Burroughs v Australian Prudential Regulatory Authority

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FEDERAL COURT OF AUSTRALIA

Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775

File number: NSD 218 of 2016
Judge: ALLSOP CJ
Date of judgment: 24 June 2016
Catchwords:

INSURANCE–application to revoke or vary a disqualification under s 26 of the Insurance Act –transitional provisions following amendments to insurance regime in 2008– when a disqualification continues to be justified–overview of court-based disqualification regime– history of prudential regulation in Australia–protective purposes of insurance regime––insight into past wrongdoing– role of APRA within insurance industry– weight given to opinion of APRA on an applicant’s disqualification

PRACTICE AND PROCEDURE–filing of accurate affidavit evidence–importance of keeping records of legal proceedings in the context of a disqualification–purpose of character references for an application under s 26

Legislation:

Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 (Cth), Item 21 of Sched 1

General Insurance Reform Act 2001 (Cth)

Insurance Act 1973 (Cth) ss 2A, 25, 25A 26, 32
Cases cited:

Aston v Irvine [1955] HCA 53; 92 CLR 353

Australian Broadcasting Tribunal v Bond [1990] HCA 33; 170 CLR 321

Burroughs v Australian Prudential Regulation Authority [2007] AATA 1960

Pasini v United Mexican States [2002] HCA 3; 209 CLR 246

Precision Data Holdings Ltd v Willis [1991] HCA 58; 173 CLR 167

R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett [1945] HCA 50; 70 CLR 141

R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd [1970] HCA 8; 123 CLR 361

R v Quinn; Ex parte Consolidated Food Corporation [1977] HCA 62; 138 CLR 1

Explanatory Memorandum, General Insurance Reform Bill 2001 (Cth)

Explanatory Memorandum, Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2008 (Cth)  
Date of hearing: 9 June 2016 and 24 June 2016
Date of reasons: 30 June 2016
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Category: Catchwords
Number of paragraphs: 143
Counsel for the Applicant: Ms P A Horvath
Solicitor for the Applicant: Kerry Hogan-Ross Mediations
Counsel for the Respondent: Mr P S Braham SC and Mr B K Lim
Solicitor for the Respondent: Mr Ben Carruthers of APRA

ORDERS

NSD 218 of 2016
BETWEEN:

MR STEPHEN BURROUGHS

Applicant
AND:

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY (APRA)

Respondent

JUDGE:

ALLSOP CJ

DATE OF ORDER:

24 JUNE 2016

THE COURT ORDERS THAT:

1.Pursuant to s 26(1)(a) of the Insurance Act 1973 (Cth) (“the Act”), the decision made by the Australian Prudential Regulation Authority (APRA) on 18 November 2004 that Mr Stephen Burroughs is a disqualified person pursuant to s 25A of the Act in its then form be revoked.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

ALLSOP CJ:

  1. This is an application in substance seeking an order pursuant to s 26 of the Insurance Act 1973 (Cth) (the Act) that the disqualification of the applicant, Mr Stephen Burroughs, as being or acting…

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Details
Case
[2016] FCA 775
Decision Date

CaseChat Overview and Summary

The case of Burroughs v Australian Prudential Regulatory Authority involves Mr. Stephen Burroughs, who seeks the revocation of a disqualification order issued by the Australian Prudential Regulation Authority (APRA) in 2004. Mr. Burroughs was previously employed by FAI General Insurance Ltd and was disqualified for engaging in conduct that contributed to the under-provisioning of reserves, which ultimately played a role in the collapse of HIH Insurance. The Federal Court was tasked with determining whether the disqualification should be revoked or varied, considering the transitional provisions following the 2008 amendments to the insurance regime.

