Applicant X v Australian Prudential Regulation Authority
[2005] FCA 1288
•16 SEPTEMBER 2005
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 1288STATUTORY 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, 46Crowe 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 480D Pearce & R Geddes, Statutory Interpretation in Australia, 5th ed, Butterworths, Sydney, 2001
APPLICANT X & ANOR v AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY & ANOR
NSD 726 of 2005APPLICANT Y & ANOR v AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY & ANOR
NSD 727 of 2005LINDGREN J
16 SEPTEMBER 2005
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 726 OF 2005
BETWEEN:
APPLICANT X
FIRST APPLICANTAPPLICANT Z
SECOND APPLICANTAND:
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
FIRST RESPONDENTMARK 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 APPLICANTAPPLICANT Z
SECOND APPLICANTAND:
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
FIRST RESPONDENTMARK GODFREY
SECOND RESPONDENTJUDGE:
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 726 OF 2005
BETWEEN:
APPLICANT X
FIRST APPLICANTAPPLICANT Z
SECOND APPLICANTAND:
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
FIRST RESPONDENTMARK GODFREY
SECOND RESPONDENT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 727 OF 2005
BETWEEN:
APPLICANT Y
FIRST APPLICANTAPPLICANT Z
SECOND APPLICANTAND:
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
FIRST RESPONDENTMARK GODFREY
SECOND RESPONDENT
JUDGE:
LINDGREN J
DATE:
16 SEPTEMBER 2005
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
The first applicants in these proceedings, Applicant X and Applicant Y, are, and at all material times were, employed by the second applicant (‘[Z Co]’). [Z Co] is a ‘foreign general insurer’ as defined in s 3 of the Insurance Act 1973 (Cth) (‘the Act’ – except where stated otherwise, section references are to sections of the Act).
On 18 February 2005, the second respondent, Mark Godfrey (‘Mr Godfrey’), a senior manager of the first respondent (‘APRA’), wrote to each first applicant stating that he (Mr Godfrey) had come to the preliminary view that the addressee was not a fit and proper person to act as a person referred to in para 24(1)(a), (b) or (c) of the Act, and should be disqualified from being or acting as the holder of a senior insurance role, pursuant to s 25A(1) of the Act. The letter (‘Notice to Show Cause’) advised that Mr Godfrey proposed to recommend to the appropriate delegate of APRA that the addressee be disqualified, but invited him to make submissions as to why APRA should not disqualify him.
In each proceeding, the applicants seek a declaration that APRA does not have power to disqualify the first applicant, and consequential injunctive relief.
Applicant X and Applicant Y are long-term senior employees of [Z Co]. They are citizens of [Country M] and had never resided or worked for [Z Co] in Australia. They voluntarily came to Australia and gave evidence before a Royal Commission (‘the Royal Commission’). It was largely on account of their testimony that Mr Godfrey came to the preliminary view that they should be disqualified. Each Notice to Show Cause stated Mr Godfrey’s preliminary view and preliminary findings. It included documents containing information which Mr Godfrey had considered in reaching his preliminary findings. The Notice to Show Cause contains many references to the transcript of the first applicants’ examination before the Royal Commission, although I have not read any part of the transcript.
The applicants contend that APRA lacks power to disqualify the first applicants under s 25A, because APRA’s statutory power is limited so as to apply only to persons who have been, or have acted as, the holders of specific insurance positions in Australia, or perhaps, persons who intend to take up such a position in the future, neither of which conditions is satisfied by Applicant X or Applicant Y. An alternative basis of the injunction sought is that if APRA were to proceed to disqualify Applicant X or Applicant Y, it would be causing a disadvantage to him for or on account of evidence given by him to the Royal Commission, in contravention of s 6M of the Royal Commissions Act 1902 (Cth) (‘the RC Act’).
Orders were made suppressing publication of the true names and identities of the applicants. The orders were made, not simply because publication would, or might, damage their reputations, but also because the applicants contend that APRA lacks power to disqualify the first applicants.
On 13 May 2005, by consent, I ordered in each proceeding, pursuant to O 29 r 2 of the Federal Court Rules, that the following questions be decided separately and before any other question in the proceeding:
‘A.Whether the first respondent has 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.
B.Whether the use by the first or second respondent of the evidence of the first applicant before the Royal Commission contravenes ss 6DD or 6M of the Royal Commissions Act 1903 (Cth).’
I will convert these statements of issues into questions in interrogatory form, so that they will read ‘A. Does the first respondent have ...?’ and ‘B. Does the use by the first or second respondent ... contravene ...?’.
Also on 13 May 2005, upon the applicants giving to the Court the usual undertakings as to damages, APRA undertook to the Court that, pending determination of the separate questions, it would not disqualify or purport to disqualify the first applicants from holding any of the positions referred to in s 24(1) of the Act.
On 20 June 2005, I ordered that both proceedings be heard together, but without the evidence in one being evidence in the other.
LEGISLATION RELEVANT TO THE FIRST SEPARATE QUESTION
Australian Prudential Regulation Authority Act 1998 (Cth)
APRA is established by s 7 of the Australian Prudential Regulation Authority Act 1998 (Cth) (‘the APRA Act’). It is established for the purpose of regulating bodies in the financial sector in accordance with laws of the Commonwealth that provide for prudential regulation or for retirement income standards, and for developing the administrative practices and procedures to be applied in performing that regulatory role (s 8(1) of the APRA Act). Section 9 of the APRA Act provides that APRA has, inter alia, the functions conferred on it by or under that Act or any other law of the Commonwealth. Subsection 11(1) of the APRA Act provides that APRA has power to do anything that is necessary or convenient to be done for or in connection with the performance of its functions.
Insurance Act 1973 (Cth)
Turning to the Act, we find that subss 2A(1) and (2) provide, relevantly, as follows:
‘(1) The main object of this Act is to protect the interests of policyholders and prospective policyholders under insurance policies (issued by general insurers and Lloyd’s underwriters) in ways that are consistent with the continued development of a viable, competitive and innovative insurance industry.
