Nationwide & TWU Insurance Brokers Pty Ltd and Australian Securities and Investment Commission

CATCHWORDS – Insurance Agents and Brokers – registration – whether exercised reasonable care and skill in relation to carrying out its business as an insurance intermediary – whether discretion to exercise discretion should be exercised – decision affirmed

Financial Sector Reform (Amendments and Transitional Provisions) Act 1998
Insurance Agents and Brokers Act 1984 – ss 9, 19, 21, 21(3A), 21(3B), 25, 25(1A), 25C, 26, 27, 41A

Australian Securities Commission v Kippe and Another (1996) 67 FCR 499
Hardcastle v Commissioner of Police (1984) 53 ALR 593
Heydon and Ors v NRMA Ltd and Ors [2000] NSWCA 374, 21 December, 2000, Malcolm AJA, McPherson AJA, Ormiston AJA
New South Wales Bar Association v Evatt (1968) 117 CLR 177
New South Wales Bar Association v Hamman [1999] NSWCA 404 (Unreported, Mason P, Priestley JA and Davies AJA, 29 October 1999)
Pillai v Messiter [No 2] (1989) 16 NSWLR 197
Re Wolstencroft and Companies Auditors and Liquidators Disciplinary Board (1998) 54 ALD 773
Sidaway v Governors of Bethlem Royal Hospital [1985] AC 871

DECISION AND REASONS FOR DECISION [2001] AATA 822

ADMINISTRATIVE APPEALS TRIBUNAL     )
       )          S2001/103
GENERAL ADMINISTRATIVE DIVISION      )

Re:NATIONWIDE and TWU INSURANCE BROKERS PTY LTD

Applicants

And:AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION

Respondent

DECISION

Tribunal Miss S A Forgie (Deputy President)

Date 27 September, 2001

Place Adelaide

DecisionThe Tribunal affirms the decision of the respondent dated 20 March, 2001.
S A FORGIE
Deputy President

CORRIGENDUM

Amendment to the Reasons for Decision of Miss S A Forgie (Deputy President) given on 27 September, 2001:

Paragraph 2: the sentence beginning "At the hearing…" is omitted and substituted with "At the hearing, Nationwide was represented by Mr Lane of counsel and the Commission by Mr Caleo of counsel."

Page 31: "Officer for the respondent – Mr Caleo, Australian Securities and Investment Commission" is omitted and substituted with "Counsel for the respondent – Mr Caleo".

REASONS FOR DECISION

On 21 March, 2001, the applicant, Nationwide & TWU Insurance Brokers Pty Ltd ("Nationwide") applied for review of a decision of a delegate of the respondent, the Australian Securities and Investment Commission ("the Commission") dated 20 March, 2001. That decision cancelled Nationwide's registration as an insurance broker and disqualified it from registration as an insurance broker for a period of 18 months from 20 March, 2001. On 23 March 2001, the operation of the decision was stayed subject to certain restrictions. With certain variations, that stay order was extended on 30 April, 2001, 22 May, 2001, 24 May, 2001, 22 June, 2001 and 26 July, 2001.

At the hearing, Nationwide was represented by Mr Lane of counsel and the Commission by its officer, Mr Caleo. The documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 ("T documents") were admitted in evidence together with a number of other documents to which I will refer in the course of these reasons. Oral evidence was given on behalf of Nationwide by its director, Mr Dean Achatz, together with Mr Craig, Mr Slape and Mr Costello. On 5 September, 2001, a further affidavit sworn by Mr Dean Achatz on 3 September, 2001 was sent to the Tribunal with the consent of the Commission.

THE ISSUE

The issue in this case is whether the registration of Nationwide as an insurance broker should be cancelled. In deciding that issue, it is necessary first to consider whether Nationwide has exercised reasonable care and skill in relation to carrying out its business as an insurance intermediary. If it has not, then it is necessary to consider whether its registration should be cancelled.

BACKGROUND

There was no dispute between the parties as to a number of matters forming the background to the decision and application for review. In light of that and on the basis of the evidence in this matter, I have made a number of findings of fact that I will set out in the following paragraphs together with a summary of some of the provisions of the Act relevant in this case.

