Auton v Australian Prudential Regulation Authority

Case •

[2003] FCA 346

•

17 APRIL 2003

FEDERAL COURT OF AUSTRALIA

Auton v Australian Prudential Regulation Authority [2003] FCA 346

ADMINISTRATIVE LAW – application for review of conduct preceding taking of decision by industry regulator (‘APRA’) whether to disqualify individual under s 120A of Superannuation Industry (Supervision) Act 1993 (Cth) – common ground that natural justice applied – officer of APRA sent individual a ‘show cause letter’ identifying officer’s preliminary findings and evidence and other material on which officer had relied – show cause letter invited, and allowed ample time for, submissions – individual made lengthy detailed submissions through his solicitors, suggesting, inter alia, that APRA had not taken into account more recent documents in its possession – whether officer bound to give individual further opportunity to make submissions before making final recommendation – whether APRA required to give individual further opportunity to make submissions before disqualifying him – whether individual entitled to be informed of officer’s developing thought processes.

Superannuation Industry (Supervision) Act 1993 (Cth)

Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 followed
Sinnathamby v Minister for Immigration and Ethnic Affairs (1986) 66 ALR 502 followed
Ansett Transport Industries Ltd v Minister for Aviation (1987) 72 ALR 469 followed
Geroudis v Minister for Immigration, Local Government and Ethnic Affairs (1990) 19 ALD 755 followed
El-Sayed v Minister for Immigration, Local Government and Ethnic Affairs (1991) 22 ALD 767 followed
Commissioner for Australian Capital Territory v Alphaone Pty Ltd (1994) 49 FCR 576 followed
Pilbara Aboriginal Land Council Aboriginal Corporation Inc v Minister for Aboriginal and Torres Strait Islander Affairs (2000) 103 FCR 539 followed

ROGER AUTON v AUSTRALIAN PRUDENTIAL REGULATION
AUTHORITY AND ANOR

N 77 OF 2003

LINDGREN J
17 APRIL 2003
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 77 OF 2003

BETWEEN:

ROGER AUTON
APPLICANT

AND:

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
FIRST RESPONDENT

EARL BURGESS
SECOND RESPONDENT

JUDGE:

LINDGREN J

DATE OF ORDER:

17 APRIL 2003

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The proceeding be stood over to 9:30 am on Thursday 24 April 2003 for the making of orders, including orders as to costs.

2.By 5:30 pm on Wednesday 23 April 2003, the parties supply to the Associate to Lindgren J agreed short minutes of the orders to be made; or, failing agreement, the short minutes of orders for which they will respectively contend, and written submissions in support.

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 77 OF 2003

BETWEEN:

ROGER AUTON
APPLICANT

AND:

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
FIRST RESPONDENT

EARL BURGESS
SECOND RESPONDENT

JUDGE:

LINDGREN J

DATE:

17 APRIL 2003

PLACE:

SYDNEY

REASONS FOR JUDGMENT

INTRODUCTION

  1. The applicant (‘Mr Auton’) seeks judicial review of conduct of the first respondent (‘APRA’) through its officer, the second respondent (‘Mr Burgess’) (‘the Conduct’).  The application is brought under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (‘the AD(JR) Act’) and s 39B of the Judiciary Act 1903 (Cth). The matter arises under the Superannuation Industry (Supervision) Act 1993 (Cth) (‘the SIS Act’).

  2. The proceeding has its immediate genesis in a letter dated 2 October 2002 written by Mr Burgess on the letterhead of APRA to Mr Auton (‘the Show Cause Letter’). By that letter, Mr Burgess informed Mr Auton that he had come to the ‘preliminary view’ that certain evidence demonstrated that Mr Auton was not a fit and proper person to be a trustee, investment manager or custodian, or a responsible officer of a trustee, investment manager or custodian, of a ‘superannuation entity’ (defined in s 10 of the SIS Act – see below), and should therefore be disqualified pursuant to subss 120A(1), (2) and (3) of the SIS Act from holding such office.

  3. Attachment A to the Show Cause Letter was a copy of s 120A of the SIS Act. Attachment B set out in paragraphs numbered 1 to 52 (pages 4—10 of the letter and its two attachments), Mr Burgess’s ‘Preliminary Findings on Material Questions of Fact’, and later in paragraphs numbered 1 to 15 (pages 11 and 12 of the letter and its two attachments) the ‘Evidence and Other Material Relied Upon for [Mr Burgess’s] Preliminary Conclusion’. The ‘Preliminary Conclusion’ was the ‘preliminary view’ set out in the text of the Show Cause Letter referred to above.

  4. The Show Cause Letter advised Mr Auton that its purpose was to provide him with an opportunity to show cause why APRA should not make a decision under the subsections mentioned to disqualify him.  The letter invited Mr Auton to provide to Mr Burgess any information or material which he believed was relevant to APRA’s decision as soon as practicable, and, in any event, no later than close of business on 30 October 2002.  This period was later extended to 31 January 2003.

  5. According to his amended application, Mr Auton relies on the following grounds:

    1.That a breach of the rules of natural justice has occurred and is occurring in connection with the Conduct;

    2.That procedures that are required by law to be observed in respect of the Conduct have not been, and are not being, observed;

    3.That the making of the proposed decision would be an improper exercise of the power conferred on APRA by the SIS Act, being:

    (a)a failure to take a relevant consideration into account in the exercise of the power; and

    (b)so unreasonable an exercise of the power that no reasonable person could so exercise it.

    4.That an error of law is being, or is likely to be, committed in the course of the Conduct, or is likely to be committed in the making of the proposed decision to disqualify Mr Auton.