(2) This Act, and the prudential standards determined by APRA under this Act, achieve this mainly by:
(a)restricting who can carry on insurance business in Australia by requiring general insurers, and the directors and senior management of general insurers, to meet certain suitability requirements; and
(b)imposing primary responsibility for protecting the interests of policyholders on the directors and senior management of general insurers; ...’
Section 8 gives APRA the general administration of the Act.
Section 11 provides that a ‘general insurer’ is a body corporate that is authorised under s 12 to carry on insurance business in Australia. Section 12 provides that a body corporate may apply in writing to APRA for an authorisation to carry on insurance business in Australia and that APRA may, in writing, authorise it to do so. Section 15 empowers APRA, with the Treasurer’s written agreement, to revoke an authorisation on certain grounds.
Section 3 defines ‘foreign general insurer’ to mean a body corporate that:
‘(a)is a foreign corporation within the meaning of paragraph 51(xx) of the Constitution; and
(b) is authorised to carry on insurance business in a foreign country; and
(c)is authorised under section 12 to carry on insurance business in Australia.’
A foreign general insurer is therefore not simply a foreign corporation that is authorised under s 12 to carry on insurance business in Australia: it must also be authorised to carry on insurance business in a foreign country.
A foreign general insurer is a species of general insurer (as the note to s 11 of the Act confirms). [Z Co] is a foreign general insurer.
Certain provisions within ss 24, 25, 25A and 26 of the Act are central to the proceeding.
Subsection 24(1) provides:
‘A disqualified person must not be or act as:
(a)a director or senior manager of a general insurer (other than a foreign general insurer); or
(b)a senior manager, or agent in Australia for the purpose of section 118, of a foreign general insurer; or
(c) a director or senior manager of an authorised NOHC.’ (my emphasis)
The acronym ‘NOHC’ means ‘Non-Operating Holding Company’ in relation to a body corporate, and means a body corporate of which the latter body corporate is a subsidiary, which does not carry on a business (other than one of the ownership or control of other bodies corporate), and which is incorporated in Australia (s 3).
The words which I have emphasised point to the question of construction that is before the Court. Whereas paras (a) and (c) and the notion of acting as agent in Australia of a foreign general insurer for the purposes of s 118 within para (b), all, on their face, bespeak a connection with Australia, acting as a senior manager of a foreign general insurer within para (b) does not.
The term ‘director’ is defined in relation to a body corporate to include a member of a governing body (s 3). The expression ‘senior manager of a general insurer’ is defined to mean a person who has or exercises any of the ‘senior management responsibilities’ (within the meaning of the prudential standards) for the insurer (s 3). (I will refer at [28] below to the definition of ‘senior management responsibilities’ found in para 21 of Prudential Standard GPS 220.)
Section 118, referred to in s 24(1)(b), requires a body corporate that is not incorporated in Australia and is either a foreign general insurer or a subsidiary of a foreign general insurer, to be represented for the purposes of the Act by ‘an individual resident in Australia appointed by it as its agent for the purposes of [the] Act’. At all material times, an Australian resident has been the appointed representative of [Z Co] in Australia.
Section 25 addresses the question of who a disqualified person is. Subsection 25(1) provides:
A person is a disqualified person if, at any time:
(a) the person has been convicted of an offence against or arising out of:(i) this Act; or
(ii) the Financial Sector (Collection of Data) Act 2001; or
(iii)the Corporations Act 2001, the Corporations Law that was previously in force, or any law of a foreign country that corresponds to that Act or to that Corporations Law; or
(b)the person has been convicted of an offence against or arising out of a law in force in Australia, or the law of a foreign country, if the offence concerns dishonest conduct or conduct relating to a financial sector company (within the meaning of the Financial Sector (Shareholdings) Act 1998); or
(c) the person has been or becomes bankrupt; or
(d)the person has applied to take the benefit of a law for the relief of bankrupt or insolvent debtors; or
(e) the person has compounded with his or her creditors; or
(f) APRA has disqualified the person under section 25A.’It will be noted that para (f) differs from paras (a)–(e). The condition of disqualification identified in para (f) is APRA’s decision to disqualify, whereas in the case of paras (a)–(e), disqualification is automatic once the objective circumstances described in any of those paragraphs exists, without any intervening decision by APRA.
Subsections 25A(1)–(5) provide:
‘(1)APRA may disqualify a person if it is satisfied that the person is not a fit and proper person to be or to act as someone referred to in paragraph 24(1)(a), (b) or (c).
(2) A disqualification takes effect on the day on which it is made.
(3)APRA may revoke a disqualification on application by the disqualified person or on its own initiative. A revocation takes effect on the day on which it is made.
(4)APRA must give the person written notice of a disqualification, revocation of a disqualification or a refusal to revoke a disqualification.
(5)As soon as practicable after a notice is given to a person under subsection (4), APRA must cause particulars of the disqualification, revocation or refusal to which the notice relates:
(a) to be given:
(i)if the person is, or is acting as, a person referred to in paragraph 24(1)(a)—to the general insurer concerned; or
(ii)if the person is, or is acting as, a person referred to in paragraph 24(1)(b)—to the foreign general insurer concerned; or
(iii)if the person is, or is acting as, a person referred to in paragraph 24(1)(c)—to the authorised NOHC; and
(b) to be published in the Gazette.
(6)Part VI applies to a disqualification under this section or to a refusal to revoke such a disqualification.’ (my emphasis)
Part VI of the Act entitles, relevantly, a person affected by a decision to disqualify, who is dissatisfied with the decision, to have it reviewed by APRA and, if the decision is confirmed, to apply to the Administrative Appeals Tribunal for review of the decision.
