AUTON And AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
[2005] AATA 32
•14 January 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 32
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2003/1953
GENERAL ADMINISTRATIVE DIVISION ) Re ROGER AUTON Applicant
And
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
Respondent
DECISION
Tribunal Senior Member M D Allen Date14 January 2005
PlaceSydney
Decision The decision under review is set aside.
............(Sgd) M D Allen..........................
Senior Member
CATCHWORDS
SUPERANNUATION – whether Applicant was a fit and proper person to be a Trustee for the purposes of the SIS Act – Respondent alleges breaches of ss 120A(1), (2) SIS Act – Respondent’s concerns regarding Applicant’s speculative derivatives trading in a previous review were satisfied and Applicant was found to be a fit and proper person – confusion with respect to whether Applicant was required to hold $5 million net tangible assets or eligible assets – Applicant cooperated with the Respondent and any errors made were genuine and did not involve a lack of prudence – decision under review set aside.
Superannuation Industry (Supervision) Act 1993 sections 26, 29, 52, 55 and 120A
Re Australian Superannuation Nominees Limited and Australian Prudential Regulation Authority [2004] AATA 388
Re QLS Superannuation Pty Ltd and Anor v Parker [2003] FCA 262
Wilkinson and Ors v Feldworth Financial Services Pty Ltd and Ors (1998) 29 ACSR 642; (1999) 17 ACLC 220
Davies v Australian Securities Commission and Anor (1995) 131 ALR 295
REASONS FOR DECISION
14 January 2005
Senior Member M D Allen 1. By application made the 12th day of December 2003 the Applicant sought review of a decision by the Respondent to disqualify him from being a trustee, investment manager or custodian, or a responsible officer of a body corporate that is a trustee, investment manager or custodian, for the purposes of the Superannuation Industry (Supervision) Act 1993 (SIS Act).
2. That decision was made on the basis that the Applicant was not a fit and proper person to be a trustee for the purposes of the SIS Act, see ss 120A (3) SIS Act and that breaches had occurred pursuant to ss 120A (1) and (2) of the said Act.
3. Section 120A SIS Act reads inter alia:
“(1) [when Regulator may act]
The Regulator may disqualify an individual if satisfied that:
(a) the person has contravened this Act… on one or more occasions (whether before or after the commencement of this section); and
(b) the nature or seriousness of the contravention or contraventions, or the number of contraventions, provides grounds for disqualifying the individual.
(2) [responsible officers]
The Regulator may disqualify an individual who is, or was (including before the commencement of this section, a responsible officer of a trustee, investment manager or custodian (the body corporate) if satisfied that:
(a) the body corporate has contravened this Act … on one or more occasions (whether before or after the commencement of this section); and
(b) at the time of one or more of the contraventions, the individual was a responsible officer of the body corporate; and
(c) in respect of the contravention or contraventions that occurred while the individual was a responsible officer of the body corporate—the nature or seriousness of it or them, or the number of them, provides grounds for the disqualification of the individual.
(3) [not fit and proper person] The Regulator may disqualify an individual if satisfied that the individual is otherwise not a fit and proper person to be a trustee, investment manager or custodian, or a responsible officer of a body corporate that is a trustee, investment manager or custodian…”
4. The Respondent’s case against the Applicant was more specifically detailed in its Statement of Facts and Contentions dated 7 July 2004.
5. In order to understand that document, some knowledge is required of the Applicant’s involvement with the superannuation industry. The requisite details are set out in paragraphs 1 to 9 of the Respondent’s Statement of Facts and Contentions and were admitted, with some qualifications, by the Applicant. The admitted facts then read:
“1. From 16 June 1994 to 20 November 2002, Beacon Funds Management Limited (“Beacon”) was an Approved Trustee under the SIS Act of a number of superannuation funds (“the funds”).
2. Between 14 December 1998 and 25 January 2002 the Applicant was a director of Beacon (“the relevant period”).
3. During the relevant period, the Applicant was a responsible officer of Beacon for the purposes of subsection 10(1) of the SIS Act.