The central legal issue before the court was whether the disqualification of Mr. Burroughs under section 26 of the Insurance Act 1973 (Cth) should be revoked. The court examined the historical context of prudential regulation in Australia, the protective purposes of the insurance regime, and the role of APRA in overseeing the industry. The court also had to consider the weight to be given to APRA's opinion on the disqualification, the importance of accurate affidavit evidence, and the role of character references in the application process. The court had to balance these considerations against the insights into Mr. Burroughs' past wrongdoing and the potential for rehabilitation.

In its decision, the court found that despite Mr. Burroughs' past conduct, the circumstances had changed sufficiently to warrant a reconsideration of his disqualification. The court highlighted the importance of transitional provisions following the 2008 amendments to the insurance regime, and concluded that the disqualification was no longer justified. The court emphasised the need for accurate affidavit evidence and the purpose of character references in the context of such applications. Ultimately, the court decided that the disqualification should be revoked, allowing Mr. Burroughs to re-enter the insurance industry under certain conditions.

Accordingly, the court made an order revoking the decision made by APRA on 18 November 2004, pursuant to section 26(1)(a) of the Insurance Act 1973 (Cth). This decision marks a significant step in Mr. Burroughs' efforts to have his disqualification lifted, reflecting the court's consideration of both the historical context and the evolving nature of the insurance regulatory framework.

Orders

Orders of the court

1. Pursuant to s 26(1)(a) of the Insurance Act 1973 (Cth) (“the Act”), the decision made by the Australian Prudential Regulation Authority (APRA) on 18 November 2004 that Mr Stephen Burroughs is a disqualified person pursuant to s 25A of the Act in its then form be revoked.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

It is within this new legislative architecture that Mr Burroughs applies to the Court to revoke APRA’s disqualification of him in 2004. FACTUAL BACKGROUND The factual background to Mr Burroughs’ disqualification is set out in detail in the decision of the Administrative Appeals Tribunal (constituted by Deputy President Wright) in Burroughs v Australian Prudential Regulation Authority [2007] AATA 1960 (the AAT decision). Mr Burroughs was employed as the Group Reinsurance Manager of FAI General Insurance Ltd (FAI) from November 1996 to April 1999. Although nominally a manager, Mr Burroughs was not regarded as part of the senior management of FAI (AAT at [37]). Mr Burroughs reported directly to Mr Daniel Wilkie, a senior manager and Chief Operating Officer of FAI Insurances Ltd and a director of FAI (at [7]). In early 1999, FAI was taken over by the HIH group of companies (HIH). The subsequent collapse of HIH has been widely documented and was the subject of a Royal Commission at which Mr Burroughs appeared as a witness (at [2]). One of the findings of the Royal Commissioner was that ‘the adverse financial and managerial consequences of HIH's takeover of FAI…were a substantial contributing cause and an important circumstance surrounding the collapse of HIH’. In particular, the collapse was caused by the unexpected losses incurred by HIH from the under-provisioning of FAI (at [6]). Mr Burroughs’ conduct in relation to a number of reinsurance transactions that are described below contributed to the concealment of the under-provisioning from FAI’s auditors. In December 1997, Mr Burroughs was instructed by Mr Wilkie to research the possibility of a “reinsurance solution” to address FAI’s claims reserving position. At this time, Mr Burroughs’ understanding was that FAI had a shortfall in its reserves in the order of AUD 67 million with regard to two professional indemnity insurance schemes (at [10]). Mr Burroughs consulted with the insurance broker Willis Faber & Dumas Ltd (Willis Faber) and two reinsurance companies, Gerling Global Reinsurance Aus P/L (Gerling) and Hannover Re. In an e-mail to Mr Wilkie about the problems of finding a reinsurance solution, Mr Burroughs expressed a commitment to upholding the professional standards of the insurance industry, stating in an e-mail to Mr Wilkie on 15 January 1998:I don't want to be part of deals unless they are squeaky clean and raise no problems with auditors, ATO and ISC. (at [11]) The AAT accepted the evidence that when Mr Burroughs embarked on the task assigned to him of investigating a “reinsurance solution”, he was ‘plainly most concerned that anything he prepared should properly be constituted with relevant risk transfer so as to pass muster with auditors and regulatory authorities’ (at [37]). The negotiations with Willis Faber, Gerling and Hannover Re for a reinsurance contract did not come to fruition. As a result, Mr Wilkie, together with Mr Timothy Mainprize, the finance director of FAI, met with representatives of General & Cologne Re Australasia Ltd (Cologne Re) on 18 March 1998 with a view to agreeing on a reinsurance solution that would strengthen FAI’s claims reserving position. The Cologne Re representatives were Mr Lindsay Self (general manager of Cologne Re’s Treaty Department), Mr Tore Ellingsen and Mr Milan Vukelic (both members of Cologne Re’s Alternative Solutions Division). Mr Burroughs was not present at that meeting (at [12]).

