Applicant X v Australian Prudential Regulation Authority - [2005] FCA 1288

NOTE: THIS JUDGMENT IS PUBLISHED IN REDACTED FORM AT THIS STAGE, PENDING THE OUTCOME OF MOTIONS IN APPEALS NSD1793/2005 AND NSD1794/2005 FOR SUPPRESSION ORDERS. THOSE MOTIONS ARE CURRENTLY STOOD OVER FOR DIRECTIONS TO 10 OCTOBER 2005.
FEDERAL COURT OF AUSTRALIA
Applicant X v Australian Prudential Regulation Authority
[2005] FCA 1288

STATUTORY INTERPRETATION – Insurance Act 1973 (Cth), s 25A – jurisdiction or power of Australian Prudential Regulation Authority to disqualify a senior manager of a foreign general insurer – territorial nexus with Australia – whether territorial nexus is to be implied – whether implied that person must have been or acted as a senior manager in Australia of the foreign general insurer.
STATUTORY INTERPRETATION – Royal Commissions Act 1902, s 6M – whether officer of Australian Prudential Regulation Authority (‘APRA’) contravened section by giving a notice calling upon person to show cause why he should not be disqualified under s 25A of the Insurance Act 1973 (Cth), based on facts of which he testified before a Royal Commission – whether APRA would do so by proceeding to disqualify him on the basis of those facts.
Insurance Act 1973 (Cth), ss 24, 25A
Royal Commissions Act 1902, s 6M
Acts Interpretation Act 1901 (Cth), ss 15A, 21, 46
Crowe v The Commonwealth (1935) 54 CLR 69
Kirmani v Captain Cook Cruises Pty Ltd (No 1) (1985) 159 CLR 351
Kamha v Australian Prudential Regulation Authority [2005] FCA 480
D Pearce & R Geddes, Statutory Interpretation in Australia, 5^th ed, Butterworths, Sydney, 2001
APPLICANT X & ANOR v AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY & ANOR
NSD 726 of 2005
APPLICANT Y & ANOR v AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY & ANOR
NSD 727 of 2005
LINDGREN J
16 SEPTEMBER 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 726 OF 2005

BETWEEN:

APPLICANT X
FIRST APPLICANT

APPLICANT Z
SECOND APPLICANT

AND:

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
FIRST RESPONDENT

MARK GODFREY
SECOND RESPONDENT

JUDGE:

LINDGREN J

DATE OF ORDER:

16 SEPTEMBER 2005

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The questions ordered on 13 May 2005 to be separately decided be amended to take the form which appears in order 2 below.

2. The following questions be answered as follows:
A.Does the first respondent have jurisdiction or power under s 25A of the Insurance Act 1973 (Cth) (‘the Act’) to disqualify the first applicant from holding any of the positions referred to in s 24(1) of the Act?
Answer:Yes

B.Does the use by the first or second respondent of the evidence of the first applicant before the Royal Commission contravene ss 6DD or 6M of the Royal Commissions Act 1902 (Cth)?
Answer:No

3.The applicants pay the respondents’ costs of the determination of the separate questions.

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

N 727 OF 2005

BETWEEN:

APPLICANT Y
FIRST APPLICANT

APPLICANT Z
SECOND…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2005] FCA 1288
Decision Date: 16 SEPTEMBER 2005

CaseChat Overview and Summary

The matter before the court involved Applicant X, a senior manager of the [Z Co] Group, and the Australian Prudential Regulation Authority (APRA). Applicant X sought a declaration that APRA lacked the jurisdiction or power to disqualify him from holding certain positions under the Insurance Act 1973 (Cth). Additionally, Applicant X argued that the use of his evidence before the Royal Commission by APRA contravened sections 6DD or 6M of the Royal Commissions Act 1902 (Cth). The court was tasked with deciding whether APRA had the authority to disqualify Applicant X and whether the use of his evidence before the Royal Commission was permissible.

The court examined the scope of APRA's power of disqualification under section 25A of the Insurance Act 1973 (Cth). The primary issue was whether APRA could disqualify Applicant X, who had no connection to Australia and had not been in a prudential risk position for years. The court noted that while the Commonwealth Parliament has the power to enact laws with extra-territorial effect, the disqualification power must still be read in light of the Act’s protective objects and any necessary nexus to Australia. The court held that APRA’s power to disqualify was valid and could be exercised if there was at least a remote chance that the person might take up a position that could affect the Australian operations of an insurer. The court also determined that the use of Applicant X's evidence before the Royal Commission did not contravene sections 6DD or 6M of the Royal Commissions Act 1902 (Cth).

