Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)Chapter 9 - Remedies in the Federal Court
Outline of chapter
9.1 Part 8 of the Prudential Supervision Bill relates to remedies available in the Federal Court for a private health insurer's non-compliance with an enforceable obligation.
9.2 Unless otherwise stated, all references in this Chapter relate to the Prudential Supervision Bill.
Summary of new law
9.3 The provisions of Part 8 of the Prudential Supervision Bill are based on Division 203 of the PHI Act (other than section 203-20 which relates to an adverse publicity order).
9.4 Division 203 will continue to remain in the PHI Act, but with references to the Council omitted.
Comparison of key features of new law and current law
| New law | Current law |
| The Health Minister will continue to have powers under Division 203 of the PHI Act, including power to seek an adverse publicity order, but these powers will be confined to enforceable obligations under the PHI Act. They will not extend to the Prudential Supervision Bill. Accordingly there will be no overlap between the Health Minister's powers and responsibilities in this area and APRA's powers. APRA will not have power to seek an adverse publicity order. | The Health Minister has same powers as the Council under Division 203, but the Health Minister's powers extend to all 'enforceable obligations' within the meaning of the PHI Act. They also include power to seek an adverse publicity order and seek a compensation order. |
| APRA may apply to the Federal Court for a declaration that a private health insurer has contravened an enforceable obligation within the meaning of the Bill.
The application must be brought within four years of the alleged contravention. |
The Council may apply to the Federal Court for a declaration that a private health insurer has contravened a Council-supervised obligation with the meaning of the PHI Act.
The application must be brought within six years of the alleged contravention. |
| 'Enforceable obligation' is defined in section 4 to mean any of the following:
|
'Council-supervised obligation' means a provision of the PHI Act, or rules regulations or a direction under the Act, that relate to risk equalisation or health benefits funds or prudential standards. |
| The new law mirrors the current law. | If the court is satisfied that an officer of the private health insurer failed to take reasonable steps to prevent the insurer contravening the obligation, the declaration of contravention must specify that officer. |
| The new law mirrors the current law. | If the declaration of contravention specifies an officer, the court may order the officer to pay the Commonwealth a pecuniary penalty. |
| If the court has made a declaration of contravention, the court may order the private health insurer specified in the declaration to compensate an individual for injury or loss suffered by the individual as a result of the contravention. | Only if the Minister (not the regulator) has applied to the court for a declaration of contravention, if the court has made a declaration of contravention, the court may order the private health insurer specified in the declaration to compensate an individual for injury or loss suffered by the individual as a result of the contravention. |
| The new law mirrors the current law. If the court has made a declaration of contravention, the court may make any other order that APRA applies for. | If the court has made a declaration of contravention, the court may make any other order that the Council applies for. |
| The court must not make a civil penalty order against an officer if the officer has been convicted of an offence based on substantially the same relevant conduct, and proceedings for a civil penalty order against are stayed if there are criminal proceedings based on substantially the same conduct. | This mirrors the new law. |
| Criminal proceedings may be commenced after civil proceedings under Part 8 even if they relate to substantially the same conduct, but evidence given in the civil proceedings is not admissible in certain circumstances. | This mirrors the new law. |
| APRA may require a person to assist in relation to proceedings for a declaration of contravention or for a civil penalty order. However, it must appear to APRA that the person from whom assistance is sought is unlikely to have (i) contravened the enforceable obligation to which the application relates or (ii) committed an offence based on the same or substantially the same conduct. | This largely mirrors the new law. |
| A person against whom and order is sought imposing liability in respect of a contravention of an enforceable obligation may apply to the court for full or partial exoneration (where it appears they have acted honestly and in all the circumstances should be excused from liability). | This largely mirrors the new law |
Detailed explanation of new law
Part 8 - Remedies in the Federal Court
Simplified outline of this Part
9.5 If APRA is satisfied that a private health insurer has contravened an enforceable obligation, APRA may apply to the Federal Court for a range of remedies. These may include a civil penalty order against an officer of the insurer who failed to take reasonable steps to prevent the contravention. An enforceable obligation is defined in section 4 of the Prudential Supervision Bill and includes a provision of the Prudential Supervision Bill, rules or standards, a direction under the Act, a provision of the risk equalisation levy legislation, a registration condition or an obligation in the insurer's constitution. [Part 8, Division 1, section 153]
APRA may apply to the Federal Court
9.6 APRA may apply to the Federal Court for a declaration of contravention, and seek, APRA is satisfied that a private health insurer has contravened an enforceable obligation, one or more of:
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- an order imposing a civil penalty under section 156;
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- a compensation order under section 157; and/or
- •
- any other order that APRA considers will redress the contravention. [Part 8, subsection 154(1)]
9.7 An application must be made within four years of the alleged contravention. [Part 8, subsection 154(2)]
9.8 These provisions apply in relation to all enforceable obligations including a contravention of risk equalisation levy legislation. However, these provisions do not apply to a contravention of any of the other APRA-administered levy legislation.
