Australian Superannuation Nominees Limited and Australian Prudential Regulation Authority

[2003] AATA 1200

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2003] AATA 1200

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          N2003/810

GENERAL ADMINISTRATIVE DIVISION		)
Re		AUSTRALIAN SUPERANNUATION NOMINEEES LIMITED

Applicant

And AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY 

Respondent

DECISION

Tribunal Deputy President J Block

Date28 November 2003

PlaceSydney

Decision The operation of the relevant decision (and being the decision referred to in clause 1 of the reasons for decision) is stayed, in accordance with section 41(2) of the Administrative Appeals Tribunal Act 1975 until the determination of these proceedings in respect of the relevant decision, by this Tribunal, conditionally upon compliance by the Applicant with the relevant conditions (as referred to in clause 2 of the reasons for decision).

[Sgd] Mr J Block, Deputy President

CATCHWORDS

Regulation under the SIS Act - decision varying Instrument of Approval—relevance of collateral investigation - relevance of tax agents cases- stay application

LEGISLATION

Superannuation Industry (Supervision) Act 1993

Administrative Appeals Tribunal Act 1975

CASE LAW

Hussein and Minister for Immigration and Indigenous and Multicultural Affairs [2000] AATA 1087

Dekanic and Tax Agents’ Board of New South Wales (1982) 13 ATR 569. 

AXO3D and Tax Agents’ Board of New South Wales [2003] AATA 469

Minister for Immigration and Ethnic Affairs v Pochi (1980) 4 ALD 139

REASONS FOR DECISION

28 November 2003 Deputy President J Block  

PART A – PRELIMINARY AND GENERAL

1. The term “relevant decision” means the decision of Mr Wayne Byres made on 22 January 2003 pursuant to section 27C of the Superannuation Industry (Supervision) Act 1993 (“SIS Act”) to vary the Instrument of Approval of the Applicant and in particular condition 2 of the schedule thereto, prohibiting the Applicant from taking or assuming the trusteeship of any further superannuation funds, and the decision by Mr K Chapman, a delegate of the Australian Prudential Regulation Authority (“the Respondent”) made on 22 April 2003, affirming the decision previously made by Mr Wayne Byres.

2.      The term “relevant conditions” (and each a “relevant condition”) means each of:

(a)      The board of directors (“the Board”) of the Applicant, as constituted at this date must not alter in any respect whatsoever without the prior written consent of the Respondent but provided that the provisions of this subclause (a) do not apply to an alteration arising in consequence of the death, or resignation by reason of illness of any member of the Board, and provided further that where in accordance with the Constitution of the Applicant a new appointment is required to replace any director so ceasing to act, that new appointment must be made only with the prior written consent of the Respondent;

(b) The Applicant must before assuming the trusteeship of any further superannuation fund, advise the members or nominated representative of that fund in writing, that the Respondent is conducting an investigation pursuant to section 263 of the SIS Act into the affairs of the superannuation entities of which the Applicant is the trustee;

(c)      The Applicant must at all times comply with all of the terms and conditions set out in or referred to in the Instrument of Approval.

3.      Mr R W White SC of Counsel instructed by Mr Peter Thompson of Thompson Eslick appeared for the Applicant and Mr L T Grey of Counsel instructed by Ms N Jayasinghe of the Respondent, appeared for the Respondent.

4.      Following the affirmation on 22 April 2003 by Mr Chapman of the decision dated 22 January 2003 of Mr Byres, the Applicant sought its review by this Tribunal.

5.      On 7 February 2003, the Respondent wrote to the Applicant requiring the Applicant to show cause why its authority to operate as an approved trustee should not be revoked; that authority was in fact revoked by notice dated 30 April 2003.  Proceedings in the Federal Court were brought as a matter of urgency; those proceedings were resolved in favour of the Applicant early in May 2003.

6. The Tribunal had been informed, at a directions hearing held on 10 November 2003 that there is currently an ongoing investigation, pursuant to section 263 of the SIS Act, (referred to in these reasons as “the investigation”) into the affairs of the superannuation entities of which the Applicant is the trustee. Mr Grey indicated to the Tribunal that it was hoped that the Respondent will be able to complete the investigation early in 2004 or perhaps by the middle of 2004. Naturally enough he was not able to advise the Tribunal as to the nature of the investigation or of progress to date. The current position then is that the Tribunal and the Applicant are aware only of the fact that there is such an ongoing investigation. Mr Grey, on a number of occasions, urged the Tribunal to have regard to the fact that there is an ongoing investigation and to make its findings on the basis of and with due regard to that fact. It must be appreciated however that the Tribunal is charged only with the review of the relevant decision and nothing else; the Tribunal indicated during the course of the hearing that it did not consider that it could or should take into account an aspect which is aptly at this stage categorised as suspicion on the part of the Respondent. (I will revert to these allegations later in these reasons) It would appear that when his enquiries are complete, an inspector will advise the Respondent of his findings and, so it is hoped, a report will be issued within one month of that date. As to whether the Applicant will be given an opportunity to make representations in respect of any such enquiries or report is not clear.