In conclusion, the court ruled that APRA had the jurisdiction and power to disqualify Applicant X from holding specified positions under the Insurance Act 1973 (Cth). Furthermore, the use of Applicant X's evidence before the Royal Commission was not in breach of the Royal Commissions Act 1902 (Cth). The applicants were ordered to pay the respondents’ costs associated with the determination of the questions.

This decision highlights the extensive reach of regulatory powers under Australian law and the careful consideration required when determining the applicability of such powers to individuals with minimal or no connection to Australia. The ruling also clarifies the permissible use of evidence gathered in a Royal Commission context.

Orders

Orders of the court

1. The questions ordered on 13 May 2005 to be separately decided be amended to take the form which appears in order 2 below.

2. The following questions be answered as follows:

A. Does the first respondent have jurisdiction or power under s 25A of the Insurance Act 1973 (Cth) (‘the Act’) to disqualify the first applicant from holding any of the positions referred to in s 24(1) of the Act?

Answer: Yes

B. Does the use by the first or second respondent of the evidence of the first applicant before the Royal Commission contravene ss 6DD or 6M of the Royal Commissions Act 1902 (Cth)?

Answer: No

3. The applicants pay the respondents’ costs of the determination of the separate questions.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

The applicants also rely on s 46 of the AI Act. That section relates to certain instruments made by an authority (it would apply to prudential standards determined by APRA (see [28]–[31] above). Section 46 provides that unless the contrary intention appears, the AI Act applies to any such instrument as if it were an Act and as if each provision of it were a section of an Act, and expressions used in any such instrument have the same meaning as in the enabling legislation, and the instrument is to be read and construed subject to the enabling legislation and so as not to exceed the power of the authority.THE EVIDENCE RELATING TO APPLICANT X AND APPLICANT Y The evidence before the Court on the separate questions has not been controverted. It shows as follows.Applicant X’s affidavit testimony I will emphasise below those parts of Applicant X’s affidavit which might be suggested to indicate some connection, no matter how slight, with Australia. Applicant X’s affidavit shows that he was also born in [Country M], is a [Country M] citizen and is not and never has been an Australian citizen or an Australian resident. He has worked for the [Z Co] Group for his entire professional working life, since [date omitted]. From [date omitted] to date, Applicant X has resided in [capital of Country D]. Between [date omitted] and [date omitted], Applicant X was Associate Director of [Z Co]’s [Q Division] (the financial reinsurance division of the [Z Co] Group) in [Country M] where he was the head of ‘the [Country M] team’. In [date omitted] he became Director of the [Q Division] in [Country M]. From [date omitted] to date he has been the Managing Director of the [Country D] subsidiary companies of the [Z Co] Group, all located in [Country D]. They all write mainly financial reinsurance business. Since [date omitted] he has also been a member of the Underwriting Committee of the [Country D] companies. Since [date omitted], Applicant X has been the coordinator of the [Q Division], reporting to Applicant Y, the member of the Executive Board of [Z Co], responsible for worldwide financial reinsurance. Applicant X is responsible for implementation of [Z Co]’s strategy for the financial reinsurance business as written by the [Country D] company. He also coordinates the [Country M] and [Country D] teams dealing with financial reinsurance business within the [Z Co] Group. In relation to Australia, Applicant X states in his affidavit:‘Connection with Australia8.I am not and have never been employed in Australia, nor have I ever applied for or obtained a visa that would entitle me to be employed in Australia. 9.I have never been or acted in Australia as(a) a director of an Australian general insurer;(b) a senior manager of an Australian general insurer;(c)an agent for the purposes of section 118 of the Insurance Act;(d) a senior manager of a general insurer foreign to Australia;(e)a director of an Australian authorised non operating holding company;(f)a senior manager of an Australian authorised non operating holding company.10.I have never been appointed to or acted as a senior manager in Australia of [Z Co]’s Australian Branch. As far as I am aware, ... the Australian agent, performed and performs those responsibilities. My role in the negotiations for the transactions […] was to evaluate the transactions and to report back internally.11.I have never been or acted as the senior officer outside Australia with delegated authority from the Executive Board of [Z Co] responsible for overseeing the operations of [Z Co], Australian Branch. That position is presently held by ... I do not expect to ever be appointed to this position because I have been promoted above the level from which such a person is appointed by the Executive Board. 