Bupa has challenged the legality of the risk equalisation scheme in the High Court. It says the scheme would mean it having to give around €35 million a year to its rival, the State-owned VHI.

Mr Justice Frank Clarke yesterday granted Bupa leave to seek a judicial review challenging the scheme's legality and ordered a stay on any further steps being taken by Minister for Health Mary Harney to implement the scheme until further order of the court.

Mr Paul Sreenan SC, counsel for Bupa, told the court that a decision by the Minister on the introduction of the scheme was imminent. If introduced, it would take €35 million a year of Bupa's funds and transfer it to VHI, a State-owned competitor that was in a dominant position.

"If directed under the risk-equalisation scheme to make the sort of demands required - handing twice its annual profit to the VHI - Bupa would have to pull out of the health insurance market in Ireland," Mr Sreenan said.

He said that if Ms Harney decided to adopt the Health Insurance Authority's (HIA's) recommendation and introduce the scheme, it would effectively sound the death knell of Bupa's participation in the Irish market.

"At the present time, the Minister is poised with a dagger pointed at Bupa's heart, a dagger placed into her hand by the HIA whose recommendation she requires, and has received, in order to act." Mr Sreenan said the Minister's decision was expected "perhaps today or tomorrow".

Mr Sreenan said Bupa's case was that the introduction of the scheme by the HIA and its recommendation to the Minister to implement it was an unlawful and unconstitutional exercise, exceeded its powers and breached EU laws.

He said a number of health insurance acts had been legislated in the Republic from 1994 as a result of liberalisation of the market in the European Union to allow for open competition in the field of providing health insurance contracts. They contained concepts almost unique to the Irish market. Under them, particularly amended acts of 2001 and 2003, provision had been made for the potential introduction of a risk equalisation scheme.

The current procedure was that, under the provisions of the later acts, the HIA had been established. This entity, on receipt of certain returns from health insurance undertakings, analysed the risk profile of the different insurers.

It then sought to see whether there was a difference in profile such as would warrant the commencement of the scheme, which would essentially result in the transfer of assets from one health insurance company to another.

Mr Sreenan said that, on March 15th, the HIA had told Bupa that it intended recommending the Minister apply the scheme to Bupa and did so on April 29th. The company had sought specific reasons from the HIA. The request had been declined and Bupa did not know the HIA's reasons for its recommendation to the Minister.