  6. The following particulars are relied upon as particulars of the alleged breach of the rules of natural justice, non-observance of procedures required by law to be observed, and improper exercise of power:

    ‘(a)The First Respondent, by the Second Respondent as one of its staff, in formulating and then, by Attachment B to its letter dated 2 October 2002, stating the case against the Applicant, did not take into consideration the most current relevant and reliable material available to the First Respondent, and of which the First Respondent had actual or constructive knowledge, and proceeded instead on the basis of material that was incomplete, inaccurate and misleading.

    (b)The First Respondent, by the Second Respondent as one of its staff, in formulating and then, by Attachment B to its letter dated 2 October 2002, stating the case against the Applicant, did not take into consideration the whole of the record then available to the First Respondent being material in the possession of the First Respondent.

    (c)The First Respondent refused, by letters dated 21, 28 and 30 January 2003, to restate the case against the Applicant taking into consideration the most current relevant and reliable material available to it, and of which it had actual or constructive knowledge and the whole of the record then available to the First Respondent being material in the possession of the First Respondent.

    (d)Attachment B to the letter dated 2 October 2002 does not set out material findings of fact which would, or could if established, support a conclusion that it is appropriate that the applicant be disqualified pursuant to section 120A(1), (2) or (3) of the Superannuation Industry (Supervision) Act 1993 (Cth).

    (e)Consequently, the Applicant was not provided with proper notice of the case against him or an opportunity to be heard in respect of the case against him.’

  7. As particulars of the error of law (the fourth ground referred to in [5] above) Mr Auton gives the particulars contained in par (d) above.

  8. Mr Auton seeks injunctive relief, or, alternatively, a writ of prohibition against both APRA and Mr Burgess directed to ensure that Mr Burgess does not recommend, and APRA does not impose, disqualification, until the whole of the available material is considered, and, if Mr Burgess proposes to recommend disqualification, Mr Auton is given a further opportunity to be heard.

    THE SIS ACT

  9. Section 120A of the SIS Act is as follows:

    ‘(1)     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)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)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)A disqualification takes effect on the day on which it is made.

    (5)The Regulator may revoke a disqualification on application by the disqualified individual or on its own initiative.  A revocation takes effect on the day on which it is made.

    (6)The Regulator must give the individual written notice of a disqualification, revocation of a disqualification or a refusal to revoke a disqualification.

    (7)The Regulator must cause particulars of a notice given under subsection 120A(6) or 344(6) (result of internal review) to be published in the Gazette as soon as practicable.’  (original emphasis)

    Section 10 of the SIS Act defines many of the terms used in s 120A. The term ‘Regulator’ is defined to mean, variously, APRA, the Australian Securities and Investments Commission and the Commissioner of Taxation, according to which of the three administers the provision in question. APRA administers the disqualification provision found in s 120A. The expression ‘responsible officer’ is defined to mean, in relation to a body corporate, a director, secretary or executive officer of the body corporate. The expressions ‘trustee’, ‘investment manager’ and ‘custodian’ are also defined in s 10 but I need not discuss their definitions.

    BACKGROUND FACTS

  10. Mr Burgess’s preliminary findings were in respect of conduct of Mr Auton both:

    (a)as a director of Commercial Nominees of Australia Limited (‘CNA’), concerning a trust established by CNA of which it was the trustee known as the Enhanced Cash Management Trust (‘ECMT’); and

    (b)as a director of Beacon Funds Management Limited (‘BFML’).

  11. Paragraphs 1 to 23 of Mr Burgess’s ‘Preliminary Findings on Material Facts’ in Attachment B to the Show Cause Letter comprised Mr Burgess’s preliminary findings in relation to CNA (and the ECMT), while pars 24—44 of those preliminary findings related to BFML (referred to in Attachment B as ‘Beacon’).  The remaining paragraphs (pars 45—52) related variously to both CNA and BFML.

  12. The paragraphs in Attachment B setting out the ‘Evidence and Other Material Relied Upon’ for [Mr Burgess’s] Preliminary Conclusion’ related, as to pars 2—5, to CNA (par 1 was a prefatory paragraph), and as to pars 6—15 to BFML.

    Outline of facts and preliminary findings relating to CNA

  13. CNA was an approved trustee of superannuation entities under the SIS Act (I need not discuss the definition of ‘superannuation entities’ in s 10 of that Act) from 1 July 1994 to 14 February 2001. (Section 26 of the SIS Act provides for APRA to approve of trading or financial corporations formed within the limits of the Commonwealth, within the meaning of par 51(xx) of the Constitution, as trustees for the purposes of the SIS Act.) Mr Auton was a director of CNA from 8 September 1994 to 12 February 1998, and again from 10 March 2000 to 20 April 2000. Thus, he was not a director of CNA during the period of just over two years from 13 February 1998 to 9 March 2000. It was during this period that CNA established the ECMT on or about 30 June 1998, that is, some four and a half months after Mr Auton had ceased to be a director of CNA.

  14. Mr Burgess’s preliminary findings included (I summarise):

    ·    a preliminary finding that CNA made false representations and provided misleading information to members of the ECMT, financial advisers and other interested parties about the ECMT;

    ·    a preliminary finding that the investments of the ECMT were imprudent and speculative and inadequately secured; and

    ·    a preliminary finding that Mr Auton was or ought to have been aware of these matters.