On 4 September, 1995, Nationwide was incorporated. Shortly after, on 21 September, 1995, it was registered under the Insurance Agents and Brokers Act 1984 ("the Act") as an insurance broker in relation to general insurance business. Under that Act, it was required to maintain an insurance broking account ("IBA") at a bank, including an authorised deposit-taking institution (ss. 26 and 9).

All moneys received by Nationwide from or on behalf of an insured or intending insured or an insurer for or on account of, as the case may be, an insurer or an insured or intending insured in connection with a contract or proposed contract of insurance had to be paid into that account (s. 26(1)(a)). It also had to pay into that account moneys it received from or on behalf of an insured or intending insured or an insurer on its own account in connection with a contract of insurance or proposed contract of insurance (s. 26(1)(b)).

As a registered insurance broker, Nationwide was required to pay to an insurer any amount received from an insured or intended insured (or from another registered insurance broker on his or her behalf) as premium or an instalment of a premium in connection with a contract of insurance or proposed contract of insurance. It must do so where the insurer has accepted the risk, or part of the risk, to which the contract of insurance relates and where it has been informed of, or has ascertained, the amount of the premium or instalment to be paid. That is the effect of s. 27(1)). In general terms, Nationwide was required to pay the premium or instalment within 90 days after the day on which the cover provided by the insurer under the contract commences to have effect or the first day of the period to which the instalment relates (s. 27(2)). The only exception to this requirement occurred it was not practicable for Nationwide to pay the amount within those 90 days. In that case, it was required to pay it as soon as practicable after the expiration of that period as it was reasonably practicable for it to do so (s. 27(2)). Similar provisions applied where Nationwide did not know the amount of the premium or instalment to be paid. In that case, it had to pay the lesser of 75% of the amount if fairly estimated to be the premium or the amount received from the insured or, if a renewal, 75% of the amount of the previous year's premium (s. 27(4)).

Nationwide was entitled to invest money it held in the IBA in a limited range of investments including government securities, bank deposits, shares or deposits with nominated building societies, a bank-backed bill of exchange, promissory note or other negotiable instrument or a cash management trust, which was established prior to 1 July, 1986 or which is established and managed by a bank, life office or member of the stock exchange (s. 26(4) and r. 10). Unless it had the written consent of the Commission, Nationwide was required to take all reasonable steps to ensure that, at all times, the sum of the balance of the IBA and the total amount previously withdrawn from the account and that currently invested under s. 26(4) is greater than, or equal to, the sum of any amounts that an insurer and an insured, or intending insured, is entitled to receive from the account (s. 26(3)). Any shortfall on the realisation of any of those investments must be made good by Nationwide (s. 26(6)). It was required to keep accounting records (s. 25C) and, within 4 months of the end of its financial year or such extended time as granted by the Commission, to provide audited accounts (ss. 21(3A), (3B) and 9).

Until recently, both Mr Dean Achatz and his mother, Mrs Barbara Achatz, were the directors of Nationwide. Mrs Achatz was the company secretary. Mr Dean Achatz's father, Mr Adrian Achatz, was not a director but he treated Nationwide as if he were its managing director and controlling mind. Mr Adrian Achatz continued to do so until his death in February, 2000. He was a sole signatory on Nationwide's IBA. Mr Dean Achatz and Mrs Barbara Achatz were also signatories to that account but were not sole signatories. While his father was alive, Mr Dean Achatz had responsibility for managing the accounts and for trouble shooting in relation to particular clients and overseeing staff. After refinancing the loans to the Trust, Mr Dean Achatz is now the sole director of the Trust. He is also the sole director of Nationwide.

Lionel Keith Nominees Pty Ltd is the trustee of the Achatz Family Trust ("the Trust"). Until his death, Mr Adrian Achatz was the sole director of Lionel Keith Nominees Pty Ltd. Mrs Achatz then became its sole director. The Trust is a discretionary trust owning five properties, each of which is encumbered. One of those five properties is occupied by Nationwide. Two of the properties are residential properties occupied by members of the Achatz family and the remaining two are holiday houses used, from time to time, by members of the Achatz family. Until his death, Mr Adrian Achatz transferred funds from the IBA Account to the office account of Nationwide. The funds in the office account were then used to pay, among others, expenses of the Trust. That expenditure was not authorised by the Act.