7.      The hearing before the Tribunal of the review of the relevant decision commenced on 17 November 2003, having been listed for that day and the following two days.  By the time of the lunch adjournment on the third day it had become clear, beyond any possibility of doubt, that the hearing could not be completed on that day and indeed that to complete the hearing might take a number of further hearing days.  It was in these circumstances that Mr White foreshadowed an application for a stay of the relevant decision.  That application was made in the afternoon of the third hearing day; it was opposed by the Respondent, and argument as to the stay lasted for the rest of the afternoon.  The matter was adjourned at the end of the third day, to enable the Tribunal to consider its decision as to the stay application, and at a point in time when the cross-examination of Mr Benjamin Smythe (“Smythe”) a witness called by the Applicant (who had already given evidence for some considerable time) had not yet been completed.

8.      The evidence before the Tribunal is already very extensive indeed.  The T‑Documents are lengthy and comprehensive; so for that matter are the statements of a number of witnesses; they all pale into insignificance by comparison with the exhibits of which there are already a considerable number and including in particular, but not only, an exhibit referred to and described as the “Agreed Bundle” and which consists of six large volumes and comprising thousands of closely typed pages.  Each volume of the Agreed Bundle commences with page 1 so that obviously enough, the transcript contains references to the Agreed Bundle by reference to each of the relevant volume and the relevant page in that volume. (I have noted that some statements contain references to the Agreed Bundle which do not refer to the relevant volume)

9.      In the course of the three hearing days evidence was taken from only two witnesses, Smythe, whose cross-examination is (as I have indicated) still incomplete, and Mr Graham Bird (“Bird”).  I was informed that three witnesses for the Applicant, Messrs. Michael Lillicrap, Graeme McDougall and David Taylor (all of whom furnished lengthy statements) would not be required for cross-examination, and so that at least on a prima facie basis and subject to a consideration of the evidence as a whole, their evidence may be accepted by the Tribunal.

10.     During the course of the argument as to the stay application, Mr White in particular referred to evidentiary aspects and on many occasions to numbered pages in volumes of the Agreed Bundle and in addition to other exhibits, letters and statements.  I do not think that it is necessary for me to set out a full list of the exhibits tendered so far; they were allotted either ‘A’ or ‘R’ numbers (depending on which party tendered them) while the Agreed Bundle was referred to simply in that fashion.  I should however refer to those documents, which were tendered specifically in respect of the stay application.  In this regard:-

·     Exhibit SA1 sets out details of the present and prior office-holders of and shareholders in the Applicant.

·     Exhibit SA2 (although that number was not allotted by me during the hearing) refers simply to the Applicant’s application for the stay and which sets out that the Applicant seeks an order in the following terms:

“1. Subject to Order 2, the decision of Mr Wayne Byres made on 22 January 2003 pursuant to s27C of the Superannuation Industry (Supervision) Act 1993 to vary the Instrument of Approval of the Applicant, in particular specific condition 2 in the schedule, to prohibit the Applicant from assuming trusteeship of any further superannuation funds, and the decision of Mr Keith Chapman of 22 April 2003 confirming Mr Byres decision of 22 January 2003, be stayed until the determination of these proceedings or further order.

2.        Order 1 is conditional upon:

(a)there being no change (other than by death or resignation due to illness) to the directors of the Applicant without the prior written consent of the Respondent; and

(b)the Applicant, before assuming the trusteeship of any further superannuation fund, advising the members or nominated representative of the fund in writing, that APRA is conducting an investigation pursuant to s263 of the Superannuation Industry (Supervision) Act 1993 into the affairs of the Superannuation entities of which the Applicant is trustee.”

·     Exhibit SR1 sets out the basis upon which the Respondent suggested that the matter could be resolved in the following terms:

“1.       The decision … be set aside.

2.Mr De Belle and Mr Smythe not occupy any position or role which falls within the definition of “responsible officer” as defined in s10 of the SIS Act until –

(a)one month after the provision to APRA of the inspector’s report arising from the s263 investigation being conducted into the affairs of entities under the trusteeship of ASN; OR

(b)30 June 2004: or

(c)such date as may be advised by APRA,

whichever occurs first.