  15. Mr Auton claims that in the period 10 March 2000 to 20 April 2000, the period of his ‘resumed directorship’ of CNA, he caused APRA to be informed of the investments of the ECMT and of the representations CNA had made in respect of the ECMT.  Mr Auton alleges that the information which he so provided to APRA was the basis of Mr Burgess’s preliminary finding against CNA.

    Outline of facts and preliminary findings  relating to BFML

  16. BFML was also an approved trustee of superannuation entities under the SIS Act from 16 June 1994 to 15 November 2002. Mr Auton was a director of BFML from 14 December 1998 to 25 January 2002. He is also, and has been since 14 December 1998, BFML’s ‘Chief Operating Officer’.

  17. On or about 7 December 2001, BFML’s parent company, Beacon Financial Services Limited (‘BFSL’) provided APRA with a report which it had obtained from Robert Wright dated 14 November 2001, entitled ‘Report on Option Positions, Statements and Risks etc for the Board of Directors of Beacon Financial Services Limited’ (‘the Wright Report’).

  18. In December 2001 APRA conducted a market risk assessment of BFML.

  19. On 3 January 2002, on the basis of the Wright Report and the market risk assessment, APRA wrote to BFML requiring it to show cause why it should not be suspended as an approved trustee under s 133 of the SIS Act (referred to at [35] below) (‘APRA’s first show cause letter (to BFML)’).

  20. Between 3 January 2002 and about 8 March 2002:

    ·    APRA continued to review BFML’s corporate structure and performance; and

    ·    BFML provided APRA with written and oral responses to APRA’s first show cause letter (to BFML).

  21. As a result, by a letter dated 8 March 2002 APRA notified BFML that APRA did not propose to suspend BFML as an approved trustee.  In addition, by letter dated 26 March 2002 APRA confirmed that it did not intend to prohibit Mr Auton from continuing as chief operating officer of BFML.  However, on or about 7 May 2002 APRA issued a variation of BFML’s instrument of approval as an approved trustee.  One variation imposed the condition that Mr Auton was not to be a director or company secretary of BFML.

  22. On or about 9 August 2002 BFML notified APRA that BFML’s net asset position had fallen below the level required under BFML’s instrument of approval as an approved trustee.

  23. On 29 August 2002 BFML gave to APRA under s 262A of the SIS Act, an enforceable undertaking to continue as an approved trustee only until 15 November 2002, when all superannuation entities of which it was trustee would be transferred to another approved trustee.

  24. Mr Burgess’s preliminary findings in Annexure B to the Show Cause Letter included (I summarise):

    ·    a preliminary finding that the formulation and execution of BFML’s investment decisions occurred at a time when Mr Auton was a director of BFML, and Mr Auton was aware or should have been aware that those decisions involved a high risk exposure which was imprudent and likely to result in the financial position of the superannuation entities under BFML’s trusteeship becoming unsatisfactory; and

    ·    a preliminary finding that Mr Auton’s position within BFML was such that he was responsible for BFML’s unsatisfactory financial position.

    Outline of events following the Show Cause Letter

  25. Mr Auton received the Show Cause Letter on 9 October 2002.  From that time down to 30 January 2003 Mr Auton’s solicitors, Dibbs Barker Gosling (‘DBG’) and APRA corresponded.  DBG ultimately put to APRA that it was obliged to give Mr Auton a further opportunity beyond 31 January 2003 to be heard before Mr Burgess made any recommendation to APRA that their client be disqualified.  APRA disagreed.

  26. The deadline of 31 January 2003 passed.  Mr Auton commenced this proceeding on 4 February 2003.

  27. As will appear below, on 11 March 2003, not long before the hearing, APRA took the position that it did not propose to rely on those paragraphs of Attachment B to the Show Cause Letter which related to CNA (pars 1—23 and parts of pars 45—52 of Mr Burgess’s ‘Preliminary Findings on Material Questions of Fact’, and pars 2—5 of the ‘Evidence and Other Material Relied Upon for [Mr Burgess’s] Preliminary Conclusion’) (par 1 was merely prefatory).

    General matters

  28. Mr Auton asserts that Mr Burgess failed to take into account certain matters which were within APRA’s knowledge on 2 October 2002 when he wrote the Show Cause Letter, and which were relevant to the question whether or not APRA should disqualify Mr Auton.  Mr Auton contends that those matters constituted more complete and up to date relevant information available to APRA, and that the findings made by Mr Burgess were based on incomplete and out of date information, and were irrational or so unreasonable that no reasonable person could have made them.

  29. On 30 or 31 October 2002 (it is not clear which is the correct date) DBG wrote a lengthy letter to Mr Burgess referring him to those matters.  In cross-examination Mr Auton agreed that this letter drew to Mr Burgess’s attention all the material Mr Burgess had allegedly failed to take into account, and that he had no reason to believe Mr Burgess would not consider DBG’s submission fairly.

  30. On 23 December 2002 APRA replied that Mr Burgess intended to make a decision based on his preliminary findings of fact and DBG’s submissions, but extended the time for any further submissions to 15 January 2003.  After further correspondence and a meeting on 7 January 2003, the deadline was further extended to 31 January 2003.  At the meeting on 7 January 2003, at which Messrs Burgess and Galloway of APRA were present, Mr Galloway told Mr Auton’s solicitors that they should not assume that Mr Burgess had relied on any documents other than those listed in Attachment B to the Show Cause Letter in coming to his preliminary findings, and that the file relating to dealings between APRA and BFML since December 2001 was ‘in a completely different section of APRA’.  It is noteworthy that the ‘Evidence and Other Material ...’ relating to BFML did not extend beyond documents bearing dates down to January 2002.  On 17 January 2003 DBG wrote to APRA complaining that, when writing the Show Cause Letter, Mr Burgess had omitted to consider, in particular, the events of March 2002, including APRA’s letter of 26 March 2002 (see [21] above).