12.I have never held delegated authority from the Executive Board nor anticipate having such delegated authority in respect of or for the purposes of overseeing the insurance business carried on by the [Z Co] Australian branch. Rather, those responsibilities are fulfilled by ... (in respect of the treaty business of Property and Casualty Reinsurance) and ... (in respect of the facultative business generally and treaty and facultative business Marine, Aviation and Space). 13.[Z Co] has not written or accepted any financial reinsurance business for some years in Australia through the [Z Co] Australian Branch.14.The [Q Division]’s [Country D] companies do not currently provide financial reinsurance to Australian customers. I do not expect that in the near future any financial reinsurance business will be written in Australia by the [Country D] companies.15.If circumstances were to change and financial reinsurance business was to be transacted by the [Z Co] group with Australian customers, it would be head of the [Country M] team (...) who would have primary responsibility for all management decisions in that respect.16.Because my responsibilities within the [Z Co] Group are solely in relation to the coordination of the teams within the [Q Division] and otherwise for the [Country D] team’s financial reinsurance business, I do not now have and do not anticipate having in the future any primary or principal responsibility for (a)high level decision making for the insurance business carried on by the [Z Co] Australian Branch; or(b)implementing strategies and policies approved by the Executive Board for the insurance business carried on by the [Z Co] Australian Branch; or (c)developing and implementing processes or systems that identify, assess, manage and monitor risks in relation to business activities and operations of the insurance business carried on by the [Z Co] Australian Branch; or (d)monitoring the appropriateness, adequacy and effectiveness of risk management systems of the insurance business carried on by the [Z Co] Australian Branch.The Royal Commission and goodwill meeting with APRA17.In [date omitted] I chose to travel to Australia for the purposes of appearing as a witness at the Royal Commission. I gave oral evidence to the Royal Commission on [date omitted] and submitted a written statement on [date omitted]. 18.The day after appearing as a witness, I met with representatives of the Australian Prudential Regulation Authority on [date omitted]. I attended this meeting with ... the Agent in Australia, and [Applicant Y]. 19.I was not obliged nor requested by APRA to attend the meeting with APRA. My attendance was initiated and organised by [[Z Co]’s Australian agent]. I understood and conducted my meeting on the basis that it was a “goodwill” consultation with APRA following the concerns raised about financial reinsurance in the media following the Royal Commission. I attended and spoke at those meetings in my capacity as Director of the [Country D] subsidiaries and as a visiting ambassador for the [Z Co] Group. Future Plans20.I plan to remain employed with [Z Co] as long as I continue to enjoy the reinsurance business and as long as I have the support from the company. I hope to remain with the company a long time. I have stock options (by way of deferred compensation) which will be lost if I discontinue my employment with the [Z Co] Group.21.I do not have any personal connections with Australia, for example, I have no relatives who are resident here or close friends living here. My girlfriend is a [Country M] citizen. She moved with me to [Country D] and we plan to return together to live in ... [Country M] in a couple of years. I have about ten very good friends in [Country M] which [sic – with] whom I keep in contact regularly. I also have four god children with whom I keep in contact. My parents live about 125 km north of ...; they are 73 and 70 years old. I support them financially on a regular basis, and they depend on this. I intend to keep reasonably close to my parents, which would not be possible from Australia.22.For both professional and personal reasons, I do not wish to or intend to take any steps that would enable me to become a resident or obtain a working visa so as to be employed or contracted to work in Australia at any stage. 23.Further, I do not wish or intend to:(a)be or act as a director of a general insurer in Australia;(b)be or act as a senior manager of a general insurer in Australia;(c)be or act as an agent in Australia pursuant to s118 of the Insurance Act;(d)be or act as a senior manager in Australia of a general insurer foreign to Australia;(e)be or act as a director of an authorised non operating holding company in Australia;(f)be or act as a senior manager of an authorised non operating holding company in Australia.’ (my emphasis)The Notice to Show Cause given to Applicant X