4. Since November 1999 the holding company of Beacon was Beacon Financial Services Limited (“BFSL”).
5. Since November 1999 the Applicant was a director and the secretary of BFSL.
6. During the relevant period the Applicant held 8,173,403 ordinary shares of the 46,808,121 issued shares in BFSL.
7. During the relevant period, the Applicant’s wife, Mrs Judith Kellett Auton, held 8,392,600 ordinary shares of the 46,808,121 issued shares in BFSL.
8. The Applicant was the primary architect of Beacon’s investment strategy.
9. From on or about 26 March 2002 to 20 November 2002 the Applicant was Beacon’s Chief Operating Officer (“COO”).”
6. Prior to involvement with Beacon, the Applicant had been on two occasions a director of a Trustee company Commercial Nominees of Australia Limited (CAN). That company was prohibited from acting as a trustee under the SIS Act. The Applicant had no involvement in the decision, which led to CAN being prohibited from acting as a trustee and the Respondent has, in proceedings before the Federal Court, specifically abandoned any attempt to base its decision upon CAN matters. I am not convinced however, that the Applicant’s links with CAN have not influenced the approach taken by the Respondent and in particular the attitudes towards the Applicant adopted by the Respondent’s General Manager Enforcement Dr Roberts.
7. The Respondent made the following allegations against the Applicant, namely:
“Subsection 120 A (1)
51 During the relevant time, contrary to the Applicant’s obligations under subsection 52(8) of the SIS Act, he failed to exercise reasonable care and diligence for the purposes of ensuring that Beacon carried out the trustee covenants under subsection 52(2) of the SIS Act, and therefore contravened subsection 55(1) of the SIS Act.
52. The contraventions of subsection 55(1) of the SIS Act by the Applicant were of a nature and seriousness as would justify disqualification of the Applicant.
Subsection 120A (2)
53. During the relevant time, Beacon contravened subsection 55(1) of the SIS Act in that it did not carry out the covenants specified in paragraphs 52(2)(b), (c), (e), (f) and (g) of the SIS Act.
54. At all material times, the Applicant was a responsible officer of Beacon when all of the contraventions occurred.
55. The contraventions of subsection 55(1) of the SIS Act by Beacon were of a nature and seriousness as would justify disqualification of the Applicant.
Subsection 120A (3)
56. In addition the Applicant was otherwise not a fit and proper person to be a trustee, investment manager or custodian, or responsible officer of a body corporate that is a trustee, investment manager or custodian, for the following reasons:
a. The Applicant had a clear lack of understanding of his role as a responsible officer of a trustee of a superannuation entity under the SIS Act and knowledge of the SIS Act;
b. The Applicant lacked the necessary expertise in managing investments and in understanding superannuation law to be a trustee of a superannuation fund.”
8. Section 52 SIS Act reads inter alia:
“Governing rules taken to contain covenants
(1) If the governing rules of a superannuation entity do not contain covenants to the effect of the covenants set out in subsection (2), those governing rules are taken to contain covenants to that effect
The covenants
2) The covenants referred to in subsection (1) are the following covenants by each trustee of the entity:
(a) to act honestly in all matters concerning the entity;
(b) to exercise, in relation to all matters affecting the entity, the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide;
(c) to ensure that the trustee's duties and powers are performed and exercised in the best interests of the beneficiaries;
(d) to keep the money and other assets of the entity separate from any money and assets, respectively:
(i) that are held by the trustee personally; or
(ii) that are money or assets, as the case may be, of a standard employer-sponsor, or an associate of a standard employer-sponsor, of the entity;
(e) not to enter into any contract, or do anything else, that would prevent the trustee from, or hinder the trustee in, properly performing or exercising the trustee's functions and powers;
(f) to formulate and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following:
(i) the risk involved in making, holding and realising, and the likely return from, the entity's investments having regard to its objectives and its expected cash flow requirements;
(ii) the composition of the entity's investments as a whole including the extent to which the investments are diverse or involve the entity in being exposed to risks from inadequate diversification;
(iii) the liquidity of the entity's investments having regard to its expected cash flow requirements;
(iv) the ability of the entity to discharge its existing and prospective liabilities;
(g) if there are any reserves of the entity—to formulate and to give effect to a strategy for their prudential management, consistent with the entity's investment strategy and its capacity to discharge its liabilities (whether actual or contingent) as and when they fall due;
(h) to allow a beneficiary access to any prescribed information or any prescribed documents.
