Abela and Australian Prudential Regulation Authority
[2008] AATA 397
•18 April 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 397
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: N2006/739
GENERAL ADMINISTRATIVE DIVISION )
RePaul Abela
Applicant
AndAustralian Prudential Regulation Authority
Respondent
INTERLOCUTORY DECISION
TribunalProfessor GD Walker, Deputy President
Date of Decision 18 April 2008
Date of written reasons 15 May 2008
PlaceSydney
DecisionThe decision under review is that paragraph 1(b)(i) of the summons is set aside; that in other respects, the summons as amended by agreement at the hearing is upheld; and liberty to apply is reserved.
...............[sgd]...............................
Professor GD Walker
Deputy President
CATCHWORDS… INTERLOCUTORY APPLICATION – Summons – relevance – apparent potential relevance – oppressiveness – summons set aside in part.
RELEVANT ACT/S:
Australian Prudential Regulation Authority Act 1998 (Cth) (the APRA Act): s 56
Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act): s 40
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CITATIONS
Cosco Holdings Pty Ltd v Commissioner of Taxation (1997) 37 ATR 432
Attorney-General for NSW v Stuart (1994) 34 NSWLR 667
Australian Gas Light Co v Australian Competition and Consumer Commission [2003] FCA 1101
Comcare v Maganga [2008] FCA 285
Master Builders Association (NSW) v Plumbers and Gasfitters Employees Union of Australia (No 1) (1987) 14 FCR 479
Trade Practices Commission v TNT Management Pty Ltd (1984) 1 FCR 172
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REASONS FOR DECISION
15 May 2008
Professor GD Walker, Deputy President
Basic facts
1. At a directions hearing on 17 April 2008, the applicant put forward two interlocutory motions. One sought leave to rely on some recently filed further material comprising documents produced by the solicitors for Arthur Andersen. The other sought leave to have the cross-examination of an HIH witness, Mr Cassidy, conducted after the dates set aside for the hearing, because of his planned absence overseas. Those two matters were resolved by agreement at the hearing.
2. A third motion, this time by the respondent, is the one in issue. The respondent seeks to set aside paragraph 1 of the schedule to a summons to produce documents issued against it by the tribunal at the instance of the applicant on 28 February 2008. Paragraph 1 of the schedule reads as follows:
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1.All documents, including all manuals, guidelines, letters, notes, file notes, notes of conversations or meetings, emails, memoranda, reviews and analyses, reports and minutes dated or brought into existence in the period from 1 January 1999 to 15 March 2001 which:
(a)Relate or refer to the practice within any group of companies (including but not limited to the HIH Group) of offsetting loans or liabilities owed to one or more related bodies corporate against receivables from one or more related bodies corporate (known as “netting off”) including whether that practice was or was not consistent with the provisions of the Insurance Act 1973;
(b)Refer to, record or constitute communications between any of Richard Philip, Martin Nosek or any other officer of APRA and any of Paul Abela, Frederick Lo, Ray Williams, Dominic Fodera or any other employee or representative of HIH Casualty & General Insurance Company Limited, or between Richard Philip and any other officers of APRA, concerning:
(i) Errors, or possible errors, or non-compliance, or possible non-compliance, with the provisions of the Insurance Act 1973 in the annual or quarterly statutory returns of HIH Casualty & General Insurance Limited; CIC Insurance Limited, and/or FAI General Insurance Company Limited;
(ii) The practice of “netting off” as defined in (a) above;
(iii) The pledging of assets by entities within the HIH Group in support of letters of credit issued by banks and other financiers in respect of overseas business.
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3. In the course of argument, the issue was narrowed by agreed modifications of the language used in paragraph 1. Paragraph 1(a) was restricted to the HIH Group entities identified in paragraph 1(b), namely HIH Casualty & General Insurance Limited, CIC Insurance Limited, and FAI General Insurance Company Limited, except as regards minutes of APRA committees. In relation to committee minutes, the summons still calls for all documents relating or referring to the practise of “netting off”, whether in HIH Group corporations or not. In addition, paragraph 1(b)(iii) was deleted.
4. In support of its application, the respondent tendered an affidavit by a manager in APRA’s enforcement section, Ms Jane Sharkey, dated 16 April 2008 (exhibit R1). In it the deponent described, inter alia, the respondent’s records systems. First, she described the working of the TRIM records management system, and the results of preliminary searches conducted in it in relation to the categories of documents called for by the summons.
5. The affidavit also described how the quarterly and annual return forms submitted by APRA regulated entities, including general insurers, are stored on a database called Genisis (not “Genesis”). Documents created within APRA are usually stored on a shared N drive, to which each staff member has partial access so far as is needed for the performance of his or her duties.