Decision

Reasons for decision

LINDGREN J

The respondents refer to s 26 (see [24] above) which provides that APRA may determine that a person is not a disqualified person only if satisfied that the person is ‘highly unlikely to be a prudential risk to any general insurer or authorised NOHC’. They submit that the words ‘highly unlikely’ indicate a legislative intention that a very low prudential risk to a general insurer or authorised NOHC is to be a sufficient basis on which APRA is entitled to be satisfied for the purposes of s 25A(1). They submit:‘5.18...If a disqualification may only be revoked where it is “highly unlikely” the person will be “a prudential risk”, then the disqualification must have been imposed on the basis of there being some prospect, even if remote, that the person will be a “prudential risk”.’5.19The low threshold for reaching a state of satisfaction that the person is not fit and proper and should be disqualified, is compensated for by APRA’s power under s 25A(3) to revoke a disqualification. That threshold may be expressed as the requirement that there be at least a remote chance that the person may be, or act as, a person identified in s 24(1). Another way of expressing this threshold is on the basis of the “no evidence” principle applied in judicial review. There must not be “no evidence” to support the existence of a remote chance that the person may be, or act as, a person described in s 24(1).’My conclusions as to the extent of APRA’s power of disqualification The constitutional validity of ss 24(1)(b) and 25A(1) in their application to the position of senior manager of a foreign general insurer is not challenged. The Commonwealth Parliament has power to make laws having an extra-territorial operation: Crowe v The Commonwealth (1935) 54 CLR 69 at 83–84 per Rich J, 85–86 per Starke J, 90–91 per Dixon J, 93 per Evatt and McTiernan JJ; Kirmani v Captain Cook Cruises Pty Ltd (No 1) (1985) 159 CLR 351 at 384 per Murphy J, 442 per Deane J. The parties are agreed that some Australian territorial nexus is to be read into s 25A(1); see ss 15A, 21 and 46 of the AI Act discussed at [32]–[35] above, and Pearce and Geddes, Statutory Interpretation in Australia (5th ed, Butterworths, Sydney, 2001) at [5.3]–[5.5], [6.36]. The parties disagree over what that nexus is. In Kamha v Australian Prudential Regulation Authority [2005] FCA 480, the applicant’s submission was that, as he had not been in a s 24 position for some years and there was no immediate threat of his taking up such a position, he could not be disqualified pursuant to s 25A. Gyles J held that it was not possible to read down s 25A to apply only to persons who presently occupy a s 24 position. The applicants do not submit that his Honour erred in this respect. They submit that the person must have held such a position in the past in Australia or in relation to the Australian operation, or, perhaps, must have indicated an intention to take up a s 24 position in Australia in the future.

Ratio Decidendi

Legal Principle Established

Established by: LINDGREN J

The respondents submit:‘3.9... The respondents accept that a limitation must be placed upon the power under s 25A(1) to disqualify a person from being or acting as someone referred to in s 24(1)(b). That limitation is drawn from the “nexus” which must exist in order for the power to be exercised consistently with the protective objects of the Act, as developed in the Act ... Consistently with the requirement of a “nexus” with respect to the power to disqualify under s 25A(1), the meaning of “senior manager” of a “foreign general insurer” in s 24(1)(b) and defined in paragraph 21 of GPS 220 must be confined by reference to the protective object of the Act. ... That object would not be served by disqualification of a person from taking up a s 24(1) position when that person has not made decisions affecting the insurer’s Australian operations and there is not a remote chance that he or she will do so. The meaning of “senior manager” of a “foreign general insurer” is confined to this extent.3.23The respondents accept that the power in s 25A(1), through the reference to s 24(1) is limited by a requirement that there exist a nexus between the disqualification and the Australian operation of the foreign general insurer. The required nexus is not, however, of the kind advanced by the applicants. ...3.24The respondents submit that a “senior manager” of a “foreign general insurer” in s 24(1)(b) of the Act, as defined in paragraph 21 of GPS 220, is confined to persons who have made decisions affecting the insurer’s Australian operations and there is at least a remote chance that he or she will take up a s 24(1) position.’ (my emphasis) The respondents refer to s 26 (see [24] above) which provides that APRA may determine that a person is not a disqualified person only if satisfied that the person is ‘highly unlikely to be a prudential risk to any general insurer or authorised NOHC’. They submit that the words ‘highly unlikely’ indicate a legislative intention that a very low prudential risk to a general insurer or authorised NOHC is to be a sufficient basis on which APRA is entitled to be satisfied for the purposes of s 25A(1). They submit:‘5.18...If a disqualification may only be revoked where it is “highly unlikely” the person will be “a prudential risk”, then the disqualification must have been imposed on the basis of there being some prospect, even if remote, that the person will be a “prudential risk”.’5.19The low threshold for reaching a state of satisfaction that the person is not fit and proper and should be disqualified, is compensated for by APRA’s power under s 25A(3) to revoke a disqualification. That threshold may be expressed as the requirement that there be at least a remote chance that the person may be, or act as, a person identified in s 24(1). Another way of expressing this threshold is on the basis of the “no evidence” principle applied in judicial review. There must not be “no evidence” to support the existence of a remote chance that the person may be, or act as, a person described in s 24(1).’My conclusions as to the extent of APRA’s power of disqualification

JUDGE:	LINDGREN J
DATE OF ORDER:	16 SEPTEMBER 2005
WHERE MADE:	SYDNEY