3.Before assuming the trusteeship of any further superannuation fund, ASN obtain an acknowledgment in writing from at least one member of the relevant fund that he or she is aware that APRA is conducting an investigation under s263 of the SIS Act into the affairs of entities under the trusteeship of ASN, and make such acknowledgments available for inspection by APRA upon request.”

11. It will be noted that the Respondent, pursuant to exhibit SR1, indicated that the relevant decision could be set aside if Mr De Belle (who is a director) and Smythe (who is a manager charged, inter alia, with marketing) ceased to be a “responsible officer”, as defined in section 10 of the SIS Act, until the first to occur of the dates set out in exhibit SR1. Mr White indicated that in the absence of instructions from the Applicant, the Applicant could not agree to the matter being resolved on the basis set out in exhibit SR1.

PART B – THE EVIDENCE SO FAR

12.     I should make it altogether clear that the evidence before me is very far from complete.  There are witnesses whose evidence is still to be heard leaving aside the fact that Smythe’s cross-examination is not complete and in addition there remains his re‑examination. There may well be further exhibits.  And of course it goes without saying that to consider the exhibits to date and in particular the Agreed Bundle with any care will require a considerable period of time.  It follows then that all comments on the evidence contained in this part B must be treated as if prefaced by a cautionary note to the effect that that comment is necessarily subject in all respects to a consideration of all of the evidence as a whole.  That, as I have indicated, is something which of necessity can occur only at some time in the future.

13.     The stay application argument was in many respects detailed.  I have given some thought to the manner in which I should approach and deal with the detailed argument and more particularly to the references to the evidence contained in it. It seems to me that it is undesirable and might indeed be inappropriate to do so in detail.  It is for this reason that I consider it sufficient to deal with evidence so far before me in broad terms and so as to indicate the basis upon which I have come to the conclusion that the Applicant has at the least an arguable case and indeed (and subject to the evidence as a whole) perhaps more than merely an arguable case.

14.     The directors of the Applicant at this date are Mr Stephen De Belle, who was appointed on 12 December 2002, Mr Robert Bloore, who was appointed on 20 December 2000, Mr Michael Lillicrap, who was appointed on 18 June 2003 and Mr Graeme McDougall, who was appointed on 4 July 2003.  In respect of Messrs Lillicrap and McDougall, their statements (exhibits A5 and A6 respectively) may prima facie be accepted on the basis set out previously because they were not required for cross-examination.  It may be noted that Messrs Berge Der Sarkissian, (“Sarkissian”) Smythe and Mr Anthony Hall (“Hall”) were directors of the Applicant but are no longer members of the Board.

15.     The shareholding structure in respect of the Applicant is complex; the capital consists of ordinary shares and preference shares and in the latter case divided into classes A to F (both classes inclusive).  To detail the shareholding structure is unnecessary; suffice it to say that there is a wide spread of shareholdings and moreover that it does not appear that any person or persons about whom the Respondent has reservations, and whether alone or in combination, has the power to control resolutions of shareholders or directors.

16.     In 1999, an Information Memorandum was prepared in respect of the Applicant and in order to solicit investments in it.  Put in very broad terms, the Applicant considered that it could operate as an approved trustee specifically in order to fulfil the function of trustee in relation to small superannuation funds (and being superannuation funds with very few members) which, following legislative amendments in 1999, would not be able or willing to comply with certain obligations arising from those amendments.  Put in simple terms, each small superannuation fund previously self-managed could continue to be self-managed only if all of its members took office as trustees of the fund or, where the trustee is a company, became directors of it.  The Applicant perceived an opportunity to become the trustee of such funds on the basis that it could offer personal service and competitive fee rates and perhaps (so it was hoped) preferable to those offered by large trustee companies.

17.     The Respondent in 2000 approved the Applicant as an approved trustee, inter alia, on condition that it had $5m in net tangible assets.  The manner in which the Applicant complied with that condition was the subject of a considerable part of the evidence so far.  Put in simple terms, an earlier proposal involving investments in real property through a separate entity was shelved in favour of a structure pursuant to which $5m was subscribed in C Class preference capital in the Applicant and where the Applicant on-lent that amount to SAF Finance Pty Limited (“SAF”), and obtained a charge from SAF securing the amount so borrowed.  The somewhat complex structure also involved on-loans by SAF to the original subscribers, described during the evidence as “high net worth individuals”, of the amounts subscribed by them for the C Class preference shares. It follows then that $5m was subscribed by the relevant investors who then received their money back pursuant to the on-loans by SAF to them.  This structure was referred to (although Mr White had reservations as to this description) as the “round robin structure”.  My own view, again on a prima facie basis, is that on the face of it that description is not inaccurate.  Although the borrowers from SAF were described as high net worth individuals they did not give security for the on-loans to them, and there does not seem to have been any form of protection against their financial positions altering for whatever reason, after the on-loans were made, for the worse.  Moreover the structure, while designed to ensure that interest paid by SAF was matched, after an adjustment for tax by preference dividends to the shareholders in question, was not in all respects perfectly matched in that the Applicant could claim on SAF only with the Respondent’s approval while SAF in turn could claim from its borrowers only upon the insolvency of the Applicant.  There was evidence which tends to indicate that the Respondent was informed as to the preference share issue and the loan to SAF, but not the on-loans to the investors.  On 27 March 2000, the Respondent wrote to the Applicant; that letter appears as pages 489 and 490 in Volume 2 of the Agreed Bundle.  It stated, under the head of “Provision of Documents” as follows:

“Provision of Documents

Please provide copies of the following documents to APRA prior to the trustee commencing to operate as an approved trustee and prior to the date of effect of the attached Instrument:

1.        documentation to confirm the issue of five million preference shares by ASN;

2.        the executed Deposit Deed between ASN and the special purpose investment company; and

3.        the executed Fixed and Floating Charge agreement between ASN and the special purpose investment company.

Further, within one month of the date of the Instrument, APRA must be provided with:

1.a statement from the trustee’s external auditor that he/she is satisfied that the trustee’s systems can produce all reports required by APRA in a reliable and timely fashion, and that reliance can be placed upon the data in those reports; and

2.a statement from the trustee’s external auditor certifying that the trustee has net tangible assets, in terms of the definition provided during the application process, of five million dollars.”

18.     Smythe’s evidence as I have said is not complete and I am reluctant to comment upon it in any detail.  However it would seem that he felt that since Deloittes, the auditors of the Applicant, signed off to the effect that the Applicant had net tangible assets of $5m, there was indeed compliance with the requirements of the Respondent.  My attention was not drawn to the extent of any relevant brief or mandate to Deloittes.  (For obvious reasons, I have not had an opportunity to consider the Agreed Bundle in any detail).  The fact that the Applicant earned no income of any kind on the relevant funds did not arouse Smythe’s concern for all that he was a director, then joint managing director, and then sole managing director; he resigned from the Board in July 2003. He was the sole managing director when Hall was the Applicant’s chief executive officer. It might be thought odd that there could be separate holders of offices so described, since one might think that a managing director is in fact also a director who is also the chief executive officer. According to Smythe he was the senior of the two although it was left to Hall to deal with important matters in relation to the Respondent.

19.     Smythe was subjected to some (implicitly adverse) cross examination in consequence of the fact that the Information Memorandum made no mention of his prior involvement with Commercial Nominees Australia Limited (“Commercial”) a trustee company which, so I was informed, breached its statutory obligations in such manner that the Federal Government was obliged to step in and make good certain losses.  The Information Memorandum described him merely as having been employed by a trustee company.  Smythe denied that the Information Memorandum sought to conceal his prior involvement with Commercial.

20.     My own view is that it is possible that the round robin arrangement was in breach, at least of the spirit if not the strict wording, of the Respondent’s requirements.  When the Respondent discovered what had occurred the matter was rectified. Of the round robin arrangement there is only $1.7m remaining but a separate preference share issue has funded a deposit, in addition, of $5m with St George Bank.

21.     The Respondent was concerned inter alia about the fact that Sarkissian was a director of the company.  Sarkissian, in October 2002, gave an enforceable undertaking not to be involved as an authorised representative of a securities dealer.  Although that undertaking was given without admission, it would seem on the evidence before me that it arose from large scale Telstra Deposit Receipt applications in different, and in some respects false names.  Sarkissian gave his undertaking.  This was discussed by the Board on 15 October 2002; the Board decided to obtain legal advice and to consult the Respondent. However Sarkissian decided to resign as a director and his resignation was accepted on 12 December 2002.

22.     The Respondent was concerned also about Hall; he was a director of the Applicant having previously been a director of Commercial.  Hall resigned as a director in March 2000; however he was the secretary of the Applicant until January 2001.  From then on and for a period he operated in what was described as a “back office function” but that function terminated in January 2003.

23.     There was evidence before me as to the fact that the Respondent may perhaps have been mistaken in its view as to certain superannuation funds of which the Applicant is the trustee. There is evidence to the effect that contrary to what the Respondent believed, Mr. Anthony Tighe did not borrow from Appleby Superannuation Fund at a time when the Applicant was its trustee.  Another relevant superannuation fund of which the Applicant was, but no longer, is the trustee owned a membership in Cypress Lakes Golf Club.  There was evidence before me which might suggest that the Applicant did not make a statement, alleged to have been made by it, as to the incidental benefits conferred by that golf club membership and it is conceivable that there were some misunderstanding as to what precisely was said in this regard.