Following the Commission's decision to cancel Nationwide's registration as an insurance broker on 20 March, 2001, Deputy President Burns made an order staying that decision. He did so subject to certain conditions which included its not accepting business from new clients, notifying each renewing client that its registration was cancelled and it was operating pursuant to the stay order, its paying moneys received by way of insurance premiums directly into the IBA, its taking no moneys from the IBA other than commissions due to it and its having by 30 May, 2001 audited accounts for the financial years ending 30 June, 1999 and 2000.

Mr Dean Achatz deposited amounts totalling $300,000 in the IBA on 13 and 15 June, 2001. That led to its being in surplus on 30 June, 2001 in the sum of $61,079.51 rather than having a deficit of $238,103.19 as it did on 30 June, 2000 (Exhibit M).

THE EVIDENCE

Mr Dean Achatz – affidavit evidence

In his affidavit dated 23 March, 2001 in support of Nationwide's application for a stay, Mr Dean Achatz said that he had taken the following steps in relation to addressing and rectifying the problems Nationwide had with its IBA:

"15.1 I have only transferred out of the IBA such monies as are absolutely essential for meeting NTIB's necessary expenses;
15.2I have left in the IBA more than was necessary to be left in that account – in other words, money to which NTIB would otherwise have been entitled by way of commission and fees has been left in the IBA with a view to contributing to the rectification of the deficiency in the IBA;

15.3I have taken steps to cause a refinancing of the five properties held on behalf of the family trust with a view to generating sufficient monies to pay into the IBA to rectify the deficiency (I am concerned that if NTIB, even under the most stringent terms and conditions relating to supervision and reporting, is not able to continue to carry on business as an insurance broker, and thereby generate fees, there is a risk that a potential re-financier might be less inclined to offer refinancing of the family trust properties and thus jeopardize the most expeditious means of obtaining funds to reimburse the deficiency in the IBA);

15.4I have caused the most detailed of records to be maintained relating to every aspect of the insurance broking business so that, at short notice, any relevant information relating to the business can be obtained;

15.5I have taken steps, on behalf of the family trust, to arrange for the sale of at least two of the properties held on behalf of the family trust so that proceeds from the sale thereof will be available to pay into the IBA in the event that the refinancing referred to in paragraph 15.3 above cannot occur or that it generates insufficient money to fully reimburse the IBA; and
15.6I have maintained regular reports relating to the profitability of the business. These reports which have been prepared back to 1 January 2001 show that the business is generating income of approximately 14% on premiums paid since that date. …" (Exhibit D)

At that time, Mr Dean Achatz was confident that all of Nationwide's problems could be resolved by 30 June, 2001. By 29 April, 2001, however, Mr Dean Achatz had been faced with the resignation of Nationwide's auditor. The auditor resigned because it was not confident that he could meet the time restrictions. Another auditor was recommended. In his affidavit sworn on 29 April, 2001, Mr Dean Achatz stated that he had deployed the equivalent of three full-time staff to prepare the accounts for audit (Exhibit E). He went on to describe six phases that needed to be completed and was confident that they would be completed in time to enable the auditor to complete his audit by 30 May, 2001. The first phase involved the copying of pages in bank deposit books for the period 1 July, 1998 to 30 June, 2000 and matching their entries with payments shown on the files kept for each insured. Only a handful of entries remained to be matched, he said. Phase 2 involved the reconciliation of how much was due to the insurers and how much to Nationwide each week from the IBA over a two year period. Phase 3, which was described as very near completion, involved the identification of the payments included in each cheque sent to each insurer during the period. Phase 4 involved the reconciliation of the payments made out of the business account with the computerised ledger accounts. That also was described as very near completion. Phase 5 involved the input of data from transactions passing through IBA into the computer software to enable Nationwide to track the premiums received into the IBA and where cheques drawn on the IBA have been paid. Mr Dean Achatz estimated that phase 5 would take another 3 or 4 hours to complete.

In his affidavit of 29 April, 2001, Mr Dean Achatz had set out a programme for refinancing loans on the five properties held by the Trust and for selling one or more of them. Refinancing did not proceed as he had hoped and he detailed his efforts in his affidavit of 24 May, 2001 (Exhibit F).