  31. Mr Burgess has refused to withdraw the Show Cause Letter, or to reformulate the allegations against Mr Auton.  On the evidence, Mr Auton will not be notified of any recommendation made by Mr Burgess, or given an opportunity to be heard by the delegate at APRA to whom a recommendation may be made, before that delegate decides whether Mr Auton should be disqualified.

  1. If the delegate decides to disqualify Mr Auton, notice of that decision will be published in the Commonwealth Gazette and in one or more newspapers, as a result of which Mr Auton’s livelihood and reputation will be damaged.

    The facts in more detail

  2. BFML was a wholly-owned subsidiary of BFSL .  BFSL has some 600 shareholders. Mr Auton and his wife hold approximately 42 per cent of its share capital.  BFSL retained Robert Wright to examine and report on certain matters as a result of which, Mr Wright provided to BFSL the Wright Report.  The Wright Report found fault in various respects with the way in which the BFML group carried on its business.  In particular, it observed that the risk associated with all portfolios of which BFML was the trustee was too high.  As noted earlier, the Wright Report was dated 14 November 2001 and a copy of it was provided on 11 December 2001 to APRA.

  3. APRA’s market risk assessment of BFML in December 2001 resulted in a report to the effect that BFML did not have in place systems and processes to identify, monitor and manage the risks inherent in its option strategy.  Officers of APRA informed representatives of BFML at a meeting on 6 December 2001 that APRA was considering exercising its statutory power to suspend or remove BFML as an approved trustee, to commence a formal investigation, or to appoint a person to investigate BFML, its financial position, and the funds of which it was trustee.

  4. APRA’s first show cause letter (to BFML) advised that APRA was considering whether to seek the Minister’s consent pursuant to subs 133(5) of the SIS Act to make a decision pursuant to subs 133(1) of that Act to suspend BFML as trustee for a period of three months. Subsection 133(1) of the SIS Act empowered APRA to suspend or remove the trustee of a ‘superannuation entity’ (defined in s 10 of the SIS Act) if, inter alia, it appeared to APRA that conduct had been, was being or was proposed to be, engaged in by the trustee that might result in the financial position of the entity or of any other superannuation entity becoming unsatisfactory.  Subsection 133(5) prohibited APRA from deciding to suspend or remove a trustee without first obtaining the written consent of the Minister.

  5. The letter invited the BFML to show cause why APRA should not seek the Minister’s consent, and, subject to granting of such consent, should not suspend BFML as an approved trustee for three months.  The letter allowed 14 days from BFML’s receipt of it for a response.

  6. Attachment A to APRA’s first show cause letter (to BFML) was a copy of s 133 of the SIS Act. Attachment B set out in pars 1—25, ‘Preliminary Findings on Material Questions of Fact’; in par 26 (which was subdivided into subpars (a) — (q)), ‘Evidence and Other Material Relied Upon for APRA’s Preliminary Conclusion’; in pars 27—33, APRA’s ‘Reasons for Proposed Action’; and in pars 34 and 35, APRA’s ‘Preliminary Conclusion’. The Preliminary Conclusion was that it appeared to APRA that conduct had been, was being or was proposed to be engaged in by BFML that might result in the financial position of superannuation entities becoming unsatisfactory, and that it was appropriate that APRA seek the written consent of the Minister to make a decision to suspend BFML for a period of three months.

  7. Certain similarities between the structure of Attachment B to APRA’s first show cause letter (to BFML) and that of the Show Cause Letter are obvious.  There are also differences.  First, the earlier Attachment B is expressed in terms consistent with the covering letter’s having been written by APRA to ‘The Trustee Directors’ of BFML itself, whereas the later Attachment B is expressed in terms consistent with the covering letter’s having been written by Mr Burgess to Mr Auton.  Secondly, APRA’s first show cause letter (to BFML) has the two sections headed ‘Reasons for Proposed Action’ and ‘Preliminary Conclusion’ which do not appear in Attachment B to the Show Cause Letter.  Thirdly, unlike Attachment B to the Show Cause Letter, Attachment B to the earlier letter does not refer to the CNA matter at all.

  8. On the hearing before me, senior counsel for Mr Auton compared the 25 paragraphs of ‘Preliminary Findings on Material Questions of Fact’ in Attachment B to APRA’s first show cause letter (to BFML) with pars 24—52 of Attachment B to the Show Cause Letter.  Similarly, he compared the seventeen subparagraphs of par 26 of Attachment B to APRA’s first show cause letter (to BFML) listing ‘Evidence and Other Material Relied Upon for APRA’s Preliminary Conclusion’ with the ten paragraphs numbered 6—15 under the heading ‘Evidence and Other Material Relied Upon for [Mr Burgess’s] Preliminary Conclusion’ forming part of Attachment B to the Show Cause Letter.  Senior counsel’s purpose was to show that Mr Burgess was proposing to rely upon substantially the same ‘Evidence and Other Material’ and substantially the same ‘Preliminary Findings on Material Questions of Fact’ in connection with any recommendation for the disqualification of Mr Auton, as APRA had previously proposed to rely upon in connection with its proposed three-month suspension of BFML as trustee.