…
Covenant by corporate trustee has effect as covenant by trustee's directors
(8) A covenant by a corporate trustee of a superannuation entity that is to the effect of a covenant referred to in subsection (2), or to the effect of a covenant prescribed by regulations referred to in subsection (5), also operates as a covenant by each of the directors of the trustee to exercise a reasonable degree of care and diligence for the purposes of ensuring that the trustee carries out the first-mentioned covenant, and so operates as if the directors were parties to the governing rules.
Reasonable degree of care and diligence
(9) The reference in subsection (8) to a reasonable degree of care and diligence is a reference to the degree of care and diligence that a reasonable person in the position of director of the trustee would exercise in the trustee's circumstances.”
Whereas ss55 (1) and (2) read:
“[Prohibition]
(1) A person must not contravene a covenant contained, or taken to be contained, in the governing rules of a superannuation entity
[Effect of contravention]
(2) A contravention of subsection (1) is not an offence and a contravention of that subsection does not result in the invalidity of a transaction.”
9. The particulars of the alleged breach of ss120A (1) and (2) refer to the following conduct by Beacon namely:
“40.During the material time, Beacon was engaged in speculative derivatives trading. Such a strategy was inherently high-risk, contrary to both the spirit of the covenants under section 52 of the SIS Act and the clear intent of the IID7 Derivatives Circular, and was run in a less than prudent fashion.
41. The strategy caused intermittent liquidity problems that were not anticipated or well managed. This put the superannuation funds under Beacon’s trusteeship at risk of becoming unsatisfactory.
42. Beacon either breached, or was in danger of breaching, its $5 million minimum eligible asset requirement on 2 occasions:
a. in October 2001, by transferring funds to help out the top parent company, which was under liquidity pressure due to the need to provide security to cover its own derivatives trading.
b. In August 2002, by transferring funds to meet margin calls arising from Beacon Financial Service Limited’s continued derivatives trading.
43. On the basis of the facts outlined above APRA contends that Beacon’s conduct as the trustee of the funds, during the relevant time, was in breach of the trustee covenants in subsection 52(2) of the SIS Act, in particular paragraphs (b), (c), (e, (f) and (g).”
10. The particulars of the alleged breach of ss120A (3) SIS Act essential repeat and rely upon the above particulars and state that the Applicant:
“50…had major responsibilities which he failed to discharge with the required degree of reasonable skill, care or diligence. Given possible or perceived conflicts of interest, the Applicant failed to exercise an appropriate degree of caution to ensure member interests came ahead of others.”
11. Beacon did engage in derivatives trading. The Applicant was cross-examined regarding this and stated that the only basis that option trading took place, was as a hedge and not as a means of generating premium income.
12. In any event, Beacon had in 2001 decided of its own initiative to cease trading client funds in derivatives and positions were being wound down.
13. The cessation of what might be regarded as speculative trading was pointed out by the Respondent in its report of 24 April 2001:
“Speculation – last year we believed that there was the potential for inappropriate use of derivatives, in particular that the use of unhedged or uncovered options positions was akin to speculation and should not be permitted. We were pleased to find that the issue of uncovered derivatives being traded has been resolved.”
14. Just what amounts to speculations is open to interpretation. As the Respondent’s memorandum of 12 February 2001 states:
“The difference between enhancing portfolio returns and speculative trading remains an interpretive issue.”
15. Stress testing was also considered in the memorandum and it was pointed out that at that time it was not being done. This was before the Respondent when it requested Beacon to show cause on 3 January 2002.
16. Whatever may have been Beacon’s strategy respecting derivatives trading and the deficiencies in systems and procedure identified in the December 2001 review of Beacon by the Respondent, both Beacon and the Applicant were able to satisfy the Respondents concerns. This is evidenced by:
1)The Respondent’s letter to Beacon dated 8 March 2002 stating inter alia that upon consideration of the trustee’s oral and written submissions it did not propose to suspend the trustee pursuant to s133 SIS Act (T41).
2)Attachment C to the letter of 8 March 2002 reinforces the decision not to suspend and at paragraph 5 particularly states:
“In reaching its decision APRA placed considerable weight on that part of the trustees written submission dated 31 January 2002 Annexure C titled ‘Annexure C: A detailed report on the options winding down strategy and timetable for wind down of the positions held”.