It follows from s 25A(1) that APRA may disqualify a person if it is satisfied that he or she is not a fit and proper person to be or to act as a senior manager of a foreign insurer, and, from s 24(1), that if APRA does so, the disqualified person must not be or act as such.
Subsections 26(1) and (2) provide:
‘(1)Despite section 25, APRA may determine (in writing) that a person is not a disqualified person. APRA may do so on its own initiative or on the application of the person.
(2)However, APRA may only make the determination if it is satisfied that the person is highly unlikely to be a prudential risk to any general insurer or authorised NOHC.’ (my emphasis)
There may be little scope for the operation of ‘de-disqualification’ under s 26(1) where the person became a disqualified person by reason of a disqualification by APRA (cf s 25(1)(f) and 25A(1) above), since, as appears above, s 25A(3) empowers APRA to revoke a disqualification, and the power of revocation is expressed in unqualified terms.
Subsection 27(1) and (2) provide:
‘(1) This section applies to a person who is:
(a)a director or senior manager of a general insurer (not including a foreign general insurer); or
(b)a senior manager, or agent in Australia for the purpose of section 118, of a foreign general insurer; or
(c) a director or senior manager of an authorised NOHC.
(2)APRA may direct (in writing) that the general insurer or authorised NOHC remove the person from the position if APRA is satisfied that the person:
(a) is a disqualified person; or
(b)does not meet one or more of the criteria for fitness and propriety set out in the prudential standards.’
Part IIIA (ss 32–38) of the Act addresses prudential supervision and monitoring of general insurers, authorised NOHCs and their subsidiaries. Section 32 provides that APRA may determine prudential standards, and s 35 provides, relevantly, that a general insurer, to which a prudential standard applies, must comply with it. Subsection 36(1) provides:
‘If APRA is satisfied that a general insurer, ...:
(a) has breached a prudential standard; or(b)is likely to breach a prudential standard in a way that is likely to give rise to a prudential risk;
APRA may (in writing) direct the insurer, ... to comply with all or a part of the standard within a specified time.’
Pursuant to s 32, on 13 February 2002 APRA determined Prudential Standard GPS 220 – Risk Management for General Insurers (‘GPS 220’), which came into effect on 1 July 2002. Paragraph 21 of GPS 220 states:
‘... Senior management responsibilities means having primary responsibility for one or more of the following:
(a) high level decision making;
(b) implementing strategies and policies approved by the Board;(c)developing processes that identify, manage and monitor risks incurred by the insurer; and
(d)monitoring the appropriateness, adequacy and effectiveness of the risk management system.’
It will be recalled (see [19]) that s 3 defines ‘senior manager of a general insurer’ to mean a person who has or exercises any of the senior management responsibilities (within the meaning of the prudential standards) for the insurer. As can be seen, para 21 of GPS 220 defines ‘senior management responsibilities’ in general terms and without reference to any particular country. In its application to ‘a general insurer (other than a foreign general insurer)’ (s 24(1)(a)), and an ‘authorised NOHC’ (s 24(1)(c)), the definition seems to give rise to no particular difficulty. But it does in its application to a ‘foreign general insurer’ (s 24(1)(b)). A person may have or exercise senior management responsibilities for, and therefore be a senior manager of, a foreign general insurer, although the person has never set foot in Australia, never intends to do so, and has never had, and does not intend ever to have, any role in connection with the particular insurance business carried on by the foreign general insurer in Australia. The related questions arise whether s 25A(1) contemplates that APRA may be satisfied that such a person is not a fit and proper person to be or to act as, relevantly, ‘a senior manager, ... , of a foreign general insurer’, and, if so, whether s 24(1)(b) prohibits such a person from being or acting as such.
Paragraph 22 of GPS 220 requires insurers to provide APRA with a list of senior management positions and the responsibilities of those positions, together with details of the individuals who occupy them. In addition, para 22 requires insurers to provide APRA with an updated annual statement, listing all senior management positions and the names of their occupants.
Paragraph 23 of GPS 220 provides that, as in the case of a locally incorporated insurer, the ultimate responsibility for the safety and soundness of a foreign insurer resides with its Board. However, the paragraph states that, for practical purposes, APRA allows foreign insurers’ Risk Management Strategy and Reinsurance Management Strategy and the Board’s Declaration (these three notions are cross-referenced) to be approved by ‘a senior officer outside Australia with delegated authority from the Board’. Importantly, paragraph 23 concludes:
‘The senior officer [outside Australia with delegated authority from the Board] must have responsibility for overseeing the Australian branch operation.’
Paragraph 24 of GPS 220 provides:
‘At the time of nominating a senior officer from outside Australia, foreign insurers must provide APRA with details of that person, including their name and curriculum vitae. These details must be resubmitted to APRA within 14 days when there is any change in the senior officer from outside Australia. The foreign insurer must ensure that the designated senior officer meets the standards of fitness and proprietary set out in this Standard.’
Acts Interpretation Act 1901 (Cth)
The applicants call in aid of the ‘limiting’ construction of the Act for which they contend, three provisions of the Acts Interpretation Act 1901 (Cth) (‘the AI Act’).
Section 15A of the AI Act provides:
‘Every Act shall be read and construed subject to the Constitution, and so as not to exceed the legislative power of the Commonwealth, to the intent that where any enactment thereof would, but for this section, have been construed as being in excess of that power, it shall nevertheless be a valid enactment to the extent to which it is not in excess of that power.’
Section 21 of the AI Act provides, relevantly:
‘(1) In any Act, unless the contrary intention appears:
(a) ...; ...(b)references to localities jurisdictions and other matters and things shall be construed as references to such localities jurisdictions and other matters and things in and of the Commonwealth.’ (my emphasis)
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 Australia
8.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 APRA
17.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 Plans
20.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
The Notice to Show Cause given to Applicant X refers to his alleged role in relation to […] reinsurance binders or arrangements entered into by [Z Co] with R Ltd (‘[R Co]’) in [date omitted]. The Notice to Show Cause asserts that from about mid-[date omitted], Applicant X was an Associate Director of the [Q] section of [Z Co] (see Applicant X’s testimony referred to at [39] above), and that commencing on [date omitted], he corresponded with officers of [R Co] and the Australian agent of [Z Co] in relation to the negotiation of the reinsurance, and, after the reinsurance was provided, in relation to subsequent events. The allegations show a very active involvement by Applicant X.