Declarations of contravention
9.9 If the Federal Court is satisfied that a private health insurer has contravened an enforceable obligation it must make a declaration of contravention specifying:
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- the enforceable obligation that was contravened;
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- the contravening insurer;
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- the conduct that constituted the contravention; and
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- the officer (only if the Federal Court is satisfied that an officer of the insurer failed to take reasonable steps to prevent the contravention). [Part 8, subsection 155(2)]
9.10 The Federal Court's declaration is conclusive evidence of these matters. [Part 8, subsection 155(3)]
Civil penalty order
9.11 As currently provided under subsection 203-10(1) of the PHI Act, the Federal Court may order the officer to pay the Commonwealth a pecuniary penalty of up to 1,000 penalty units, if it has made a declaration of contravention that specifies an officer. [Part 8, subsection 156(1)]
9.12 An order given under subsection 156(1) is a civil penalty order. [Part 8, subsection 156(2)]
9.13 If the Federal Court is satisfied that a court has ordered the officer to pay punitive damages in respect of the contravention, or the officer's failure to take reasonable steps to prevent the contravention, it must not make a civil penalty order. [Part 8, subsection 156(3)]
9.14 An order given under subsection 156(3) is a civil debt payable to the Commonwealth. [Part 8, subsection 156(4)]
9.15 The Commonwealth may enforce an order made in civil proceedings against the officer to recover the officer's debt. This debt is taken to be a judgment debt. [Part 8, subsection 156(5)]
9.16 The provision allows the Court to impose a large maximum pecuniary penalty. However, civil penalties must be large enough to act as an effective deterrent to the offence and also to reflect the seriousness of the offence. This is because civil penalties do not carry the criminal convictions/the stigma attached to a criminal offence.
Compensation order
9.17 If the Federal Court has made a declaration of contravention under section 155, it may order the private health insurer to compensate an individual for any injury or loss suffered as a result of the contravention. In the PHI Act, this Court could only make this order when the Health Minister had applied to the Court. It is necessary to confer this power on APRA, even though it is not a current Council power, because the Health Minister will not undertake enforcement actions in relation to contraventions of enforceable obligations under the Prudential Supervision Bill. [Part 8, subsection 157(1)]
9.18 The order must specify the amount of compensation and that it may be enforced as if it were a judgment of the Federal Court. [Part 8, subsections 157(2) and (3)]
Other order
9.19 If the Federal Court has made a declaration of contravention, it may make any order sought by APRA, which will be enforced as if it were a judgement of the Federal Court. [Part 8, section 158]
Civil evidence and procedure rules for declarations and orders
9.20 The Federal Court must apply the rules of evidence and procedure for civil matters in proceedings under Part 8. [Part 8, section 159]
9.21 The standard of proof in civil proceedings is determined under section 140 of the Evidence Act 1995 as the balance of probabilities.
Civil proceedings after criminal proceedings
9.22 The Federal Court must not make a civil penalty order against an officer of a private health insurer if the officer has been convicted of an offence involving substantially the same conduct to which the court had regard when determining that the officer failed to take reasonable steps to prevent the insurer from contravening the enforceable obligation. [Part 8, section 160]
Criminal proceedings during civil proceedings
9.23 Proceedings for a civil penalty order against an officer remain if:
- •
- criminal proceedings are started against the officer for an offence; and
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- the offence is constituted by conduct that is substantially the same as the conduct which would led the Federal Court to impose a civil penalty. [Part 8, subsection 161(1)]
9.24 The proceedings are dismissed if the officer is convicted of the offence. [Part 8, subsection 161(2)]
Criminal proceedings after civil proceedings
9.25 Criminal proceedings may be started against a person for conduct substantially the same as the conduct constituting a contravention of an enforceable obligation regardless of whether a declaration of contravention has been made under Part 8 or an order for a civil penalty or to pay compensation has been made against the person. [Part 8, section 162]
Evidence given in proceedings for penalty not admissible in criminal proceedings
9.26 Evidence of information or documents produced by an officer of a private health insurer is not admissible in criminal proceedings against the officer if:
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- the officer previously gave the evidence or produced the documents in proceedings for a civil penalty order against the officer (whether or not the order was made); and
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- the conduct alleged to constitute the offence is substantially the same as the conduct to which the Federal Court had regard in satisfying itself that the officer failed to take reasonable steps to prevent the insurer contravening an enforceable obligation under paragraph 155(2)(d). [Part 8, section 163]
9.27 This protection does not apply to criminal proceedings against the officer for providing false evidence in the proceedings for the civil penalty order. [Part 8, section 163]
APRA may require person to assist
9.28 APRA may, in writing, require a person to give all reasonable assistance in connection with an application by APRA for:
- •
- a declaration of contravention in relation to a private health insurer; or
- •
- a declaration of contravention that specifies an officer of a private health insurer; or
- •
- a civil penalty order in relation to an officer of a private health insurer. [Part 8, subsection 164(1)]
9.29 A person commits an offence with a penalty of 5 penalty units if they do not comply with a requirement under subsection 164(1). [Part 8, subsection 164(1)]
9.30 APRA may require a person to assist in connection with an application for a declaration or order under subsection (1) only if:
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- it appears to APRA that the person from whom assistance is sought is unlikely to have contravened the enforceable obligation, or committed an offence constituted by the same, or substantially the same, conduct to which the application relates; and
- •
- APRA reasonably suspects or believes the person required to assist can give relevant information. [Part 8, subsection 164(3)]
9.31 APRA cannot require a person to assist if the person is, or has been, a lawyer for the person suspected of contravening the enforceable obligation. [Part 8, subsection 164(4)]
9.32 APRA may apply to the Federal Court to order the person to comply with the requirement to assist in a specified way. Only APRA may apply for such an order. [Part 8, subsection 164(5)]
9.33 It does not matter whether the application mentioned in subsection (1) has actually been made for the purposes of this section. Requirements under subsection 164(1) do not abrogate or affect the law relating to legal professional privilege, or any other immunity, privilege or restriction that applies to the disclosure of information, documents or other things. [Part 8, subsection 164(6)]