24. It would be unfair to comment in adverse terms on Smythe’s evidence so far especially since, as I have said, his cross-examination is incomplete and there is still his re-examination to come. Smythe is young, and was perhaps somewhat young to be the managing director of an approved trustee. It is possible that he was unaware of important events of which perhaps he might have been expected to be aware, and there is reason to think that it is possible that he relied on Hall to deal with those matters. At this stage he holds a managerial position which places him within the definition of “responsible officer” as that term is defined in section 10 of the SIS Act.

25.     The Respondent’s precise objections to Mr De Belle are not clear at this stage although it is to be noted that he was not a director at the time the round robin arrangement was entered into.  There was also evidence before me which would suggest that an important letter (which I need not detail) by the Respondent setting out certain concerns did not make any specific allegations against Mr De Belle.

26.     The statements of Messrs Lillicrap and McDougall indicate that they are both men of repute with considerable experience in the superannuation industry.  Mr McDougall was at one time a federal member of parliament.  It would appear that their presence on the Board of the Applicant furnishes it with credibility.

27.     Mr Graham Bird’s evidence was interposed during the course of Smythe’s evidence.  He has had a distinguished career in the superannuation industry and is currently a member of the Superannuation Complaints Tribunal.  His evidence was impressive and should in my view be accepted.  He has spent some time investigating a relatively substantial sample of the trusts under administration.  His evidence in broad terms was that although there is perhaps room for further improvement the administration is by and large competent and sufficient.

28.     Put in other words and in summary, there is evidence which would suggest that the Applicant has (put in colloquial terms) to some considerable extent put its house in order. It may be that it has done so reactively and not pro-actively.  The Applicant contends in effect that to the extent that the Respondent may in the past have had cause to be concerned, those concerns have largely been addressed.  The ongoing role of Smythe has been referred to previously in these reasons and should not (again for reasons set out previously in these reasons) be dealt with further at this stage.

29.     It is for these reasons that I consider that it is likely that at the very least the Applicant has an arguable case and perhaps more.

PART C – THE APPLICANT’S FINANCIAL POSITION

30.     At the time of the relevant decision the Applicant was the trustee of 225 superannuation funds including a number described as being in the course of migration to the Applicant and which did not in the end result migrate to the Applicant.  As at 20 October 2003 the number was down to 174.  It must be remembered that the effect of the relevant decision is that the Applicant is not permitted to take up the trusteeship of new funds and even where they would merely replace superannuation funds lost through natural attrition.

31.     The Applicant acts only as trustee of the relevant funds.  It does not administer the funds and it does not give independent advice.  It receives a flat fee of $1,500.00 per annum for funds under 1.5 million and a very small percentage of assets on an annual basis for larger funds and of which there are very few.  It has from inception incurred losses and is continuing to do so.  It seems clear that its projections and hopes as to the number of trusts under management to be achieved were over-optimistic.  At this time, and with the relevant decision in force, it cannot reach the break-even point at which it might derive profit; it seems clear that as presently constituted the Applicant will continue to incur losses and which might in fact increase at a greater rate if in consequence of natural attrition there is further loss of funds.

32.     Exhibit R2 indicates at page 11 that Deloittes in relation to its accounts for the year ending 30 June 2003 and under the head of ‘Going Concern’ said:-

“The financial report has been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.

Pursuant to SIS legislation, the company is obliged to maintain a minimum of $5 million in net eligible assets.  As at 30 June 2003 the net eligible assets were $5,054,021 and the company incurred a net operating loss of $104,962 for the year ended 30 June 2003.

The ability of the company to continue as a going concern is dependent on:

·     The company generating sufficient new profitable business which is dependent on the company successfully arguing for a removal of a condition of its instrument of approval, imposed by APRA during the current financial year, which effectively restricts the company from accepting any new business.  This matter is subject to review by the Administration Appeals Tribunal, with a hearing date of 17 November 2003; and

·     The company maintaining its net eligible assets at an amount in excess of $5 million.”