In para 6 of the Notice to Show Cause, Mr Godfrey states that on the basis of the conduct of Applicant X outlined earlier in the Notice, he has reached a preliminary view which he describes in the following terms:
‘(a)you were responsible for drafting contracts and entering agreements on [Z Co]’s behalf in a manner which meant that the full terms of the arrangement were not reflected on the face of the documents;
(b)you knew, or should have known, that the contracts were intended to be, or could be, used by [R Co] to mislead auditors and regulators into accepting [R Co]’s proposed accounting treatment of the transaction with [Z Co] as reinsurance;
(c)you knew, or should have known, that [R Co] booked the [Z Co] transaction as a reinsurance transaction, rather than a financial reinsurance transaction, which you knew was the proper basis on which to account for the transaction;
(d)you failed to provide the […] Agreement [a reference to a certain agreement between [Z Co] and a company within the [R Co] Group] to [Z Co]’s Australian auditors despite understanding that […] Agreement was a critical element of the agreement;
(e)you knew, or should have known, that the effect of [R Co]’s accounting treatment of the contracts was to substantially inflate the profit booked by [R Co] as at financial year end [date omitted]; and
(f)your conduct in this regard demonstrates that you are not a fit and proper person to act as the holder of a senior insurance role.’
Applicant Y’s affidavit testimony
I will emphasise below those parts of Applicant Y’s affidavit which might be suggested to indicate some connection, no matter how slight, with Australia.
Applicant Y was born in [Country M], has always been a [Country M] citizen and resident, and has never been an Australian citizen or resident. He has been employed by [Z Co] for his entire professional working life, since [date omitted], and is currently a member of the Executive Board of [Z Co] and another company. Since [date omitted] he has been in charge of the ‘[Q Division]’, which he describes as ‘the worldwide financial reinsurance division’ of the [Z Co] Group. That Division has offices in [Country D] as well as in [Country M]. Since [date omitted] he has also been responsible for coordinating the business group called ‘[E] and the North American treaty business’.
Applicant Y has never been employed in Australia or applied for or obtained a visa which would allow him to be employed here.
In [date omitted], when he was an underwriter, Applicant Y provided advice to [Z Co] about the establishment of its Australian Branch. As noted above at [20], an Australian resident was appointed by [Z Co] as its agent for the purposes of the Act as required by s 118 of the Act.
Applicant Y states in his affidavit:
‘Connections with Australia
10.I have never been, nor wish to be, nor expect to be, appointed to the position of agent for the purposes of section 118 of the Insurance Act.
11.I have never been appointed in Australia nor acted in Australia as
(a)a director of a general insurer (which is not a general insurer foreign to Australia);
(b)a senior manager of a general insurer (which is not a general insurer foreign to Australia);
(c)a senior manager of the Australian Branch of a general insurer foreign to Australia;
(d)a director of an authorised non operating holding company;
(e)a senior manager of an authorised non operating holding company;
12.I am not, and do not act as, the senior officer from outside Australia with delegated authority from the Executive Board for the purpose of overseeing the Australian operations, as set out in the current Prudential Standard GPS 220. That responsibility is fulfilled by ... I do not wish to, nor expect to, be appointed to this position by the Executive Board because I have been promoted beyond the category of employees from whom such an appointment would be made by the Executive Board.
13.I have no delegated authority from the Executive Board nor anticipate having such delegated authority in respect of or for the purposes of overseeing the [Z Co] Australian branch. 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). I ceased having those responsibilities during [date omitted].
14.[Z Co] does not currently provide new financial reinsurance business in Australia through the [Z Co] Australian Branch. Nor does [Z Co] currently provide new financial reinsurance business in Australia through companies within the [Q Division] of the [Z Co] Group.
15.For the reasons set out in this affidavit, 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 Australian Branch; or
(d)monitoring the appropriateness, adequacy and effectiveness of risk management systems of the insurance business carried on by the Australian Branch.
16.At various times I have come to Australia and on some of those occasions I have attended meetings arranged by [[Z Co]’s Australian agent] with representatives of APRA as a goodwill measure. ... I attended and spoke at those meetings in my capacity as an Executive Board Member and as a visiting ambassador for the [Z Co] Group.
17.One of those meetings coincided with the time in [date omitted] when I chose to come to Australia to assist the Royal Commission in [location omitted]. I gave oral evidence at the Commission on [date omitted] and subsequently provided a written statement dated [date omitted].(my emphasis)
Future Plans
18.I have no intention of ever living or working in Australia. I intend to remain residing in [Country M]. I am married, though separated. My wife is a part time teacher and depends on my financial support. We have two children, a daughter [S], aged 22 and a son, [F], who is 14 and presently at high school. [F] still lives with me every weekend. We expect to have to support our daughter for another three years and our son for probably another ten years. My mother, 82 years in age, still lives in the vicinity of my place, some 20 kilometres away, and depends upon me being around frequently.
19.I do not wish to or intend to ever 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.
20.Further, I do not wish or intend to
(a)be or act as a director of a general insurer in Australia insurer (other than a general insurer foreign to Australia);
(b)be or act as a senior manager of a general insurer (other than a general insurer foreign to Australia);
(c)be or act as a senior manager in Australia of a general insurer foreign to Australia;
(d)be or act as an agent in Australia pursuant to s118 of the Insurance Act;
(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.’