6. The respondent’s enforcement unit, the affidavit continues, uses an electronic document management system known as GEMS. Through that system, electronic or hard copies of documents obtained in the course of investigations are given TRIM numbers and uploaded. In 2005 and 2006, approximately 44,000 documents, comprising over 230,000 pages, obtained by APRA in two investigations into the conduct of general insurers were uploaded into GEMS.
7. Ms Sharkey then explained that documents relating to the practise of “netting off” are also found on other TRIM files, or on the N or H drives or in emails, but are not specific to any particular business entity. For example, it might be that an APRA committee discussed the “netting off” practise and recorded that discussion in its minutes. It is not readily possible to search for that material using key words such as “netting”.
8. As regards paragraph 1(b) of the summons, Ms Sharkey reported that a search of TRIM for files with the word “HIH” in the title, conducted for the purposes of answering a Royal Commission summons, identified 917 files and 16 boxes of additional material. As TRIM does not record the files containing the material provided to the Royal Commission, all files would need to be manually reviewed to identify that material (paragraph 21).
9. The affidavit concluded that responding to the summons (in its original form) would take 3750 hours, or 101 weeks for one person.
10. Much of Ms Sharkey’s cross-examination related to matters that are no longer in issue. Part of it is still relevant, however, in relation to the applicant’s call for APRA committee minutes referring to the practise of “netting” by HIH entities or any other entities.
11. Ms Sharkey said that APRA maintains files of committee minutes which have not yet been searched for the purposes of these proceedings. They might be kept off-site, or it is possible they are maintained on-site by APRA’s corporate secretary. Asked if they could be located through searching TRIM, Ms Sharkey replied that she would need to ask but that she would expect they could.
Applicant’s submissions
12. In outlining the submissions presented, I will not summarise those relating to matters no longer in issue.
13. Mr Hilton submitted that the applicant seeks the documents, called for in paragraph 1 of the summons, for two forensic purposes. One is to obtain documentary evidence that may help to resolve the conflict of evidence between the applicant and Mr Philip about what passed between them in certain conversations. The applicant believes that material will corroborate his version of the events, particularly in relation to the practise of other corporations.
14. The second purpose is to assist the tribunal in evaluating the applicant’s conduct in 2000. It would be relevant to know whether the respondent had acquiesced in the practise of “netting off”, as that would cast light on the possible culpability or gravity, or otherwise, of the applicant’s conduct.
15. The applicant thus pressed for the production of the documents still called for by paragraph 1(a). As regards paragraph 1(b), the applicant was not in a position to name all the APRA officers concerned, because the applicant was not present at all the meetings between the respondent’s officers and HIH. Consequently, the request was not oppressive, although it could be regarded as exhaustive. In order to identify particular officers, the respondent could have reference to Royal Commission report, starting with paragraph 24.1.1.
16. The respondent had offered to produce documents that had been produced on summons to the Royal Commission, but the applicant should not be bound by that transaction. It was clear that the respondent had not yet examined all the relevant documents, and it should be required to do so. Much of the respondent’s case, Mr Hilton said, is in the nature of a “verbal”. Consequently, the applicant is entitled to have access to documents that may reinforce his position.
17. By calling for material that may indicate the prevalence of “netting off”, and the respondent’s acquiescence in it, the applicant was not seeking to paint the respondent as having vindictively pursued him personally. As his competence had been called into question by these proceedings, the accepted practise and APRA acquiescence were both relevant to showing whether or not his behaviour was exceptional.
Respondent’s submissions
18. Mr Stevenson drew attention to s 56 of the Australian Prudential Regulation Authority Act 1998 (Cth) (the APRA Act) and related provisions dealing with the confidentiality of “protected information” as defined, and prohibiting officers, subject to certain exceptions, from disclosing it.
19. Ms Sharkey’s affidavit showed that the summons was excessively burdensome, and required the respondent to conduct a search that could not be completed by the dates allocated for the hearing, but could well take until October.
20. Paragraph 21 of Ms Sharkey’s affidavit dealt with paragraph 1(b) of the summons. It showed that the respondent would need to search 917 boxes of documents, which was oppressive and would cause the parties to lose the hearing date.
21. Evidence tendered to show that “netting” was practised by other companies was irrelevant, because it would not help to resolve the conflict of evidence between the applicant and Mr Philip. The issue would be Mr Philip’s awareness, not the broader factual situation of regulated entities. As the applicant’s forensic purpose was not likely to be achieved, the tasks required to be performed by the summons were not warranted.
22. As regards the applicant’s second forensic purpose, the question of comparative odium was not relevant to the applicant’s current fitness to practise in the industry, which was the substantive issue before the tribunal.
23. The prevalence, or otherwise, of “netting” in other insurance entities, could be evaluated only by performing a comparative analysis of APRA enforcement activities, and would greatly expand the ambit of the case. The real issue remained the applicant’s current fitness, bearing in mind his state of mind at the time.