3)On 25 January 2002 the Applicant had resigned as a director of Beacon but on 26 March 2002 the Respondent wrote to Beacon stating inter alia:
“On the issue of condition 12 of the IoA, APRA confirms that it was not our intention to prohibit Mr Roger Auton from conducting his duties as Chief Operating Officer of the Approved Trustee. It was however, the intention of APRA to restrict Mr Auton from holding a position as Director and/or Company Secretary. APRA therefore confirms and reiterates that reappointing Mr Auton in his role as Chief Operating Officer will not be considered a breach of the IoA. APRA made this point clear during our meeting on 14 March 2002. The draft IoA will confirm this condition.”
4)APRA was apparently satisfied as at 14 January 2001 that the Board of Beacon appreciated APRA’s concerns and was attending to them. The minute is not before me but is referred to in T21 p 911 quoting an extract, namely:
“The result of the meeting was very positive from the perspective of APRA. We feel more confident than previous than (sic) the Board of Directors appreciates the level of concern APRA holds in respect of the Beacon operations and the potential for superfunds to be exposed to excessive risk. The Board appeared to be resolute in their attention to ensuring that both corporate governance and risk management tools will be improved in earnest.”
17. Whatever failures there may have been in the operations of Beacon and acknowledging that there were liquidity problems, there is simply no evidence that links system failures to any loss of money to Beacon or the trust fund. As was pointed out by the Applicant in the year 2001, the market became volatile and dropped as a result of the events of 11 September 2001 and again there was a period of market volatility in July/August 2002. But in any event, as stated above, just what constitutes speculative trading is debatable and the Respondent after considering submissions by the Applicant and Beacon declined to suspend Beacon as trustee and permitted the Applicant to remain as its Chief Operating Officer.
18. In these circumstances, I cannot not see how it can be held that the perceived breaches by the Applicant and Beacon were such as to state that the Applicant is not now a fit and proper person when he was, after due investigation, found to be a fit and proper person in March 2002.
19. Paragraph 42 of the Respondent’s Statement of Facts and Contentions refers to a breach by Beacon of its $5 million minimum eligible asset requirement in October 2001 and August 2002.
20. The term “eligible assets” is not defined in the SIS Act but is defined in the instrument of approval issued to Beacon by the Respondent.
21. The term “eligible assets” must be kept distinct from the term “net tangible assets” in section 26 SIS Act.
22. Subsection 26 (1) SIS Act reads inter alia:
“[Requirements for approval]
(1) APRA must, in writing, approve an applicant as a trustee for the purposes of this Act if, and only if:
(a) APRA is satisfied that the applicant can be relied on to perform, in a proper manner, the duties of trustee of any relevant entity of which the applicant is or becomes the trustee; and
(b) at least one of the following subparagraphs applies:
(i) APRA is satisfied that the value of the net tangible assets of the applicant is not less than the amount prescribed by the regulations;
…”
23. The term “net tangible assets” is to be found in the Corporations Legislation section 399 as amended by the Corporations Legislation Amendment Act 1990 namely:
“Net tangible assets, in relation to a corporation, means tangible property at book values, less total liabilities at book values and less any aggregate amount by which the book values of the marketable securities held by the corporation exceed their market values.”
24. Section 29 SIS Act then provides that if a condition of approval or paragraph 26 (1) (b) (i) SIS Act no longer applies to the approved trustee, the trustee must as soon as practicable or in any event within 30 days give written notice of the event to the Respondent.
25. Thus whether eligible assets or the net tangible assets of Beacon fell below $5 million, that event had to be notified to the Respondent. It was not the falling of the said sum however referred to below $5 million that was a breach of the SIS Act but any failure to notify the Respondent as soon as practicable or within 30 days. There is no evidence of any such breach by Beacon or the Applicant.
26. It was not part of the Respondent’s case, as set out in the Statement of Facts and Contentions, that at any time sub-paragraph 26 (1) (b) (i) ceased to apply to Beacon. In other words, it was not alleged that Beacon’s net tangible assets fell below $5 million.
