainty is an essential element of good administration of the Fund. This will not be the sole determinant of Fund administration. PHIAC recognises that Part 3A of the Determination permits recalculation of amounts payable into and out of the Fund. However, the Fund cannot be managed in the best interests of RHBOs generally if the calculations of payments into and out of it have to be frequently revisited.
3.3.6PHIAC is also of the view that primary responsibility for the representation of accurate information relating to contributions to the Fund rests with individual RHBOs. In making its calculations relating to the fund, PHIAC depends upon accurate information from RHBOs. It is not in a position to obtain the requisite information except from the individual RHBOs. It will also often not be in a position to check that information. For that reason, PHIAC seeks certification of the accuracy of the information by the public officer and requires that an annual audit be done attesting to the accuracy of the information provided to PHIAC. NIB’s submission notes that the error was detected by the auditor. However, the audit report provided to PHIAC was unqualified.
3.3.7PHIAC considers that the proper functioning of the reinsurance scheme is dependent upon acceptance by RHBOs of mutual obligations to put in place systems that ensure that the information first supplied to PHIAC is correct. The need for recalculation of all RHBO’s contributions as a result of one RHBO getting its figures wrong must be kept to a minimum.
3.3.8For the best interests of both RHBOs generally and the good administration of the Fund to be served, it is appropriate that RHBOs be able to plan their affairs and not be required to repay money to the Fund in every case where another RHBO has made a mistake in an earlier year. Organisations which manage their affairs and increase their rates once per year budget on known information. If adjustments have to be made it is possible that those organisations may need to bring forward rate increases. This would disaffect their members and not be in the interests of those organisations or the industry as a whole.
3.3.9The best interests of the RHBOs generally should take into account not only the effect of not making an adjustment calculation on a particular RHBO, but also the effect on all other RHBOs who have planned their affairs on the basis of calculations and adjustments of the Fund previously made. The recalculation of the quantum of the Fund requires a consequent adjustment for all other RHBOs. [emphasis in original]
3.3.10Applying these principles to the present circumstances, adherence to NIB’s request would require the recalculation of the deficit of the Fund in the years 1998 and 1999. The contributions of RHBOs to the Fund commencing with the September quarter 2000 would then have to be adjusted to take account of the payment from the Fund of the amounts foregone by NIB in 1998 and 1999 as a result of its errors.
3.3.11In determining whether to adhere to NIB’s request, PHIAC notes that the obligation to contribute to recompensing NIB for its error will fall on current members of RHBOs. This will include members who have joined a RHBO since 1999, including the new lifetime health cover members. Similarly, calculations for the purpose of the Fund are affected by market share. This has changed for RHBOs since 1998 and 1999.
3.3.12PHIAC is aware that this is a necessary consequence of the operation of section 3A.1 of the Determination and it does not say that further calculations can never occur. But it considers that the impact on other RHBOs is a relevant factor in determining what is in the best interests of RHBOs generally and in this context the size of the NIB claim is a relevant factor. The liability will appear immediately on the balance sheets of all other RHBOs and will affect their capacity to comply with present solvency and capital adequacy requirements under the Act.
3.3.13While it is possible for an adjustment of the Fund to be implemented over a period of time, this has primary relevance to the prevention of an RHBO being drastically affected by having to meet an immediate payment which it is unable to fund. However, in PHIAC’s view it is at the very least possible that some RHBO’s will not be able to manage a readjustment of their contribution to the Fund without a breach of either the current standards or the proposed solvency and adequacy standards even though an extended adjustment period is set. Many RHBO’s would be able to absorb such an adjustment but it cannot be ruled out that some RHBO’s when faced with an adjustment payment will not be able to meet the capital adequacy requirements. This will particularly be the case with smaller funds. Some RHBOs may be obliged to increase members’ contributions to meet the adjustment. In these cases this could affect membership numbers in such a way that they may cease to be viable. In short, it is PHIAC’s opinion, based on its experience of the industry, that an extended settlement period may not be sufficient to avoid difficulties for other RHBOs that would be affected by recalculation of Fund contributions.