The Notice to Show Cause given to Applicant Y
The Notice to Show Cause given to Applicant Y also refers to his alleged role in relation to the […] reinsurance binders or arrangements entered into by [Z Co] with [R Co] in [date omitted]. The Notice refers to Applicant Y’s having been a member of the Executive Board of [Z Co] since at least [date omitted] (see Applicant Y’s testimony referred to at [46] above) and to his having approved of and authorised the transaction with [R Co] in his capacity as the person in charge of all [Q] business at [Z Co], and acted as a sounding board to Applicant X in relation to questions that were beyond his immediate authority.
After referring, over numerous paragraphs, to aspects of the alleged conduct of Applicant Y, Mr Godfrey states in para 6 of the Notice to Show Cause that on the basis of the matters outlined earlier in the Notice, he has reached a preliminary view which he describes in the following terms:
‘(a)you were the person with ultimate responsibility for the reinsurance agreement within [Z Co];
(b)the full terms of the arrangement were not reflected on the face of the […] contracts [a reference to the […] reinsurance binders or arrangements];
(c)you knew, or should have known, that the […] contracts were drafted in a manner which meant they could be used by [R Co] to mislead auditors and/or regulators into believing that the agreement was a genuine reinsurance transaction and therefore into accepting [R Co]’s proposed accounting treatment of the transactions; and
(d)your authorisation of the reinsurance arrangements in circumstances where you knew, or should have known, that the form of the agreements could be used by [R Co] to mislead its auditors and APRA and to artificially inflate [R Co]’s profit demonstrates that you are not a fit and proper person to be or act as the holder of a senior insurance role.’
Documentary evidence relating to both Applicant X and Applicant Y
The [date omitted] Annual Report of [Z Co] showed, relevantly, Applicant Y as having responsibility for:
‘Property and Casualty Reinsurance in English-speaking Africa, Asia and Australasia, Aviation and Marine business worldwide, Financial Reinsurance.’ (my emphasis)
The same report stated under the heading ‘Australia and New Zealand’ (at 25):
‘Corporate mergers were the main hallmark of the insurance market in Australasia in the year under review. These gave rise to larger business units, which exploited the various synergistic effects – including on the reinsurance side – and optimized their protection. For us, this development meant a decline in demand in the traditional reinsurance segments. This was countered by the trend towards financially-oriented coverage concepts which we initiated.’
It will be recalled that in para 13 of his affidavit, Applicant Y said that he ceased having responsibilities in respect of the Australian branch of [Z Co] in [date omitted].
In evidence are two APRA file notes dated [date omitted] and [date omitted], the first relating to a meeting at APRA’s office held on [date omitted] and attended by Applicant Y and Applicant X, and the second being an update for a forthcoming meeting with, relevantly, Applicant Y, on [date omitted]. These were business records of APRA and contained ‘admissions’ by Applicant Y and Applicant X.
The first file note recorded those in attendance as being, on behalf of [Z Co], Applicant Y as a ‘Member of the Executive Board’, Applicant X as ‘Director’, and the ‘Agent in Australia’ of [Z Co]. The note stated:
‘ [Applicant Y] opened the discussion by advising that [Z Co] always had an open relationship with the ISC [Insurance and Superannuation Commissioner] and that while his [Applicant Y’s] visits to APRA have not been as frequent, he still wishes for the relationship to be a positive one. [Applicant Y] is no longer the member of the Board responsible for Australia but is in charge of all risk transfer and hence will still be visiting Australia and APRA in the future.’ (my emphasis)
Applicant Y’s participation in the discussion at the meeting was fairly active. In relation to Applicant X, the note stated:
‘[Applicant X] ([Q]) noted of his plans to move to [Country D] head office. While, 90% of [Q]’s business is [Country M], the majority is written in [Country D] due to beneficial accounting standards – discounting of loss reserves for US GAPP. The majority of transactions are stop loss cover. It was noted that in the US the cover is based on accident year rather than calendar year. [Applicant X] advised that […] cover was a very big transaction, however, since [R Co] this type of contract is not now well perceived in Australia. It is expected that expansion will occur in Europe (especially Italy) and Latin America. Africa (except South Africa) and Eastern Europe are not considered target markets. BA queried the prospects for business in Australia. [Applicant X] advised that they were currently negative but would like to increase if opportunity arises. It was noted that 98% of transactions in Australia are reinsurance; only one is not.’
The second file note recorded that APRA had met Applicant Y ‘on numerous occasions’ but had not met with another [Z Co] person who was to attend the forthcoming meeting. The file note stated:
‘It is general practice for APRA to meet with [Z Co] officers when they visit Australia to discuss current issues/operations of the [Z Co] Group and the Australian Branch.’
CONSIDERATION, INCLUDING PARTIES’ SUBMISSIONS
The parties’ submissions as to the extent of APRA’s power of disqualification
The applicants submit:
‘12.… APRA’s power to disqualify a person is restricted. The power to disqualify does not apply to any person. The power provided by s 25A must be read in the context of the Insurance Act and the related legislation governing APRA’s operation. When read in that context, we submit the power is restricted to the disqualification by APRA of persons who have been, or who have acted as, the holders of the specific insurance positions in Australia. APRA’s power to disqualify extends only to disqualification from holding the position (or positions) that the person has held in Australia.
13.Arguably, the section may extend to persons who have indicated an intention to take up such a position in the future, but that does not arise in this case.
14.In relation to “senior managers of foreign general insurers”, that description in section 24(1)(b) means people holding such positions in relation to the Australian operation of the foreign insurer’s insurance business. That is, that person must have primary responsibility for one or more of the following things:
a.high level decision making in Australia;
b.implementing strategies and policies in Australia approved by the Board;
c.developing processes that identify, manage and monitor risks incurred b the insurer in Australia;
d.monitoring the appropriateness, adequacy and effectiveness of the risk management system in Australia.’ (emphasis in original)
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
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.