As to the cause of Nationwide's difficulties, Mr Dean Achatz said:

5.Whilst it does not give me any joy to have to say this, the truth is that the funds that my father had inappropriately taken from the IBA had been used to service debt secured over assets belonging to the family trust and it has been impossible for me as a non-director of the corporate trustee of the family trust to persuade my mother, the sole director, to confront the problem and sell some of those assets.

6.Her reluctance to sell has been a combination of a sentimental attachment to them, particularly the properties at Goolwa and Bright where many family holidays were spent, the grief that she was experiencing as from February 2000 arising from the loss of her husband and her inability, despite my best and continuous efforts, to understand and appreciate the significance of the problems that Nationwide confronted." (Exhibit E)

Mr Dean Achatz reported in his affidavit sworn on 22 June, 2001 that he had deposited the sum of $300,000 in the IBA on or before 15 June, 2001 (Exhibit G). He had not yet obtained the audited accounts, he said, but had completed the accounts themselves and had contacted the auditors to advise him of the amount by which the IBA was in deficit (Exhibit G, paragraph 7). Later in that affidavit, Mr Dean Achatz said that he had done everything within his power to prepare the accounts for audit. Unfortunately, it did not prepare information quickly or appropriately despite his redesigning the software package to provide the information required by the auditors (Exhibit G, paragraphs 13-14).

By 28 June, 2001, Mr Dean Achatz reported that he had not yet received the audited accounts for the years ending 30 June, 1999 and 30 June, 2000 (Exhibit H). He anticipated that he would provide the auditors with the 1999 accounts by 28 June, 2001 and with the 2000 accounts by 2 July, 2001. The auditor had advised him that the audited accounts would be available by 9 July, 2001. On 29 June, 2001, Deputy President Burns refused to extend the operation of the stay order he had previously granted.

Mr Dean Achatz reported on the position of Nationwide's business in his affidavit of 23 July, 2001 (Exhibit I). Work continued with the auditors to complete the audited accounts. Subject to certain conditions, I made an order staying the operation of the Commission's decision on 26 July, 2001. On 6 August, 2001, Mr Dean Achatz lodged a further affidavit (Exhibit J). As to the payment of insurers according to the 90 day rule, Mr Dean Achatz said that Nationwide had been able to comply with it since 15 June, 2001. Up until that time, there had been a deficiency in the IBA and Nationwide had not been able to comply with the rule. Mr Dean Achatz and his wife had continued to work long hours to obtain information required by the auditors. He also said that "the business has survived the legacy of difficulties inherited from my father's control …" (Exhibit K, paragraph 29). As for himself, he said that:

"32. Since inheriting the problems of NTIB I have faced many challenges. I have learnt very difficult and valuable lessons. The present situation has shown me how to implement appropriate systems to trace all transactions and to keep up to date figures.
33.I now understand the full importance of detailed systems to track amounts in the IBA. I have learnt to deal with and counteract negative market forces and competitors' actions." (Exhibit K)

Mr Dean Achatz – oral evidence

In giving evidence, Mr Dean Achatz said that he had spoken to his father about the deficiencies in the IBA. He could not ascertain the amount of that deficiency but knew that there was one. On two occasions, he was able to convince his father to pay money into the IBA. The first occasion occurred at the end of March, 1998 and just after his father had been diagnosed with heart disease and went overseas for a three month holiday. The second occurred in the same financial year and, by 30 June, 1998, the IBA had a deficit of $52,000.

Mr Dean Achatz said that, after his father's health failed, he had sole control of Nationwide. He agreed that he had continued to direct money from the IBA to pay expenses not authorised by the Act. Those expenses related to the payment of loans related to the Trust. He needed those loans to be maintained as he had failed to convince his mother to sell the properties until after he had sought legal advice early in 2001. She was in a position to take those decisions because, until the loans were re-financed earlier this year, she had been the sole director of Lionel Keith Nominees Pty Ltd. After his father's death, Mr Dean Achatz, said he had discussions with her almost every night about the need to sell the properties. She has an emotional attachment to the properties that he does not share and he was unable to convince her to sell them. At the hearing, Mr Dean Achatz said that one property is now under a contract of sale and another has been on the market for a very long time. In his affidavit sworn on 3 September, 2001, Mr Dean Achatz said that the sale of the property subject to the contract had settled and the proceeds of settlement were $53,444.23. His mother, Mr Dean Achatz said, has an emotional attachment to her shares just as she has to her property. She had been reluctant to sell them.