  9. It is convenient to record at this stage (subject to an exception referred to in [57] below) that I accept Mr Auton’s submission that in relation to BFML, the only evidence and other material on which Mr Burgess relied on 2 October 2002 when he wrote the Show Cause Letter was evidence and other material on which APRA had relied on 3 January 2002 when it wrote the APRA’s first show cause letter (to BFML).  They were, of course, all documents which had come into existence by 3 January 2002 and no later.  Indeed, with one exception, they were all documents which had come into existence by the end of 2001.  The one exception was a diagram proposed within APRA showing the commercial relationships between BFML and other companies and the positions occupied by Mr Auton in relation to them.  The purpose of the diagram was to show Mr Auton’s influence over decision-making by and within BFML.  The diagram is said to have been produced in January 2002.  Since APRA’s first show cause letter (to BFML) was written on 3 January 2002, the diagram was probably created on 2 or 3 January 2002.  I accept that when Mr Burgess wrote the Show Cause Letter he did not take into account any evidence or other material which came into existence between 3 January 2002 and 2 October 2002.  Finally, I accept that the preliminary findings in relation to BFML found in Attachment B to the Show Cause Letter are in substance those to be found in Attachment B to APRA’s first show cause letter (to BFML) (an exception is found in par 32 of Attachment B to the Show Cause Letter – see [57] below).

  10. On 10 January 2002 BFML replied at length to APRA’s first show cause letter (to BFML).  Attached to the response was a copy of a letter dated 9 January 2002 from Robert Wright to BFSL referring to the Wright Report.  Mr Wright’s letter suggested reasons why APRA should not rely upon the Wright Report to support an approach to the Minister for the Minister’s consent to suspension of BFML as a trustee.

  11. There were further communications between APRA and BFML, including a letter dated 31 January 2002 from BFML to APRA with numerous annexures, responding to APRA’s first show cause letter (to BFML), and, in particular, to Attachment B to that letter.

  12. Following the further correspondence, APRA wrote to BFML on 19 February 2002 advising that APRA was ‘amenable to receiving an enforceable undertaking on issues previously discussed with [BFML]’.  APRA suggested that it was in BFML’s best interests that the exact details of the proposed undertaking be forwarded to APRA by 21 February 2002.  The letter concluded the following:

    ‘APRA are reviewing the terms of the Approved Trustee’s Instrument of Approval to determine whether amending the Instrument would be a more appropriate mechanism to give effect to APRA’s concerns regarding the Trustee’s derivative trading and other related issues.’

  13. There was further correspondence between BFML and APRA, in which BFML said that it had neither agreed nor refused to provide APRA with an enforceable undertaking.

  14. On 6 March 2002 APRA varied its approval dated 19 February 2001 of BFML as a trustee for the purposes of the SIS Act. APRA’s covering letter drew BFML’s attention to the provisions for review of APRA’s decision under subss 344(1) and (8) of the SIS Act. The Variation of Approval as Trustee stipulated that after it came into effect on 6 March 2002 BFML’s approval as trustee was subject to the conditions set out in the Schedule to that document. The Schedule included a condition that Mr Auton must not be a ‘responsible officer’ of BFML (the expression ‘responsible officer’ no doubt bore the meaning given in s 10 of the SIS Act in relation to a body corporate, of ‘(a) a director of the body; or (b) a secretary of the body; or (c) an executive officer of the body’).

  15. On 8 March 2002 APRA wrote to BFML advising that upon consideration of BFML’s oral and written submissions, APRA did not propose to suspend BFML pursuant to s 133 of the SIS Act. The letter advised, however, that APRA was considering whether to require BFML to appoint an individual, or a committee of individuals, to carry out investigations of a specific part of the financial position of specified superannuation entities, pursuant to s 257 of the SIS Act. The letter invited a response from BFML by 15 March 2002.

  16. Following a representation from BFML, APRA wrote to BFML on 26 March 2002 advising that the condition prohibiting Mr Auton from being a ‘responsible officer’ of BFML had been intended to prohibit him, not from conducting his duties as ‘chief operating officer’ of BFML, but only from being a director or company secretary or both of BFML.  Accordingly, by its letter of 26 March 2002 APRA advised that reappointment of Mr Auton as chief operating officer of BFML would not be a breach of the prohibition in the instrument of approval as varied.

  17. On 7 May 2002 APRA issued to BFML a further ‘Variation of Approval as Trustee’ which came into effect on 8 May 2002.  This time, the condition relating to Mr Auton was expressed as a prohibition only on his being a director or company secretary of BFML.

  18. On 9 August 2002 BFML wrote to APRA enclosing a copy of a release made to the Australian Stock Exchange that day by BFSL addressing the impact of falls in the Beacon group’s investment portfolios.

  19. On 29 August 2002 APRA announced that it had obtained an undertaking from BFML to facilitate a transfer of funds to a new trustee by 15 November 2002.

  20. The next development of present relevance was the writing of the Show Cause Letter.  In cross-examination Mr Auton said he received that letter on 7 October 2002 and that within a couple of weeks after that date he was in possession of all of the documents referred to in Attachment B to the Show Cause Letter as the ‘Evidence and Other Material Relied Upon for [Mr Burgess’s] Preliminary Conclusion’.

    Mr Auton’s complaints in relation to the CNA matter

  21. Mr Auton complained that Mr Burgess had regard to CNA’s conduct in respect of the ECMT, but did not have regard to the facts that:

    (a)Mr Auton was not a director of CNA when the ECMT was established or for much of the time it was marketed and operated by CNA; and

    (b)Mr Auton caused APRA to be informed, shortly after Mr Auton resumed office as a director of CNA on 10 March 2000, of the investments of the ECMT and the representations CNA had made.