27. The Exhibit R7 is a letter from the Respondent to Beacon dated 3 April 2000 and refers to the re issue of an Instrument of Approval. It reads inter alia:
“I refer to previous correspondence concerning changes to Beacon Funds Management Ltd (Beacon)’s Instrument of Approval. This letter:
·addresses previous requests;
·incorporates some changes to the Instrument of Approval that APRA considers necessary…”
Amongst the changes made were the following:
“Applied section 1F ”$5 million net tangible assets” to the general conditions of the Instrument of Approval…”
(Tribunal’s emphasis)
The Instrument of Approval was then amended again pursuant to letter dated 29 December 2000 and the term “eligible assets” replaced the references to “net tangible assets” in the Conditions of Approval.
28. Therefore, as at October 2001 condition 1F of the Instrument of Approval required Beacon to have $5 million in eligible assets. In his evidence the Applicant stated that his understanding was that Beacon had to have $5 million available at all times. The reason the sum available had dropped below $5 million was that a loan had been made from Beacon to Beacon Financial Services Limited to cover operating capital.
29. That loan was subject to commercial rates of interest and the directors of both companies were confident that there would be an insertion of capital into Beacon Financial Services Limited sufficient to repay the loan. In fact, the monies had been repaid by Christmas 2001.
30. Although the loan was not secured by any charge it did appear in the books of both companies. The definition of “net tangible assets” refers to tangible property at book values less total liability at book values and would therefore include inter company loans. On this basis, there was never during 2001 a time when the net tangible assets of Beacon fell below $5 million.
31. However, as pointed out above, the document 29 December 2000 changed the conditions of approval by substituting the term “eligible assets” for the term “net tangible assets” and this condition was breached in October 2001. But I am satisfied that the breach was inadvertent in that the Applicant and his fellow directors at all times had it in mind that Beacon’s condition of approval referred to net tangible assets.
32. That the Respondent could have done more to bring to the Applicant’s attention and to the attention to the then directors of Beacon (the Applicant by that time no longer being a director of Beacon) the ramifications of the change of condition was conceded in cross-examination by Dr Roberts.
33. The consequences of the breach of condition 1F is spelt out in s29 SIS Act that an approved trustee must, as soon as practicable, and in any event within 30 days after becoming aware of an event referred to in subsection (2), give ample written notice setting out the particulars of the event. There is no evidence that the Applicant or the other officers of Beacon ever became aware of the breach of conditions requiring $5 million to be held in eligible assets because as far as they were concerned the conditions required the $5 mil to be held as net tangible assets.
34. The requirement for Beacon to maintain $5 million in eligible assets was again breached in 2002.
35. This breach of condition was notified to the Respondent by Beacon. What must be kept in mind in discussing the breach of the capital requirement condition at this time is that superannuation funds were kept separately and apart and losses were incurred by Beacon trading on its own account.
36. As the Applicant pointed out in cross-examination, the money Beacon was using for option trading was its own money (i.e. shareholders funds) and the option position for the superannuation fund had been closed out well before then.
37. Document T40 makes it clear that APRA was at 12 August 2002 fully informed of the position by Beacon. This document also reveals that there was confusion in the minds of officers of the Respondent as to whether Beacon was required to hold $5 million in net tangible assets or eligible assets. Given the confusion on the part of the Respondent, the misapprehension by the Applicant and officers of Beacon is understandable.
38. Whereas I am of the opinion that condition 1F of the Instrument of Approval can only be interpreted as a requirement to hold eligible assets of $5 million at all times, there was no breach of ss29 (1) SIS Act as the evidence clearly shows that APRA was notified as soon as practicable and within 30 days of Beacon becoming aware.
39. In passing, I note that the allegation of default by the Applicant in sub-paragraph 42 (b) of the Respondent’s Statement of Facts and Contentions is now conceded by Dr Roberts, the delegate of the Respondent who made the decision to disqualify the Applicant, to be wrong.
40. Dr Roberts also conceded that although advised by Senior Counsel to bring to the attention of the Applicant that he was going to take into account the August 2002 breach of condition F1, he did not do so in the show cause letter forwarded to the Applicant.
41. There is no doubt that on two occasions the conduct of Beacon as trustee of the funds breached condition F1 of the Instrument of Approval. This of itself is not an offence under the SIS Act.