24. As regards paragraph 1(b), the respondent has produced all the witness statements and all the documents that they supplied to the Royal Commission. If any documents of the kind called for by paragraph 1(b) existed, they would already have been produced to the Royal Commission, which issued a summons in similar terms to the one in issue. In order to ensure that Mr Philip’s recollection that he did not make a diary note was correct, the respondent would need to search all its files which, as Ms Sharkey had shown, would take an inordinate amount of time.
25. By the time oral argument had concluded, the parties’ respective positions had altered substantially, but the respondent maintained its objection to paragraph 1(a), as modified, on the ground of relevance, and asked the tribunal to rule on that point.
26. As regards paragraph 1(b), the respondent maintained its objection to paragraph (i) on the ground of relevance, and also pointed out that Ms Sharkey’s evidence, especially paragraph 21 of exhibit R1, showed the magnitude of the task that would be involved. Searching that particular sub-set of documents would occupy 90 days for one person working full-time. But the documents sought by paragraph (i) were of peripheral, if any, relevance, and the respondent should not have to produce them.
Consideration
27. It is settled law that the general principles relating to the issue of subpoenas by a court apply to the issue of a summons under s 40(1A) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act): Cosco Holdings Pty Ltd v Commissioner of Taxation (1997) 37 ATR 432. A party is thus not entitled to compel the production and inspection of a document by issuing a subpoena or summons, unless it is needed for a legitimate forensic purpose: Attorney-General for NSW v Stuart (1994) 34 NSWLR 667 at 681-682. The material sought must have some “apparent potential relevance” to the matters in issue: Australian Gas Light Co v Australian Competition and Consumer Commission [2003] FCA 1101; Comcare v Maganga [2008] FCA 285.
28. The respondent’s remaining objection to paragraph 1(a) relates to minutes of APRA committee meetings, on grounds of relevance.
29. It is not in dispute that a central factual issue in the case will be how to resolve the conflict between the applicant’s and Mr Philip’s recollection of certain conversations. On the applicant’s version, a significant sub-issue will be Mr Philip’s awareness of any similar practise on the part of other insurance entities, and whether the respondent was in any way acquiescing in it. In that context, the minutes of APRA committee meetings at which “netting off” was discussed in relation to the HIH Group, or other entities, do have an “apparent potential relevance” to that issue (see Maganga). Thus, Mr Hilton has foreshadowed using that material for the purposes of cross-examining Mr Philips.
30. In the end, the respondent did not pursue the oppression argument in relation to the committee minutes, presumably in light of Ms Sharkey’s evidence that the respondent maintains files of minutes, possibly on-site in the office of the corporate secretary, or possibly off-site, and that such files have not yet been searched. She also expected that any such documents could be located through the TRIM program.
31. In the absence of some general and major misapprehension about the availability of those minutes, the efforts required to locate and produce them should not be oppressive. Nevertheless, I think it appropriate to reserve liberty to apply in case there has been such a misapprehension, and also in case such documents are found to raise issues under section 56 of the APRA Act that cannot conveniently be resolved, for example, by redacting the names of other entities.
32. As regards paragraph 1(b)(i) of the schedule to the summons, I am of the view that the language calling for documents that refer to, record or constitute communications between certain named and certain unspecified persons and representatives of HIH entities concerning “errors, or possible errors, or non-compliance costs, or possible non-compliance with the provisions of the Insurance Act”, is excessively broad. If sustained, it would call for the production of documents that have little, if any, relevance to the conversations between the two witnesses about the practise of “netting off”. It should be set aside for want of relevance.
33. The authorities appear to differ on the question whether a subpoena or summonses objectionable on the ground that it seeks, in effect, to obtain discovery of documents. Stuart answers that question in the affirmative, but other judicial statements have opined that there is no difference in principle between an application for discovery and an application for the issue of a subpoena (Master Builders Association (NSW) v Plumbers and Gasfitters Employees Union of Australia (No 1) (1987) 14 FCR 479; Trade Practices Commission v TNT Management Pty Ltd (1984) 1 FCR 172 at 176-177). Whatever the better view may be, I do not think the summons in issue amounts to an attempt to obtain discovery although, in its original form, a stronger argument might have been made that it was.
34. The tribunal’s direction is, therefore, that:
(a)Paragraph 1(b)(i) is set aside;
(b)In other respects, the summons as amended by agreement at the hearing is upheld; and
(c)Liberty to apply is reserved.
I certify that the 34 preceding paragraphs are a true copy of the reasons for the decision herein of Professor GD Walker, Deputy President
Signed: ...................[sgd].......................................................
Renee Wallace, AssociateDate/s of Hearing: 17 April 2008
Date of Decision: 18 April 2008
Date of Written Reasons: 15 May 2008
Solicitor for the Applicant: Hayden Martin, Addisons
Counsel for the Applicant: J Hilton, SC and M Izzo
Solicitor for the Respondent: Anthony Carter, Sparke Helmore
Counsel for the Respondent: J Stevenson, SC and V Whitaker
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