3.3.14More generally, RHBOs need to plan their affairs over a number of years against a background of the amounts that they have either to pay into, or receive from, the Fund. For those amounts to be changed even on a graduated basis in respect of years that can be effectively thought to have been closed off does not enable or encourage efficient and effective planning by RHBOs.
3.3.15Assuming the interests of the applicant RHBO are relevant to the factors set out in paragraph 3A.1(3)(b) of the Determination, regard must be had to all the circumstances on which the RHBO relies. In this case, NIB was alerted by its auditors in 1998 to the fact that there was possibly a deficiency in its returns for 1998. The warning was repeated for the 1999 return. NIB had the opportunity to undertake further investigations to ascertain whether there was a problem but it did not advise PHIAC of its awareness of the issue until 11 November 2000.
3.3.16The reasons given by NIB for not taking sufficient steps to identify the existence of an error and rectify it have been set out in NIB’s submissions to PHIAC. Regard has been paid to this submission in reaching the conclusion that NIB’s circumstances are insufficient to justify a further calculation. PHIAC notes and comments particularly on the following:
·NIB has claimed the error occurred at a time when NIB was reducing its staff numbers and restructuring its Information Services Department. NIB’s choice of deployment of its resources cannot provide a reason for difficulties in meeting statutory obligations.
·NIB says that declining membership provided an explanation for the apparent drops in reinsurance claims. There was, however, no drop in total claims by members. Declining membership also does not provide an explanation when regard is paid to general industry experience because reinsurance claimants do not give up membership of RHBOs. It is the young and healthy who first resign membership of a RHBO as they make fewer claims. The old and ill tend to retain membership as they make claims for benefits. NIB should have been aware of these factors and investigated further the drop in reinsurance claims.
·NIB asserts that it was disadvantaged because PHIAC required changes to PHIAC returns and gave short notice of this requirement. RHBOs were given advance notice of the change to be implemented with effect from the September quarter, 1997, by Circular No. 62 dated 4 December 1996. No RHBOs, including NIB, reported any difficulties to PHIAC in meeting the deadline set.
3.3.17PHIAC has taken into account all the other circumstances advanced by NIB to explain its error, (although it does not consider that all those circumstances were beyond NIB’s control).
3.3.18However, whatever weight is given to NIB’s circumstances, it is not sufficient to persuade PHIAC that the best interests of organisations generally and good administration of the Fund indicate that a further calculation pursuant to paragraph 3A.1(3) of the Determination should be made.
The next complaint was that no real and genuine consideration was given to current Ministerial principles. In this complaint the applicant sought to characterise what the Council did really as a form of analysis as to whether there were “exceptional circumstances”. Paragraph 1.1.6 of the statement of reasons expressly stated that the decision was based on the correct written principles. I do not think that the substance of the approach of the Council is one which betrays a failure to heed the terms of the then current written principles. This complaint does not form the basis of any legitimate attack upon the Council’s decision.
the making of the decision involving the exercise of a discretionary power in accordance with a rule or policy without regard to the merits of a particular case: para 5(1)(e) of the AD(JR) Act.
It was said that there was an over-rigid or unlawful policy adopted by the Council to the effect that further calculations outside the primary period should invariably be refused. If such a policy had been adopted then it would, without doubt, have been contrary to the written principles and an unlawful fetter on the discretion contained within those principles.
However, as I have earlier indicated, while I am troubled by some of the language used, in particular in the briefing paper produced for the Council, I do not conclude that such an unlawful policy was adopted, nor do I conclude that genuine and realistic consideration was not given to the merits of the applicant’s case. I do not think that I need traverse all the submissions of the applicant in this respect. I am not persuaded that in the light of the terms of the reasons and of the briefing paper to the board, and considering the evidence, that the Council did other than place significant weight upon the need for certainty and consistency.
error of law: para 5(1)(f) of the AD(JR) Act
Various matters were raised. Some of them relied on matters already mentioned and reiterated them under another legal framework.