42. As to the first breach in August 2001, this was inadvertent and at no time were the assets of the superannuation entities in jeopardy. The breach was “fixed up” by Beacon by an injection of capital and the Respondent continued to allow Beacon to be approved as a trustee. I regard this as APRA having condoned the inadvertent breach. In particular, I would refer to paragraph 5 of attachment C of Document T41. Further, as pointed out above, the Respondent was quite content to have the Applicant remain as the chief operating officer of Beacon.
43. The 2002 breach did not affect the superannuation entities but the Respondent now says that the fact that the breach of the capital requirement condition occurred at all howsoever caused, shows that Beacon and hence the Applicant did not act prudentially and hence breached the trustee covenants in subsection 52 (2) SIS Act.
44. So far as paragraph 523 (2) (b) is concerned, the superannuation entities were at all times quarantined from Beacon’s losses on its own account and I do not accept that the conduct of Beacon in relation to its own capital amounts to a breach of this covenant.
45. Paragraph 52 (2) (c) refers to the trustee acting in the best interest of the beneficiaries. I find that there is no evidence this was not done.
46. Paragraph 52 (2) (e) refers to the trustee entering into contracts which would prevent the trustee from properly performing or exercising the trustee’s functions and powers. Again there is no evidence of this having occurred.
47. In particular, as pointed out in the letter from Beacon to the Respondent dated 9 August 2002, which letter informed the Respondent of the breach of condition F1:
“This reduction in shareholders equity had no impact on the accumulated benefits of members or investors in superannuation entities, which Beacon was the trustee”…
“….notwithstanding the reduction in shareholder equity and notwithstanding the trustees net asset position being less than $5 million there is and will not be any disruption to the continuation of the performance of the Trustee’s duties and day to day operations in respect of all funds under Trusteeship.”
.
48. I am fully satisfied that at all times both Beacon and the Applicant as Director of Beacon and then as its Chief Operating Officer acted entirely properly as regard the net assets of the company.
49. The Respondent claims that as a result of the matters dealt with above, the Applicant was not a fit and proper person to be a trustee, investment manager or custodian, or responsible officer of a body corporate that is a trustee, investment manger or custodian.
50. The term “fit and proper person” has been discussed in several cases before this Tribunal and the Federal Court. In Davies v Australian Securities Commission and Anor (1995) 131 ALR 295 at 305 Hill J said:
“The phrase ‘fit and proper person’ is a familiar one in the context of qualification for offices or vocations. Discussing the phrase in the context of licences to use vehicles for the purposes of interstate trade, Dickson C J, McTiernan and Webb JJ said in Hughes and Vale Pty Ltd v The State of New South Wales (No 2):
“But their very purpose is to give the widest scope for judgment and indeed for rejection. ‘Fit’ (or ‘idoneus’) with respect to an office is said to involve three things: honesty, knowledge and ability: ‘Honesty to execute it truly, without malice, affection or partiality; knowledge to know what he ought duly to do; and ability as well in estate as in body, that he may intend and execute his office, when need, is, diligently, and not for impotency or poverty neglect it’ – Coke. When the question was whether a man was a fit and proper person to hold a licence for the sale of liquor, it was considered that it ought not to be confined to inquiry into his character and that it would be unwise to attempt any definition of the matters which may legitimately be inquired into; each case must depend upon its own circumstances…
As I observed in Stasos v Tax Agents Board of New South Wales the content of what is necessary to constitute a person a fit and proper person to occupy a particular office or pursue a particular vocation will vary having regard to the office or vocation under consideration. Thus the characteristics required to show fitness as a tax agent were expressed by Davies J in Re Su and Tax Agents’ Board of South Australia as requiring that person to be:
‘…a person of good reputation, has a proper knowledge of taxation laws, is able to prepare income tax returns competently and is able to deal competently with any queries which may be raised by officers of the Taxation Department. He should be a person of such competence and integrity that others may entrust their taxation affairs to his care. He should be a person of such reputation and ability that officers of the Taxation Department may proceed upon the footing that the taxation returns lodged by the agent have been prepared by him honestly and competently. ’” (citations omitted)
51. What is clear from the evidence in this matter is that the Respondent in the person of Dr Roberts did not have confidence in the Applicant’s abilities to properly manage a body acting as trustee for superannuation entities and in particular was concerned that speculative trading by the Applicant would put the funds of the superannuation entities into jeopardy.