APRA has not yet decided to disqualify the first applicants: it is still investigating the position. Arguably, the present proceedings are premature. I assume, however, that the respondents have advanced their best evidence on APRA’s jurisdiction and power, and I will decide the first separate question. In order to succeed, the applicants must establish that APRA will not lawfully be able to be satisfied that the first applicants are not fit and proper persons to be or to act as, relevantly, senior manager of a foreign general insurer.
As noted at [58], the respondents submit that s 26 (set out at [24] above) assists in the present question of construction. Section 26 is not directly relevant to the question of territorial nexus. It does show, however, a legislative intention that a very low level of prudential risk is to be tolerated by APRA.
Section 3’s definition of ‘foreign general insurer’ (set out at [14] above) contains a territorial connection with Australia – that the corporation is authorised under s 12 to carry on insurance business in Australia. The concept of being a senior manager of a foreign general insurer, that is to say, having or exercising primary responsibility for any of the GPS 220 functions, does not, however, necessarily bespeak any further connection with the foreign general insurer’s Australian operation. It is necessary to say ‘further’ because all senior managers of a foreign general insurer have some connection with Australia by reason of being senior managers of an entity that has, through its Australian operation, a connection with Australia.
Since it is open to the Parliament to prohibit foreign corporations from carrying on insurance business in Australia at all, it is clearly open to it to impose a less stringent prohibition, such as, that they may not do so if any of their directors, officers or employees has been convicted of any offence of any kind against the law of any country, or that they may not do so if APRA is satisfied that any of their senior managers anywhere in the world is not a fit and proper person to be or act as a senior manager. Whatever may be said of the desirability of such a law, it would be one for the peace, order and good government of the Commonwealth with respect to insurance (cf Constitution s 51(xiv)). The power of disqualification of present concern, however, relates to a natural person, not the foreign general insurer.
Some of the bases for automatic disqualification provided for in s 25 are of a general kind and do not bespeak a connection with Australia. For example, if a person has been convicted of an (that is, any) offence against or arising out of any law of a (that is, any) foreign country that corresponds to the Corporations Act or its predecessor, the Corporations Law, or of an offence against or arising out of the law of a (that is, any) foreign country which concerns dishonest conduct, the person is automatically disqualified by the Act from being or acting as a senior manager of a ‘foreign general insurer’: see s 25(1)(a)(iii) and (b) (set out at [21] above). In those cases, the legislature has been satisfied to accept as a sufficient Australian nexus nothing more than that the foreign corporation is authorised under s 12 to carry on insurance business in Australia.
It is arguable that nothing further is required in the case of a disqualification by APRA; in other words, that s 25A(1), in its application to the position of senior manager of a foreign general insurer, is simply to receive a ‘literal’ construction.
By disqualifying, APRA is removing a person’s eligbility to be or to act as, relevantly, a senior manager of a foreign general insurer anywhere in the world. There is no direct means by which the disqualification could be enforced if the person were to be or act as a senior manager of a foreign general insurer in a foreign country.
Whatever the correct answer to the present question of construction may be, if a foreign general insurer has a disqualified person as, or acting as, a senior manager (anywhere in the world), there is always the sanction that it stands to lose its authorisation to carry on insurance business in Australia. That is so by reason of the following provisions.
Subsection 25A(5) requires APRA to cause particulars of, relevantly, a ‘senior manager’s disqualification’ to be given to the foreign general insurer. Subsection 24(4) prohibits a foreign general insurer from allowing a disqualified person to act as, relevantly, a senior manager of the insurer.
Subsection 27(2) empowers APRA to direct, in writing, a foreign general insurer to remove from the position of senior manager a person who, APRA is satisfied, is a disqualified person. The foreign general insurer commits an offence if it fails to comply with such a direction: s 27(7). Subsection 15(1) provides that APRA may revoke the foreign general insurer’s authorisation under s 12 if APRA is satisfied that it has no liabilities in respect of insurance business carried on by it in Australia, and, relevantly, it has failed to comply with a direction to it under the Act (APRA may revoke the authorisation only if it has the Treasurer’s written agreement to its doing so: subs 15(2)).
With some doubt, I think that the respondents have correctly conceded that s 25A(1), properly construed, in its application to the position of senior manager of a foreign general insurer, does contain some further territorial limitation. The question before the Court is not what the legislature could have done, but what it did do.
Subsections 2A(1) and (2) (set out at [11] above), read in the light of s 21 of the AI Act, show that the purpose or object of ss 24(1) and 25A(1) is to protect the interests of policyholders and prospective policyholders under policies issued or proposed to be issued as part of the foreign general insurer’s Australian business. It is difficult to see how that purpose or object is served if s 25A is construed free of any territorial nexus with Australia other than that which is inherent in the notion of a ‘foreign general insurer’ as defined.
In my opinion, it is only if APRA will be compelled by law not to be satisfied that Applicant X and Applicant Y, by being or acting as a senior manager of a foreign general insurer, may pose any risk to the interests of the holders or prospective holders of insurance policies issued in the course of a business of general insurance conducted by it in Australia, that the applicants can succeed on the first separate question.
APRA will be compelled at law not to be so satisfied if there is no evidence lending support to that state of satisfaction.
I do not accept that the intended limitation is that advanced in the applicants’ submission set out at [56] above. The limitation there suggested would prevent APRA from disqualifying persons who posed a risk of the kind described, just because they had not been or acted as senior manger in Australia or in relation to the Australian operation. The fact that a person is not a fit and proper person to have or to exercise senior management responsibilities might be shown by other evidence, and it is not to be supposed that the legislature intended to omit all such cases from the scope of APRA’s power of disqualification.
Without attempting to define in an exhaustive and therefore exclusionary way the required Australian nexus, I am content to adopt as a sufficient nexus, one akin to that suggested by the respondents in para 3.24 of their submissions (set out at [57] above). Accordingly, I think it will suffice that:
1.the person has at some time made a decision or decisions or exercised some influence in relation to the carrying on of the Australian general insurance business of the foreign general insurer; and
2.there is at least some risk, even a remote one, that he or she will:
(a) do so; and
(b) be or act as someone referred to in s 24(1)(a), (b) or (c)in the future.