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The factual background to Mr Burroughs’ disqualification is set out in detail in the decision of the Administrative Appeals Tribunal (constituted by Deputy President Wright) in Burroughs v Australian Prudential Regulation Authority [2007] AATA 1960 (the AAT decision). Mr Burroughs was employed as the Group Reinsurance Manager of FAI General Insurance Ltd (FAI) from November 1996 to April 1999. Although nominally a manager, Mr Burroughs was not regarded as part of the senior management of FAI (AAT at [37]). Mr Burroughs reported directly to Mr Daniel Wilkie, a senior manager and Chief Operating Officer of FAI Insurances Ltd and a director of FAI (at [7]). In early 1999, FAI was taken over by the HIH group of companies (HIH). The subsequent collapse of HIH has been widely documented and was the subject of a Royal Commission at which Mr Burroughs appeared as a witness (at [2]). One of the findings of the Royal Commissioner was that ‘the adverse financial and managerial consequences of HIH's takeover of FAI…were a substantial contributing cause and an important circumstance surrounding the collapse of HIH’. In particular, the collapse was caused by the unexpected losses incurred by HIH from the under-provisioning of FAI (at [6]). Mr Burroughs’ conduct in relation to a number of reinsurance transactions that are described below contributed to the concealment of the under-provisioning from FAI’s auditors. In December 1997, Mr Burroughs was instructed by Mr Wilkie to research the possibility of a “reinsurance solution” to address FAI’s claims reserving position. At this time, Mr Burroughs’ understanding was that FAI had a shortfall in its reserves in the order of AUD 67 million with regard to two professional indemnity insurance schemes (at [10]). Mr Burroughs consulted with the insurance broker Willis Faber & Dumas Ltd (Willis Faber) and two reinsurance companies, Gerling Global Reinsurance Aus P/L (Gerling) and Hannover Re. In an e-mail to Mr Wilkie about the problems of finding a reinsurance solution, Mr Burroughs expressed a commitment to upholding the professional standards of the insurance industry, stating in an e-mail to Mr Wilkie on 15 January 1998:I don't want to be part of deals unless they are squeaky clean and raise no problems with auditors, ATO and ISC. (at [11]) The AAT accepted the evidence that when Mr Burroughs embarked on the task assigned to him of investigating a “reinsurance solution”, he was ‘plainly most concerned that anything he prepared should properly be constituted with relevant risk transfer so as to pass muster with auditors and regulatory authorities’ (at [37]). The negotiations with Willis Faber, Gerling and Hannover Re for a reinsurance contract did not come to fruition. As a result, Mr Wilkie, together with Mr Timothy Mainprize, the finance director of FAI, met with representatives of General & Cologne Re Australasia Ltd (Cologne Re) on 18 March 1998 with a view to agreeing on a reinsurance solution that would strengthen FAI’s claims reserving position. The Cologne Re representatives were Mr Lindsay Self (general manager of Cologne Re’s Treaty Department), Mr Tore Ellingsen and Mr Milan Vukelic (both members of Cologne Re’s Alternative Solutions Division). Mr Burroughs was not present at that meeting (at [12]).

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.