    As noted earlier, on 11 March 2003 APRA announced that it no longer relied on the CNA matter.

    Mr Auton’s complaints in relation to the BFML matter

  22. In relation to BFML, Mr Auton complains that in making the preliminary findings of fact set out in Attachment B to the Show Cause Letter, Mr Burgess had regard to the Wright Report and APRA’s December 2001 review of BFML, but did not have regard to:

    (a)       BFML’s written and oral response to APRA’s letter of 3 January 2002;

    (b)APRA’s decision not to suspend BFML as an approved trustee under s 133 of the SIS Act, or APRA’s reasons for that decision;

    (c)APRA’s decision that Mr Auton could continue as chief operating officer of BFML, or APRA’s reasons for that decision; or

    (d)the fact that Mr Auton notified APRA that BFML’s net asset position had fallen below the level required under BFML’s instrument of approval as an approved trustee.

    REASONING

    General

  23. The only relevant step for which the SIS Act provides is the decision to disqualify. Section 120A empowers APRA to disqualify an individual if satisfied that any one of the three conditions referred to in subss (1), (2) and (3) of that section is met. The section does not specify any procedural steps which APRA must take in order to become so satisfied, or to exercise the discretion to disqualify of which it becomes seized if it duly becomes so satisfied.

  24. It is common ground that the requirements of natural justice (‘procedural fairness’) apply to a decision by APRA to disqualify an individual.  The questions are what, in the absence of any statutory prescription, those requirements are, and whether there has been a failure to observe them in the circumstances of the present case.

  25. Mr Burgess has given Mr Auton notice of his preliminary findings and preliminary conclusion and of the evidence and other material on which he in fact relied in making those preliminary findings and arriving at that preliminary conclusion.  There is no suggestion that they were not his preliminary findings and preliminary conclusion as at the date of the Show Cause Letter, or that Mr Burgess had not relied on that evidence and other material, or, subject to [57] below, that he had relied on additional evidence and other material.  Rather, the suggestion is that he should have relied on additional evidence and other material, and that if he had done so he could not rationally have made the preliminary findings of fact he did make or arrived at the preliminary conclusion he did arrive at.

  26. I have already accepted (at [40]) Mr Auton’s submission that Mr Burgess failed to take into account the documents in APRA’s possession which came into existence after 3 January 2002.  In fact, par 32 of Attachment B to the Show Cause Letter suggests that there may be an exception.  That paragraph reads:

    ‘On 29 August 2002 Beacon agreed with APRA to enter into an Enforceable Undertaking to continue as an Approved Trustee only until 15 November 2002 when all entities are transferred to another Approved Trustee.’

    The evidence and other material identified in pars 6—15 of Attachment B to the Show Cause Letter could not have permitted Mr Burgess to make that preliminary finding.  However, Mr Auton made nothing of this in his submissions, the thrust of which was that Mr Burgess had failed to take into account things he should have taken into account, not that he had taken into account something he did not disclose.  In any event, the subject matter of par 32 was addressed in DBG’s letter to APRA dated 31 October 2002 which accepted that the allegation in par 32 was true.

  27. Events occurring after 3 January 2002 which were not taken into account by Mr Burgess included the events of March 2002 referred to at [46]—[47] above.  How it came about that Mr Burgess had no regard to events which occurred between 3 January 2002 and 2 October 2002 is not clear on the evidence.  An affidavit of Van Nguyen is to the effect that as long ago as March 2000 the supervision of CNA was transferred to the Rehabilitation Enforcement Division of APRA ‘under the supervision of [Mr Burgess]’.  The Show Cause Letter refers to Mr Burgess as:

    ‘Senior Manager
    Rehabilitation & Enforcement
    Northern & Central Regions
    ...’

    But Mr Burgess signed the Show Cause Letter as:

    ‘Senior Manager
    Specialised Institutions Division’

  28. Mr Burgess did not testify and Van Nguyen was not cross-examined on his affidavit.  There is also to be taken into account what Mr Galloway of APRA said on 7 January 2003 (see [30] above).

  29. Mr Auton submits I should infer that Mr Burgess omitted to take into account events and documents after, in effect, the end of 2001, because the relevant APRA file was located elsewhere than where Mr Burgess could not overlook it.  I need not resolve the present question.  All that matters for present purposes is that, whatever the reason, Mr Burgess did not in fact take events and documents that post-date 3 January 2002 (with the exception mentioned in [57] above) into account when he wrote the Show Cause Letter.

  30. Senior counsel for Mr Auton submits that Mr Burgess’s preliminary findings of fact are irrational or so unreasonable that no reasonable person who took into account the ‘substantially more complete and up-to-date information [which] was within APRA’s knowledge at the time [3 October 2002]’ could have made those findings.  In support, senior counsel relies on the fact that in March 2002 APRA decided to allow Mr Auton to continue as chief operating officer of BFML.

  31. It is not obvious to me that ‘Wednesbury unreasonableness’ is necessarily established by the fact that in March 2002, APRA had decided that Mr Auton would be permitted to continue as BFML’s ‘chief operating officer’.  There might be an explanation of the inconsistency between that decision and APRA’s supposed later one, or it might be ultimately conceded by APRA that its earlier decision was simply a bad one.

  32. Mr Auton has been allowed sufficient time in which to respond to the Show Cause Letter.  There is no suggestion that Mr Burgess will recommend disqualification or that APRA will disqualify Mr Auton, relying on allegations against him different from those of which he has been notified.  There is no suggestion that Mr Burgess or APRA will not pay due regard to all the submissions made on behalf of Mr Auton, or that they will not now pay due regard to all the documents in APRA’s possession to which DBG’s submissions have drawn attention.