33.     Put in other words the continued solvency of the Applicant is or may become a very real issue.

34.     There was evidence before me that the Applicant will be able to continue only if it obtains loan finance or if its shareholders continue to support it by fresh infusions of capital.  There was no evidence that they will not support the Applicant, but there was also no evidence that they will.  Mr Grey pointed to the enormous amount of work undertaken by the Applicant’s solicitors in this hearing as being indicative of a willingness on the part of the shareholders to finance the Applicant and that contention is not without merit.  The effort in preparing the Agreed Bundle alone is clearly enormous.  On the other hand, there is no reason to think that the patience of the Applicant’s shareholders is inexhaustible; it is reasonable to think that there may come a time when they form the view that to subscribe further capital would be to throw good money after bad.  It is hard to imagine a financial institution lending to the Applicant in its current state, unless the Applicant is able to furnish strong security and conceivably in the form of personal guarantees by its shareholders or directors.

35.     There was also evidence before me that for the Applicant to raise its fees might result in loss of business and having the effect that its financial position becomes yet worse.

PART D – THE LAW

36. Section 41(2) of the Administrative Appeals Tribunal Act 1975 reads as follows:

“41      Operation and implementation of a decision that is subject to review

…

(2)The Tribunal or a presidential member may, on request being made, as prescribed, by a party to a proceeding before the Tribunal (in this section referred to as the relevant proceeding), if the Tribunal or presidential member is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal or presidential member considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.”

37.     An application for a stay can be made in accordance with the regulations, in accordance with form 6 or such other form as the Tribunal permits.  Mr Grey did not object to the fact that this application was not made in accordance with form 6 and in any event the Tribunal considers that the form in which the stay application has been made is satisfactory.

38.     Mr White cited case authority as to the capacity of this Tribunal in respect of a stay application such as this.  It is unnecessary for me to refer to that authority because Mr Grey interrupted Mr White in order to note that he accepted that there is no difficulty in this regard.

39.     The Tribunal raised a question as to whether there had not been some delay in making the stay application.  However it accepts that by August 2003 when the St George Bank structure was in place, the matter had been listed for hearing for three days in November 2003 and that the Applicant was perhaps entitled to think that three hearing days would be sufficient  (Mr White noted that the Applicant had in fact asked for four days.)  The Tribunal accepts that there has not been any unreasonable delay, while noting that on this volume of evidence, a quick decision was always unlikely.

40.     One of the leading cases in this area is the decision of Davies J, sitting as President of this Tribunal in Re Dekanic and Tax Agents’ Board of New South Wales (1982) 13 ATR 569. That decision was cited extensively and with approval by Senior Member Sassella in AXO3D and Tax Agents’ Board of New South Wales [2003] AATA 469; clause 35 of the decision in AXO3D reads as follows:

“[35] Mr Powrie referred the tribunal to several earlier decisions. Foremost among these was a decision of Davies J, then President of the tribunal, in Re Dekanic and Tax Agents’ Board of NSW (1982) 6 ALD 240. Davies J’s comments at pages 241-242 are extracted liberally because they are of great assistance in the present application:

“Section 41 of the Administrative Appeals Tribunal Act 1975 authorizes the Tribunal, or a presidential member to stay a decision under review if it is desirable to do so after taking into account the interests of any persons who may be affected and if it is appropriate to do so for the purpose of securing the effectiveness of the hearing and the determination of the application for review.

“In applying s 41, the principles which are adopted in other places for other purposes have no direct relevance. Moreover, the jurisdiction of the Tribunal is wide and diverse and it is not practicable to lay down a principle or a set of specific principles applicable to every type of case in respect of which there may be an application for a stay.

“In the case of Re Dart and Director-General of Social Services (1982) 4 ALD 553 I delivered reasons which set out my view of the operation of s 41 in relation to a review of a decision made under the Social Services Act 1947. I do not resile from anything said in those reasons, but it seems to me that the situation there under consideration was somewhat different from the circumstances which have to be considered here today.

“I am here dealing with a decision which involved the cancellation of the registration of Mr Dekanic to carry on practice as a Tax Agent. Under the principles of administrative law as expounded by the High Court of Australia and the Federal Court of Australia, a decision cancelling the registration of a person as a Tax Agent would not, I think, be a valid decision if the Tax Agent were not given an opportunity to be heard and to put forward facts and reasons why his registration should not be cancelled. Moreover, to cancel a registration without giving to the Tax Agent a right to be heard would be inconsistent with Art 14 of the International Covenant on Civil and Political Rights which is set out in Sch 1 to the Human Rights Commission Act 1981.

“The provision of review by the Administrative Appeals Tribunal satisfies these requirements of justice that the affected person has a right to be heard (see Twist v Randwick Municipal Council (1976) 136 CLR 106). It follows that a review by this Tribunal completes the process by which a valid decision for the cancellation of a Tax Agent's registration may be made. By the provision of the right to be heard before this Tribunal, the Tax Agent, whether he takes advantage of the opportunity of review or not, is given the opportunity to put his case and therefore the rules of natural justice are complied with.