The second criterion is necessary. It conforms to the protective purpose of ss 24(1) and 25A(1). Without it, disqualification could be used simply to punish. Indeed, as a matter of APRA’s jurisdiction or power, the second criterion alone is probably all that is necessary.
I have set out the evidence in relation to Applicant X and Applicant Y under the heading ‘The Evidence Relating to Applicant X and Applicant Y’ ([36]–[55]) above, and will not repeat it here. In my opinion, each satisfies both limbs of the low jurisdictional threshold. Each is, and has at material times been, a senior manager of [Z Co]; each has exercised some influence in relation to its Australian operation; and there is at least some risk that each will do so in the future. In relation to this last matter, it is noteworthy that neither Applicant X nor Applicant Y has proffered to APRA any form of undertaking with respect to the future, and the affidavit of each goes only to his present intention and circumstances of life.
The applicants have not discharged the onus of establishing, as a matter of jurisdiction or power, that APRA will not be entitled to be satisfied that each first applicant is not a fit and proper person to be or to act as someone referred to in para 24(1)(a), (b) or (b) of the Act.
It is a different matter whether there may be administrative law grounds for relief available to the applicants in respect of a decision to disqualify, if and when APRA takes such a decision (and see the review procedures provided by Pt VI of the Act discussed at [22] above).
The RC Act
The RC Act was amended in 1912 by Act No 4 of 1912 which inserted new ss 6A–6P following s 6. Some of these provisions have been subsequently amended and s 6P has been added. Section 6M, the section of present concern, is as follows:
‘Any person who uses, causes or inflicts, any violence, punishment, damage, loss, or disadvantage to any person for or on account of:
(a)the person having appeared as a witness before any Royal Commission; or
(b)any evidence given by him or her before any Royal Commission; or
(c)the person having produced a document or thing pursuant to a summons, requirement or notice under section 2;
is guilty of an indictable offence.
Penalty: $1,000, or imprisonment for 1 year.’ (my emphasis)In its original form, s 6M provided:
‘Any person who uses, causes, inflicts, or procures, any violence, punishment, damage, loss, or disadvantage to any person for or on account of his having appeared as a witness before any Royal Commission, or for or on account of any evidence given by him before any Royal Commission, shall be guilty of an indictable offence.
Penalty: Five hundred pounds, or imprisonment for one year.’ (my emphasis)The words emphasised by me are those of immediate interest, and have been in the section since it was enacted in 1912. It is perhaps surprising then that a question of the kind now raised by the applicants has not arisen previously. Counsel for the parties assure me that their researches reveal that it has not.
In their statements of claim, the respective applicants allege:
· that, in order to form the preliminary views and to make the preliminary findings referred to in the Notice to Show Cause, Mr Godfrey had regard to the respective first applicants’ having appeared as witnesses before the Royal Commission and the evidence given by them respectively before the Royal Commission and in their respective statements to it on [date omitted] (Applicant X) and [date omitted] (Applicant Y); and
· that Mr Godfrey’s preliminary views and preliminary findings were on account of that appearance and that evidence; and
· that the Notices to Show Cause have caused or inflicted damage, loss and/or disadvantage to both applicants in each proceeding.
The damage, loss and/or disadvantage is particularised in identical terms in each statement of claim. Each first applicant has been caused ‘considerable personal upset’, and has been obliged to seek, and has sought and obtained, legal advice as to his rights and the possible impact of the Notice to Show Cause on his reputation and future employment in the long and short term, and has been obliged to notify his employer, [Z Co], of the contents of the Notice. For its part, [Z Co] has been caused by each Notice to seek and obtain legal advice as to its rights and the possible impact of the Notice on its reputation and on the employment of the first applicant in the long and short term.
At the outset, it should be observed that it would be odd if the police, other law enforcement bodies and regulators were disentitled by s 6M to use evidence given to a Royal Commission to inform themselves of pre-existing facts and events, and to take administrative decisions and steps in reliance on those facts and events. The applicants’ submission seems to signify that such testimony could not be used by them at all, perhaps, even to prompt the making of investigative inquiries. The incongruity that would arise is emphasised by the fact that the prohibition would not apply to prevent reliance on a pre-existing documents or things produced to the Royal Commission (because s 6M(c) refers to ‘the person having produced a document or thing’, not to the document or thing itself).
Section 6M is one element of a régime of provisions in the RC Act which are intended to facilitate the work of Royal Commissions. Another is s 6DD, also referred to in the separate question for separate determination. Section 6DD provides:
‘(1)The following are not admissible in evidence against a natural person in any civil or criminal proceedings in any court of the Commonwealth, of a State or of a Territory:
(a)a statement or disclosure made by the person in the course of giving evidence before a Commission;
(b)the production of a document or other thing by the person pursuant to a summons, requirement or notice under section 2.
(2)Subsection (1) does not apply to the admissibility of evidence in proceedings for an offence against this Act.’
Although the second question for separate decision refers to s 6DD as well as to s 6M, s 6DD is not referred to in the applicants’ statement of claim or written submissions. The respondents noted this in their own written submissions and concluded there that the applicants appeared no longer to press a claim of contravention of s 6DD. For this reason, their written submissions stated that they were confined to a consideration of s 6M. On the hearing the applicants did not respond to this statement, but again did not make submissions in support of a case based on contravention of s 6DD. Like the respondents, I take the applicants not to press for a positive answer to the second separate question on the basis of contravention of that section. In fact it would have been hopeless to contend that either respondent had contravened s 6DD. It suffices to say that s 6DD is not susceptible of being ‘contravened’ by anyone: it neither prohibits nor compels, but merely makes certain things inadmissible in evidence.