  33. As noted earlier, Mr Burgess’s preliminary findings relating to BFML in Attachment B to the Show Cause Letter are shortened versions of the preliminary findings set out in Attachment B to APRA’s first show cause letter (to BFML).  If APRA were to decide to disqualify Mr Auton:

    ·    on the basis of findings against him which in substance merely repeated APRA’s preliminary findings against BFML, made some nine months previously; and

    ·    without regard to the more recent material in APRA’s possession;

    there may well be a basis on which APRA’s decision would be set aside.  But there is no evidence on which I would be prepared to infer that APRA proposes to follow such a course.

  34. Mr Auton submits that in order for the requirements of procedural fairness to be observed, it is necessary that the ‘charges’ against him be reformulated, and that he be informed of the reformulated charges and given an opportunity to respond to them before Mr Burgess makes, or the delegate of APRA acts upon, any recommendation that he be disqualified.  In the absence of any allegation of bad faith against APRA or Mr Burgess, I disagree.

  35. Lord Diplock stated in Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 at 369 in a well-known passage:

    ‘Even in judicial proceedings in a court of law, once a fair hearing has been given to the rival cases presented by the parties the rules of natural justice do not require the decision maker to disclose what he is minded to decide so that the parties may have a further opportunity of criticising his mental processes before he reaches a final decision.  If this were a rule of natural justice only the most talkative of judges would satisfy it and trial by jury would have to be abolished.’

  36. Similarly, in Sinnathamby v Minister for Immigration and Ethnic Affairs (1986) 66 ALR 502, it was accepted that a decision-maker is generally not obliged to invite comment on his or her evaluation of material:  per Fox J at 506, per Neaves J at 513; and see Ansett Transport Industries Ltd v Minister for Aviation (1987) 72 ALR 469 at 499; Geroudis v Minister for Immigration, Local Government and Ethnic Affairs (1990) 19 ALD 755 at 756—757; El-Sayed v Minister for Immigration, Local Government and Ethnic Affairs (1991) 22 ALD 767 at 773—774; Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576 (‘Alphaone’) at 591; Pilbara Aboriginal Land Council Aboriginal Corporation Inc v Minister for Aboriginal and Torres Strait Islander Affairs (2000) 103 FCR 539 at [63]—[73].

  1. There is an exception to the general principle where the adverse conclusion is one which would not obviously be raised by the known material, that is, the material known to the person whose interests may be adversely affected (Alphaone at 590—591). However, it is not shown here that Mr Burgess or APRA is likely to make a finding adverse to Mr Auton which would not be obviously raised by the materials which Mr Auton knows APRA possesses. No doubt, if findings were made adverse to Mr Auton which were so different from the preliminary ones that the proper conclusion was that Mr Auton had not been adequately informed of the nature of allegations ultimately believed and relied on by APRA, and therefore that he had not been afforded procedural fairness, there would be a ground on which he could successfully attack a decision by APRA to disqualify him. But there is no evidence from which I would infer that this is likely to happen.

  2. Neither the AD(JR) Act nor s 39B of the Judiciary Act enables relief to be given in relation to the developing thought processes of Mr Burgess as a recommending officer of APRA.

  3. Similar considerations apply to the error of law ground.  Senior counsel for Mr Auton submits that not all of subss 120A(1), (2) and (3) are available to APRA on the facts.  Indeed, in an interesting submission he contends that none of them are available.  But, again, Mr Burgess and APRA are well aware of Mr Auton’s submissions in this respect and Mr Burgess may decide, in the light of them, not to recommend, and APRA may decide not to impose, disqualification in reliance on all (or on any) of the subsections.

    Amended version of the Show Cause Letter

  4. Mr Auton further submits that natural justice requires that there be a reformulation of Mr Burgess’s preliminary findings to which he (Mr Auton) must be given an opportunity to respond, because the change of position announced by APRA on 11 March 2003 makes the existing preliminary findings untenable.

  5. On the hearing APRA supplied an amended version of the Show Cause Letter with the amendments to Attachment B consequential on APRA’s non-reliance on the CNA matter indicated.  Paragraphs 1—23 of the ‘Preliminary Findings on Material Questions of Fact’ were deleted entirely as were pars 1—5 of the ‘Evidence and Other Material Relied Upon for [Mr Burgess’s] Preliminary Conclusion’.  Paragraphs 24—44 of the ‘Preliminary Findings on Material Questions of Fact’ were left intact.  The remaining paragraphs (45—52) were the subject of particular internal amendments directed to the deletion of references to CNA.

  6. Subject to one possible exception discussed below, the remaining allegations relate to Mr Auton’s conduct as a director of BFML. According to par 25, Mr Auton was a director of BFML between 14 December 1998 and 25 January 2002. Accordingly, Mr Auton’s conduct as a director of BFML which is attacked did not occur after 25 January 2002. This is consistent with the failure of Attachment B to identify evidence or other material which came into existence after 3 January 2002. The only reference to a later event is found in par 32, discussed at [57] above.

  7. The possible exception referred to in [73] above is found in par 35 which was as follows:

    ‘APRA considered that you held positions in Beacon in which you made operational decisions that impacted on the financial position of superannuation entities and reported into the Boards of Directors of companies that oversaw the operational decisions.’