“Thus, I am not now dealing with a case in which I am reviewing a decision in relation to which, prior to the making of the decision, the applicant was given a full opportunity to put forward whatever matters he wished to put against the making of the decision the subject of the review. I am dealing with a matter involving the cancellation of a Tax Agent's licence in the circumstance that the applicant has not yet been heard and has not yet had an opportunity fully to put forward the facts and reasons why his registration should not be cancelled.

“I make this remark without making any observations as to what actually occurred before the Tax Agents' Board of New South Wales because I have only limited information before me, but it has been put to me that the applicant was not given an opportunity to be heard and the allegation has not, for the purpose of today's proceedings, been controverted.

“In circumstances such as these, the granting of a stay may secure the effectiveness of the hearing and determination of the application for review in two ways. Firstly, the granting of a stay may remove pressure from the parties and the Tribunal to hurry towards a decision, it enables sufficient time to be set aside for the preparation of the case and an appropriate date appointed for hearing and it enables the Tribunal to reserve its decision if it sees fit to do so and to give such time to the consideration of its decision as it thinks necessary fully to consider the matter. If a stay were not granted there would be a tendency to rush the hearing and the decision and therefore to reduce the quality thereof.

“Secondly, the stay may increase the effectiveness of the determination of the review. If a stay were not granted, the decision, if favourable to the applicant, could not compensate the applicant for the dislocation to his practice which would occur prior to the handing down of the decision. The decision could not put him back into the position of a person whose registration had never been cancelled. The decision can be fully effective, if it is favourable to the applicant, only if the operation of the cancellation is stayed until the decision of the Tribunal is given.

“For those reasons, it is the ordinary practice of the Tribunal in the review of a cancellation of a Tax Agent's registration to grant a stay if the Tribunal is asked to do so, and it grants that stay until the hearing and the determination of the review. In my experience, so far as I can recollect, it has indeed been the usual practice of Tax Agents' Boards to consent to the making of an order staying the operation of the decision under review. An order staying the operation was made, for example, in the case of Re Su and Tax Agents’ Board of South Australia, (1982) 4 ALN No 168, which I heard earlier this year, and it is interesting to note that, even in the appeal from the decision of the Tribunal in that case, the Federal Court of Australia itself granted a stay of the cancellation of the Tax Agent's registration, operative until the hearing of the appeal.

“That, as I see it then, is the basic approach to take in these matters but, of course, in every particular case the circumstances of the case must be considered and in not every case will it be appropriate that a stay should be granted. Particularly a stay should not be granted if it is clear that, in the public interest, the decision under review should be effective until the Tribunal has considered the matter fully.

“In the present case, I do not see any features of the matter which suggest to me that there is any particular danger to the public should Mr Dekanic carry on practice pending the decision of this review and, indeed, it seems to me that the public interest lies rather in staying the dislocation to his practice which would occur if the cancellation were operative. Mr Dekanic has a large practice and a number of employees and it seems to me that the public interest lies rather in the continuance of the current state of affairs until the determination of the review than in bringing the practice”

41.     Mr Grey contended that the tax agents cases should be distinguished on the basis that where a tax agent’s licence is cancelled his livelihood ceases, whereas the relevant decision does not prevent the Applicant from continuing its business.  Put in another way, a tax agent whose licence is cancelled can earn no income, whereas the Applicant can, albeit on a reduced basis, continue to do so.  In my view that contention is not well founded.  It is true that the result of the relevant decision is not quite as draconian as the termination in relation to a tax agent of his license to practice, but at least over a period the result is much the same.  The Applicant is nowhere near its break-even point and as presently constituted must continue to incur losses.  If there is further attrition, as is likely in the ordinary course, the overall loss is likely to increase.  A time may come when the Applicant is unable to continue, simply having regard to the law in respect of insolvent trading.  As to whether the shareholders will furnish further funds is uncertain.  Nor can one say that the resolution of the relevant decision is likely to be accomplished speedily.  I would anticipate another few days of hearing during 2004, followed by written submissions and at which stage to prepare a decision on the evidence as a whole running to many thousands of pages may take some time.  The investigation may be resolved in early 2004 but then again it may not, and indeed the pace so far indicates that the latter possibility is more likely.

42.     If I refuse a stay application, the continued existence of the Applicant is placed in danger.  The fact that the Applicant’s services are appreciated by some of its clients is indicated by a number of testimonials referred to in the evidence before me.  If I grant the stay application, the effect is that the Applicant can accept new funds up to a maximum overall of three hundred.  As to whether it will be able to obtain new funds in the light of the disclosure it must make to members or representative of prospective new funds is debatable, but is at least possible.