Mr Dean Achatz said that the accounting system had been a major obstacle in his completing the accounts for the earlier years. Nationwide's software package is not an industry standard package but was designed specifically for it. A lot of his time has been spent in re-designing it so that he has not been able to get down to basic tasks. He said that he became aware of the deficiencies of the accounting system when the Commission made its decision about Nationwide's registration. Other brokers saw the decision and told him that other software was available. The Commission had earlier told him that such software was available and had done so in 1996 or 1997 when it had undertaken a spot audit. Mr Dean Achatz said that he had entered an agreement with a supplier to lease new software. At the time of the hearing, he had not yet started to use the new software. In his subsequent affidavit sworn on 3 September, 2001, Mr Dean Achatz said that he and two of his staff undertook a full day training session in the new system. The course was the Microbeat Introduction Course.

At the time of the hearing, Nationwide had not yet achieved full compliance with the 90 day rule in respect of the IBA. Mr Dean Achatz said that he expected to achieve it by the following weekend when he was able to post the last cheques to insurers. In his affidavit sworn on 3 September, 2001, Mr Dean Achatz said that he had hand delivered all premium cheques to insurers by 21 August, 2001.

In cross-examination, Mr Dean Achatz agreed that Nationwide had sought an extension of the time in which to lodge its accounts in respect of the year ending 30 June, 1997. He could not recall the date to which the extension was granted and could not recall that Nationwide had lodged the accounts after that date. In particular, he had no independent recollection of a letter written on 13 March, 1998 advising both Mr Dean Achatz and his father that the ISC was considering whether or not to refuse to renew Nationwide's registration. The letter also advised them that:

"8. On 31 October 1997, you were granted an extension to produce your audited accounts by 19 December 1997. As the audited accounts had not been produced within this prescribed period the ISC contacted you on 23 December 1997. During your discussion with Mrs Wombey of the ISC, you undertook to have the audited accounts produced by 16 January 1998. The ISC subsequently confirmed your undertaking in a fascimile of 6 January 1998.
9. A search if the ISC records revealed that the audited accounts had not been produced by 16 January 1998. The ISC wrote to you on 27 January 1998 requesting your immediate production of the audited accounts. A search of the ISC records has revealed that you have not produced these audited accounts." (T documents, page 127)

Despite his lack of recollection, Mr Dean Achatz did accept that the accounts had been lodged late.

Mr Dean Achatz agreed that he had, on 12 October, 1999, asked for an extension of time within which to lodge the accounts for the year ended 30 June, 1999 (T documents, page 59). In that letter, he had told the Commission that an extension until 21 December, 1999 was required because of the time invested in researching computer hardware, software and data requirements for the year 2000 problem as well the time invested in investigating the effect of the GST on the business and implementing solutions. Those matters had prevented him from finalising Nationwide's financial accounts. When asked whether the word "finalised" meant that the accounts were started but he just needed a little more time, Mr Dean Achatz said that this was so in respect of the 1999 year. He also agreed that they were not finalised and lodged until May, 2001. In explanation, Mr Dean Achatz said that, having found all the errors in the accounts and the problems with the software, he needed to start again from the bank statement level.

An extension of time was granted on 19 October, 1999 until 21 December, 1999 (T documents, page 60) but, on 10 December, 1999, Mr Dean Achatz requested a further extension (T documents, page 61). In response to a question whether he thought that he was close to finalising the accounts at this time, Mr Dean Achatz said that the main thing completing the accounts at that time was his finding the time to complete the accounts. That was the reason for his requesting an extension of time. At that point, he had not been aware of the enormity of revamping the software and going through all of the statements. He could have prepared the accounts but needed to reconcile the accounts completely. Later, Mr Dean Achatz agreed that it was possible that he had not done much work on the accounts at all at this stage.

On 26 February, 2000, Mr Dean Achatz requested a further extension of time until 28 April, 2000. When asked whether he believed that he was close to completing the accounts at this time, Mr Dean Achatz said that he could not remember. His father had died on 7 February, 2000. It was hard enough at the time to keep the business together as well as the staffing and emotional issues. There was "a whole mess in terms of family issues" as well as the IBA issue. There was a lot on at the time.