    The ‘positions’ in BFML held by Mr Auton are not identified in par 35.  But according to pars 36—39, the ‘positions’ are those identified in an ‘APRA Diagram of the commercial relationships between [BFML] service providers and other stakeholders prepared in January 2002 [which] identified the ownership arrangements between a variety of relevant body corporate services to [BFML]’.  For example, according to that diagram of January 2002, BFML was a wholly owned subsidiary of BFSL, the share capital in which was owned as to 21 per cent by Mr Auton and 21 per cent by his wife.  Whatever else may be said of par 35, it is plain that the later reference to the positions occupied by Mr Auton as shown in the diagram do not have the effect of bringing forward the conduct of Mr Auton to which Attachment B to the Show Cause Letter refers, to a time or times more recent than the date of APRA’s first show cause letter (to BFML), 3 January 2002.

  8. Senior counsel for Mr Auton further submits that there is an inconsistency between the retention of the reference to s 52(2)(a) of the SIS Act in par 46(a) of Attachment B and the deletion of the reference to it in par 47. The statutory covenant by BFML found in par (a) of subs 52(2), which was taken to be contained in the governing rules of a superannuation entity (subs 52(1)), was a covenant ‘to act honestly in all matters concerning [any superannuation entity of which BFML was the trustee]’. Paragraph 45 correctly recited that, in effect, pursuant to subs 52 (8) of the SIS Act, a covenant by BFML to the effect of the covenant in s 52(2)(a) also operated as a covenant by Mr Auton to exercise a reasonable degree of care and diligence for the purpose of ensuring that BFML carried out its covenant. Subsection 55(1) provided that a person must not contravene a covenant contained, or taken to be contained, in the governing rules of a superannuation entity. Sub paragraph 46(a) alleged that Mr Auton’s conduct particularised in earlier paragraphs of Attachment B was in breach of BFML’s covenant of honesty imposed by s 52(2)(a). This was an allegation that Mr Auton’s conduct placed, not himself, but BFML, in breach of its covenant to act honestly.

  9. The deletion of the reference to par (a) of subs 52(2) in par 47 of Attachment B makes it clear that APRA does not rely on a breach of the only relevant covenant deemed to have been given by Mr Auton, namely a covenant to exercise a reasonable degree of care and diligence for the purpose of ensuring that BFML acted honestly in all matters concerning any superannuation entity of which it was the trustee.

  10. Mr Burgess was clearly not notifying Mr Auton that he (Mr Auton) might be disqualified on the basis that he acted dishonestly or that he failed to exercise a reasonable degree of care and diligence for the purpose of ensuring that BFML acted honestly.  It follows that APRA would not be entitled to proceed to disqualify him on either of those bases.

  11. Accordingly, the present attack on the Show Cause Letter as amended also fails.

  12. Senior counsel for Mr Auton next points to the deletion of the expression ‘during the relevant time and’ in pars 50 and 51.  The expression ‘the relevant time’ had been defined in the deleted para (1) to refer to the two periods (8 September 1994 — 12 February 1998 and 10 March 2000 — 20 April 2000) when Mr Auton had been a director of CNA.  I perceive no difficulty.  Paragraphs 50 and 51 had also referred to:  ‘your actions and/or conduct ... when you were a director of [BFML] as referred to above’.  Following the amendment, those two paragraphs referred to Mr Auton’s actions and/or conduct as a director of BFML alone.

  13. Finally, senior counsel for Mr Auton referred to:

    ·    the change in language from ‘may in all the circumstances, result’ in par 17 of Attachment B to APRA’s first show cause letter [to BFML], to the statement of a definite adverse conclusion in par 31 of Attachment B to the Show Cause Letter; and

    ·    the change in language from ‘that may result in’ in par 21 in Attachment B to APRA’s first show cause letter (to BFML), to ‘that resulted in’ in par 39 of Attachment B to the Show Cause Letter.

  14. I do not know on what basis Mr Burgess could, on 3 October 2002, assert as findings that APRA had made on 3 January 2002 adverse to BFML, things which APRA itself had referred to at that earlier time only as possibilities, particularly in the light of the fact that both APRA then, and Mr Burgess later, relied on the same ‘evidence and other material’.  Perhaps Mr Burgess considered that pars 17 and 21 in Attachment B to APRA’s original show cause letter (to BFML) fell short in accurately describing the findings that APRA in fact made as at 3 January 2002.

  15. Regardless, pars 31 and 39 of Attachment B to the Show Cause Letter remain only Mr Burgess’s ‘Preliminary Findings on Material Questions of Fact’ (my emphasis).  We do not know what final findings on material facts will be made and acted upon.  No doubt Mr Burgess and the APRA delegate will take into account all DBG’s submissions, including the documents and events that post-date 3 January 2003 referred to in DBG’s submissions.  I am not satisfied that Mr Burgess intends to adhere to pars 31 and 39, come what may.

    CONCLUSION

  16. For the above reasons, the application should be dismissed.

  17. It may be that APRA’s abandonment of reliance on the CNA matter will give rise to an argument as to costs.  Rather than make any orders now, I will stand over the proceeding to a date for the making of orders.

I certify that the preceding eighty-four (84) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate:

Dated:             17 April 2003

Counsel for the Applicant: Mr A Robertson SC  and  Mr M Darke
Solicitor for the Applicant: Dibbs Barker Gosling
Counsel for the Respondents: Dr G A Flick SC,  Mr L Grey  and  Mr T Thawley
Solicitor for the Respondents: Mr T Galloway of the Australian Prudential Regulation Authority
Date of Hearing:  18 March 2003
Date of Last Submission: 25 March 2003
Date of Judgment: 17 April 2003
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