43.     It was contended that to allow the Applicant to take further funds increases the risk, and more particularly having regard to the investigation.  Even though I do not know the nature and extent of that investigation, I do not think that the risk is substantial.  It must be remembered that the Applicant acts only as a trustee and not as an investment adviser; furthermore it does not administer the funds of which it is the trustee.  There are persons in the structure to whom the Respondent has objected (and perhaps with justification); however the Applicant has members both of its Board and of its shareholding body who are well regarded. 

44.     The position of the Respondent in a matter such as this is not an easy one.  It must as Mr Grey puts it, act to prevent a catastrophe; he contended that the situation is not unlike that posed by the Iraqi war and the need felt by the United States and the United Kingdom to act on the strength of their belief that there were and are weapons of mass destruction.  That contention provoked a reaction from Mr White as to the fact that to accept it would involve the destruction of the rule of law.  I need not take these issues further. In Hussein and Minister for Immigration and Indigenous and Multicultural Affairs [2000] AATA 1087, I was called upon to consider the extent to which I could have regard to certain confidential information but where there was merely a suspicion and no concrete evidence. In holding that mere suspicion cannot as a matter of natural justice be treated as being in any way probative, I referred to the following passage in Minister for Immigration and Ethnic Affairs v Pochi (1980) 4 ALD 139 at page 160:

“It is however of general validity in the case of a statutory tribunal which is bound to act judicially. Indeed, that conclusion, upon analysis and for present purposes, does little more than place in a proper context of the essential duty of fairness of a statutory tribunal bound to act judicially, the well established principle of law that a decision of such a statutory tribunal must ordinarily be based on evidence which is reasonably capable of sustaining it (Allinson v General Council of Medical Education and Registration [1894] 1 QB 750 at 760, 763, 766; Ashbridge Investments Ltd. v Minister of Housing and Local Government [1965] 1 WLR 1320 at 1326; and see per Stephen J, Ex parte Jordan (1898) XIX NSWR 25 at 29. Implicit both in Diplock LJ's conclusion and in that well-established principle are both the requirement that findings of material fact of a statutory tribunal must ordinarily be based on logically probative material and the requirement that the actual decision of such a tribunal must, when relevant questions of fact are in issue, ordinarily be based upon such findings of material fact and not on mere suspicion or speculation. Those requirements, like all the ordinarily applicable rules of natural justice, may be modified or abolished by the express words or intendment of the legislation establishing the tribunal or conferring jurisdiction upon it (see, Commissioner of Police v Tanos (1958) 98 CLR 383 at 396 cited with approval by Lord Wilberforce in Wiseman v Borneman, supra, at 318; Twist v Randwick Municipal Council (1976) 12 ALR 379 at 382-3; Salemi v Minister for Immigration and Ethnic Affairs, supra, at 5, 19, 45, 51). (Emphasis added by the Tribunal)”

45.      I must have of course have regard to the words of the section, which require me to consider whether it is appropriate to grant the stay in order to secure the effectiveness of the hearing.  I have indicated that in my view the Applicant has at least an arguable case.  I think that it is clear that the balance of convenience favours the grant of the stay application and on the basis that the risk involved in granting it is not substantial, but that there may be substantial prejudice to the Applicant if I do not.  There are, so far as I have noted, no allegations that the Applicant has behaved or is likely to behave fraudulently, and in such manner that the situation is likely to become one akin to that in Commercial.

46. It is my view then that the factors favouring the stay outweigh any factors to the contrary, and so that the stay application should be granted. I do so subject to the relevant conditions, which differ somewhat from the Applicant’s form of order sought. The relevant conditions are in my view appropriate because they extend, not until the relevant decision is finally resolved which may perhaps involve one or more appeals, but rather until the review of the relevant decision is determined by this Tribunal; this in my view is the course permitted by the relevant legislation, and having regard in particular to the closing words of section 41(2). It is conceivable that the third relevant condition is not strictly necessary; it is included in the interests of completeness.

47.     Subject then to compliance by the Applicant with each relevant condition, the relevant decision is stayed until this Tribunal determines the review of the relevant decision.

I certify that the 47 preceding paragraphs are a true copy of the reasons for the decision herein of DEPUTY PRESIDENT J BLOCK

Signed:         A. Krilis
  Associate

Date/s of Hearing  17, 18, and 19 November 2003
Date of Decision  28 November 2003
Counsel for the Applicant         Mr R W White, SC
Solicitor for the Applicant          Thompson Eslick 
Counsel for the Respondent     Mr L T Grey
Solicitor for the Respondent    Ms N Jayasinghe