He did not recall, but accepted, that the Insurance and Superannuation Commission ("ISC") had pointed out in a letter dated 6 November, 1997 that Nationwide was in breach of the 90 day rule and so in breach of s. 27(2) of the Act (T documents, page 119). The letter was addressed to both Mr Adrian Achatz and Mr Dean Achatz. Mr Dean Achatz could recall that the ISC had pointed out contraventions of the Act and that it had told him at that time that there was software that was available.

In cross-examination, Mr Dean Achatz was asked about the timetable he had set out in his affidavit sworn on 29 April, 2001. As to phase 1 of that timetable, he said that he could not recall when he had commenced it. He was working on getting the accounts up to date during 2000. It was a big task, he said, to get the software up to date. When it was put to him that he knew in April, 2001 that the task would take a number of months, Mr Dean Achatz said that he always thought that it would take less time than it did. All of the entries in the computer had to be checked against all of the information in sources such as deposit books.

Mr Dean Achatz agreed with Mr Caleo that he did not know the amount of the deficiency in the IBA when the Commission wrote to him in December, 2000 expressing its concerns that Nationwide might not have discharged the ordinary obligations of an insurance intermediary (T documents, pages 22 and 29). The accounts were in such a poor state that he could not know and could only estimate. He thought that it was much more than $52,000 at that time.

Although not addressed in the course of Mr Dean Achatz's giving evidence, it is noted that, in a meeting between representatives of the Commission and Mr Adrian Achatz and Mr Dean Achatz on 31 October, 1997, that premium moneys were not being paid directly into Nationwide's IBA (T documents, page 116). Instead, they were being paid first into the account of a sub-broker and then into the IBA. Mr Dean Achatz advised the Commission that the premiums would be paid into the IBA directly in future. In addition Mr Adrian Achatz and Mr Dean Achatz advised that, in addition to the moneys in the account of the sub-broker, there was a sum of $190,000 not reflected in that account. They could not provide documentary evidence of the deposit. Withdrawals from the IBA for payment of its commission had been made on an arbitrary basis rather than on the basis of actual income earned. Mr Dean Achatz requested more time in which to complete the monthly reconciliations before the audit of the 30 June, 1997 accounts could begin. He had not undertaken monthly reconciliations previously and the Commission noted that the Q&A computer system used by Nationwide is just a database and does not provide any assistance.

In cross-examination, Mr Dean Achatz said that he had first become aware of the extent of the problem when his father travelled overseas in March, 1998 and he saw the issues not only from the point of view of Nationwide but also of the accounting business. He obtained a legal opinion both as to his position and as to the ways in which he could get his father to make good the deficiency in the IBA.

Mr Dean Achatz said that his father had treated Nationwide as one of his assets and as his business. If he did not like what was going on, his father would tell him that he would sell the insurance business. His father showed no real logic. When asked why he has not wound up Nationwide, Mr Dean Achatz replied that continuing and turning it around was the only way to redeem himself. When asked why he would not repeat the past if the Trust got into financial trouble again, Mr Dean Achatz said that he knew the troubles that would follow if he did do it again. In addition, he is trying to consolidate. If he were getting dangerously close to getting into trouble again, he would sell the properties. He has been trying to persuade his mother to sell the properties. When asked whether he had to persuade his mother, he replied that he had to do so on the emotional level. He would make her understand what had to be done. Mr Dean Achatz said that he would need her agreement to sell the properties even though he is the sole director of the Trust. That is so because of the emotional consequences to her.

Messenger Zerner

Messenger Zerner completed a review of the IBA as at June, 2001 but had not conducted an audit of Nationwide's accounts at that date. As to the accounting system and procedures then in place, Messenger Zerner reported that they were able to produce the information necessary to comply with the requirements of the Act but made the following points:

"(i) A significant shortcoming of the current accounting system and procedures is that they require considerable time to be invested into extracting the necessary information required. If this time is not made available, there are no assurances that there will be strict compliance with the Act for future periods.
Accordingly we recommend that from 1 July 2001 a new, fully integrated computer software package, which meets the requirements of the Act, be installed and operated.
(ii)We understand that a product called 'Microbeat' has already been purchased and will be installed after the completion of the 30 June 2001 audit. Other Insurance Broking clients use this program and we confirm that it is able to comply with the requirements of the Act." (Exhibit M)