52. My understanding of the evidence is to the contrary. At all times the Applicant cooperated with the Respondent, and in particular, it was the Applicant with the directors of Beacon who brought the Wright Report (see document T8) to the attention of the Respondent even though elements of that report were disputed by the Applicant.
53. As stated above, the breach of the capital requirement in October 2002 was promptly brought to the attention of the Respondent.
54. At times the funds of shareholders in Beacon and its parent Beacon Financial Services Limited suffered as a result of trading losses by these companies. At no time were the funds of the superannuation entities in any danger. The capital position was quickly rectified. If at this time the Applicant caused the companies to incur losses because of his trading decisions, these losses were because of unforseen events, for example the events of 11 September 2001.
55. A submission was made that in reaching my decision I should be guided by the views of the Regulator as to whether the Applicant was a fit and proper person. The answer to that type of submission was given by Deputy President Block in Australian Superannuation Nominees Limited and Australian Prudential Regulation Authority [2004] AATA 388 at paragraph 77 namely:
“In accordance with s 43 of the Administrative Appeals Tribunal Act 1975 it is my duty to formulate the correct and preferable decision. I must do so on the evidence before me at this time. The term “evidence” in this context means evidence of probative value. In doing so I must not have regard to suspicion or conjecture. The fact that the Respondent made a decision or decisions is not of itself probative. The fact that the Respondent may have voiced concerns is also not in any way of itself probative”
That does not mean however, that the views of the Respondent as to the appropriateness or otherwise of any particular course of conduct should not be given due weight as it is the Respondent that has been charged by the Legislature with the duty of regulating the industry.
56. Paragraph 52 (2) (b) SIS Act implies a covenant that the trustee of a superannuation entity exercise care, skill and diligence as an ordinary prudent person would. This standard was discussed by Drummond J in QLS Superannuation Pty Ltd; Australian Securities & Investments Commission v Parker [2003] FCA 262. At paragraph 7 Drummond J referred to the judgment of Rolfe J in Wilkinson & Ors v Feldworth Financial Services Pty Limited & Ors (1998) 29 ACSR 642; (1999) 17 ACLC 220 especially at pp 234, 235 and adopted the statement of Rolfe J that the standard of care required of trustee companies is a standard higher than that of the ordinary prudent business person.
57. The word “prudent” is defined in the Oxford English Dictionary (1970 reprint) in the following terms:
“1. Of persons …Sagacious in adapting means to ends; careful to follow the most politic and profitable course; having or exercising sound judgement in practical affairs; circumspect, discreet, worldly-wise.”
58. Applying the above standards here, I do not regard the Applicant nor Beacon to have offended against those standards. At times errors were made but they were genuine and did not involve any lack of prudence (even to a trustee’s high standard as discussed in Wilkinson (supra)).
59. In particular, I am satisfied that the Respondent regarded the Applicant in March 2002 as a fit and proper person to continue as Beacon’s Chief Operating Officer. The events of August 2002 whereby capital of both Beacon and Beacon Financial Services Limited was reduced, were immediately brought to the attention of the Respondent and steps taken to resolve this situation.
60. At no time were the funds of the superannuation entities at risk.
61. Mr Auton was regarded as a fit and proper person in March 2002 and there is nothing after that time that satisfies me that his actions and in particular his trading activities brought about any change in his status.
62. For the above reasons the decision under review is set aside.
63. These proceedings were held in private as required by ss 344 (11) SIS Act however, no applications of the kind contemplated by ss 344(11) were made and no directions of the kind referred to in paragraphs 35(2)(b) or (c) of the Administrative Tribunals Act 1975 were given.
I certify that the 63 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member M D Allen
Signed: (E.Pope) .....................................................................................
AssociateDate/s of Hearing 29 & 30 November and 1 December 2004
Date of Decision 14 January 2005
Counsel for the Applicant Mr C R C Newlinds SC with Mr Beech-Jones
Solicitor for the Applicant Duncan Cotterill Lawyers
Counsel for the Respondent Mr L T Grey
Solicitor for the Respondent Australian Prudential Regulation Authority, Legal Branch
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