The first matter identified was the failure to make appropriate enquiries of RHBOs. This has been dealt with earlier in the section of these reasons on natural justice (see para [142]-[148] above). For the same reasons it fails.
The next matter was the lack of probative evidence said to underpin the conclusions, in particular those conclusions about the effect on other RHBOs. I have dealt with this earlier. This attack fails.
The next heading under “Error of Law” was what was said to be the misconstruction of Ministerial principles. This was another way of putting the argument that when one examines the reasons and the briefing paper one sees an approach based upon extraordinary circumstances rather than the matters in para 3A.1(3)(b) and an inflexible policy not to make adjustments outside the primary period. I have dealt with both these matters earlier and I reject them.
One matter which needs to be dealt with are the submissions founded on the reference in the briefing paper referred to at [67] above, in the second bullet point, to the effect that the Council is “maintaining its consistency in acting in accordance with the Minister’s Determination”. It was said that this betrayed the fact that Mrs Ginnane was urging the Council to move under the Minister’s determination relevant at the time of the Federal Court case before Goldberg J, which judgment was appealed to the Full Court. Those written principles, of course, were the earlier and outdated written principles. I do not think that the reference is to be so explained. There was in this case, until very shortly prior to the hearing of this matter, a live issue as to whether recovery of moneys could be made outside the relevant written principles, under the general law. I do not think that Mrs Ginnane was urging the Council to use the out of date written principles in this paragraph; rather, I think she was indicating consistency of the Council in dealing with the matter under the written principles and under no other legal framework. I do not take her to have been referring to one particular, and out of date, set of principles. This attack fails.
the decision was so unreasonable that no reasonable person could have made it: para 5(1)(e) of the AD(JR) Act
In the light of all the evidence, I do not think that it is arguable that the decision was so unreasonable that no reasonable person could have made it. The choice to refuse the adjustment was plainly open to the Council. This attack has no merit.
conclusion
In the light of the above reasons, my view is that the decision of the Council made on 11 August 2000 was and is flawed by reason of the failure of the Council to accord the applicant procedural fairness in connection with (a) the Draft Management Report and (b) the effect of any adjustment on the compliance by certain RHBOs with solvency and prudential requirements under the NH Act.
In these circumstances my view is that the decision should be set aside and remitted to the Council for reconsideration and re-determination.
The parties requested me to hand down my reasons prior to making final orders. In the light of this the draft orders which I would propose be made are as follows:
1.that the questions set out in Part A of the Further Amended Application filed on 26 April 2001 and in paragraphs 1 to 28 and 40 to 47 of the Further Amended Statement of Claim be heard and decided before any further trial in the proceedings;
2.that the decision of the Private Health Insurance Administration Council made on 11 August 2000 to refuse to accede to the application of NIB Health Funds Limited for a readjustment of rights and obligations under Part 3A of the Health Benefits Reinsurance (Trust Fund Principles) Determination 1998 be set aside;
3.that the matter be remitted to the Council for further consideration and determination according to law; and
4.that the respondent pay the applicant’s costs.
The parties may wish to put submissions as to the form of these orders consistent with these reasons. To this end I propose to make the following orders:
1.that within 7 days the applicant file and serve a draft copy of orders which it proposes in accordance with these reasons for judgment; and
2.that proceedings be stood over to a date to be fixed for the making of orders and for any argument concerning the form of those orders.
I certify that the preceding one hundred and seventy (170) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop.
Associate:
Dated: 31 January 2002
Counsel for the Applicant:
Mr A Robertson SC with Dr J Griffiths SC
Solicitor for the Applicant:
Sparke Helmore, Newcastle
Counsel for the Respondent:
Mr R Tracey QC with Mr T Ginnane
Solicitor for the Respondent:
Phillips Fox, Canberra
Date of Hearing:
29, 30 October 2001; date of last submissions 19 November 2001
Date of Judgment:
31 January 2002
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