The respondents submit that by omitting any reference to use by an administrative body, such as APRA, of a statement or disclosure made by a person in the course of giving evidence before a Royal Commission, s 6DD shows that the legislature did not intend s 6M to encompass use of that kind. The argument is that if the legislature had intended to prevent a regulator from using evidence given before a Royal Commission in the way in which APRA has used it here, the prohibition would have been found in s 6DD.
I do not agree. The concern of s 6DD is the inadmissibility of evidence against a natural person in ‘civil or criminal proceedings in any court ...’ – a familiar category. It should not be accepted that when providing for that inadmissibility, the legislature would have included a prohibition against use of the things mentioned in the section (statements or disclosures made or documents produced) by the police, other law enforcement authorities and regulators for the purpose of administrative decision-making, if it had wished to prohibit that use of them. That kind of use of things belongs to a different area of discourse from that to which questions of admissibility in evidence in a court belong.
I regard s 6DD as being neutral in relation to the present question of construction of s 6M.
In my opinion, the expression ‘any evidence given by him or her before any Royal Commission’ in para 6M(b) signifies, not the underlying facts of which evidence was given, but the act of giving evidence on a particular subject matter. This is distinct from ‘having appeared as a witness before any Royal Commission’ – the subject of para (a). As illustrated below, a third party may not object generally to the person’s having appeared as a witness and testified, yet object to his or her having testified on a particular subject matter.
The construction suggested has the advantage of making para (b) consistent with para (c). As noted at [86], it would be odd if the police, other law enforcement authorities or regulators could rely on (pre-existing) documents or things produced by a person to a Royal Commission as a basis for administrative decision-making, yet could not rely on (pre-existing) facts and events of which the person testified before the Royal Commission, for the same purpose.
Section 6M can be compared with s 6N which was enacted at the same time. Subsection (1) of s 6N provides:
‘(1)Any employer who dismisses any employee from his or her employment, or prejudices any employee in his or her employment, for or on account of the employee having:
(a)appeared as a witness before a Royal Commission; or
(b) given evidence before a Royal Commission; or
(c)produced a document or thing pursuant to a summons, requirement or notice under section 2;
is guilty of an indictable offence.
Penalty: $1,000, or imprisonment for 1 year.’While it is true that in s 6M, paras (a) (‘having appeared’) and (c) (‘having produced’) are structured differently from para (b) (‘any evidence given’) in that section, and that paras (a) (‘having appeared’), (b) (‘having given evidence’) and (c) (‘having appeared’) of s 6N(1) are all structured identically as between themselves and similarly to paras (a) and (c) of s 6M, I think that para (b) in s 6M is to be read as if it said ‘the person having given evidence on any particular matter before any Royal Commission’.
Assume that an employee gave evidence before a Royal Commission to the effect:
(a)that the employee had embezzled money from his or her employer; and
(b)that his employer engaged in unsafe or anti-competitive practices.
I suggest that s 6N would not prevent the employer from relying on the embezzlement as a ground for dismissal of the employee, even though the employer had become aware of it only upon hearing, or reading a transcript of, the employee’s testimony before the Royal Commission. But if the question whether the embezzlement had in fact occurred arose in a civil or criminal proceeding in a court, for example, in a civil proceeding for unjust dismissal or in a criminal prosecution of the employee, s 6DD would make the employee’s testimony before the Royal Commission inadmissible against him. The employer or prosecutor would have to prove the embezzlement otherwise. But s 6M would not prevent either of them from relying on the testimony for the purpose of deciding to make further inquiries with a view to eliciting other evidence of the embezzlement.
The employer might be displeased that the employee also gave evidence before the Royal Commission about the employer’s unsafe or anti-competitive practices, and if the employer were to dismiss the employee for or on account of his having done so, the employer would contravene s 6N(1)(b), and, at least if that provision did not exist, s 6M(b).
As the above example shows, a third party may be displeased that a person gave evidence on a particular topic and not on another. I think it was with a view to accommodating this possibility that the expression that ‘any evidence’ was used in para (b) of s 6M. In the hypothetical case described, the employer would not be displeased that the employee had appeared as a witness before a Royal Commission or given evidence before a Royal Commission in a general sense, for example, in relation to the employee’s own embezzlement, but would be displeased that the employee had done so in relation to the employer’s unsafe or anti-competitive industry practices. Leaving to one side the availability of s 6N, the employer would contravene s 6M(b) if the employer were to dismiss the employee because the employee had given evidence on that topic, since that would be ‘any evidence given by him or her before any Royal Commission’.
Neither APRA nor Mr Godfrey is displeased that the first applicants gave evidence before the Royal Commission in relation to [Z Co]’s dealings with [R Co] or any other subject matter. Neither has caused or inflicted, or is causing or inflicting, any disadvantage on the applicants on account of the first applicants’ having given evidence before the Royal Commission on that topic.
In the result, it is not shown that, for the purposes of s 6M of the RC Act, Mr Godfrey or APRA is causing any damage, loss or disadvantage to any of the applicants for or on account of any evidence given by the either of the first applicants before the Royal Commission.
CONCLUSION
The separate questions A and B should be answered ‘Yes’ and ‘No’ respectively and the applicants should pay the respondents’ costs of the determination of the separate questions.
The questions of construction resolved above have not been free of difficulty. The legislation discussed may be thought to call for clarifying amendment.
I certify that the preceding one hundred and one (101) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.
Associate:
Dated: 15 September 2005
Counsel for each Applicant:
Mr PH Greenwood SC, Ms D Hogan-Doran, Ms LC Dive
Solicitors for each Applicant:
Minter Ellison
Counsel for the Respondent:
Mr JWJ Stevenson SC and Ms MN Allars
Solicitors for each Respondent:
Sparke Helmore Lawyers
Date of Hearing:
20, 21 June 2005
Date of Judgment:
16 September 2005
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