Mr Paul Craig

Mr Craig is the Branch Manager for South Australia and the Northern Territory of NTI Limited ("NTI"), which is a firm practising in the area of general insurance. NTI started to deal with Nationwide in March, 2000. Mr Craig said that he has dealt personally with Mr Dean Achatz since that time. Since then, Mr Craig said in his statement, NTI's dealings with Nationwide have been of an acceptable standard with completion of new business and payment of premiums within its guidelines. In addition, NTI has been aware of the restrictions under which Nationwide has operated and Nationwide has willingly and honestly clarified for it any matters on which it sought clarification. Until a large loss in the previous month, trade with Nationwide had been profitable.

In cross-examination, Mr Craig said that he could not recall whether Mr Dean Achatz had given him a copy of the Commission's written decision, which is under review in these proceedings. He was, however, informed of the decision and told of its impact upon Nationwide's business. Mr Craig said that he was also told of the effect of the stay order made by this Tribunal.

He said that he was told by Mr Dean Achatz that Nationwide's IBA had a deficiency in the order of $290,000 and that Mr Adrian Achatz had been responsible for the diversion of funds from the IBA from about mid 1998. Mr Craig was not aware that the diversion of funds had continued after Mr Adrian Achatz's death and up to January, 2001. He would have expected to have been told that information, Mr Craig said.

Mr Dean Achatz had told him, Mr Craig said, that Nationwide's audited accounts had not been lodged in respect of either 1999 or 2000. He did not tell him as such that some insurers were not being paid in 90 days but he assumed that, with a shortfall in the IBA, there had to be payments made outside that time period. His company was paid in a timely manner and, because that was so, it was "fair to say" that he took a more lenient view of Nationwide's contravention.

When asked whether the fact that the diversion of funds continued after Mr Adrian Achatz's death would alter his view as to whether NTI would continue to do business with Nationwide, Mr Craig replied that he would need to think about it. If the Tribunal were to reinstate Nationwide's registration, he would conclude that it was happy that Nationwide had acted as a broker should. NTI would then continue to do business but he would have regard to all relevant issues.

Mr Ian Slape

Mr Ian Slape is the Business Development Manager of SMIL (formerly Sun Corp General Insurance Limited). He gave evidence on his own behalf rather than on behalf of the company, he said. SMIL first established an office in Adelaide in 1996 and has traded with Nationwide since early 1997. Mr Slape said that the relationship between the two companies had been very good and that SMIL had not experienced any difficulty with credit control during the course of their business.

In March, 2001, Mr Dean Achatz advised SMIL that Nationwide's registration had been cancelled. After the cancellation decision was stayed and there were full and frank discussions with Mr Dean Achatz, SMIL decided to continue to trade with Nationwide until it worked through the issues that were confronting it. That decision was taken by SMIL's management after taking into account various matters including Mr Slape's recommendations. Although the trade has been slow due to the restrictions under which Nationwide is permitted to carry on business, its compliance with SMIL's credit requirements has remained solid, Mr Slape said. SMIL intended to continue trading with Nationwide if its registration were restored. Trade with Nationwide had been profitable in the past.

In cross-examination, Mr Slape said that he had told his superiors in SMIL that Nationwide's IBA had a deficiency of $290,000. He had understood that the diversion of funds from the IBA continued after the date of Mr Adrian Achatz's death until February, 2000 when Mr Dean Achatz was in control. He had also understood that the deficiency in the funds in the IBA had only come to light when the Commission investigated why Nationwide had not lodged its audited accounts with it. During their years of trading, SMIL's credit control with Nationwide had never been an issue. Payments were always made within 90 days. Those were SMIL's trading terms. When SMIL found out about the IBA's deficit, it listened to how it had occurred. Mr Dean Achatz was remorseful. At that time, there was a business relationship stretching over 4 years. A decision was made to work through the issues. Mr Slape now understands that Mr Dean Achatz has paid $300,000 into Nationwide's IBA.

Mr Brenton Costello

Mr Costello is the South Australian Manager of Lumley General Insurance ("Lumleys"). Lumleys, Mr Costello said, is virtually a wholesaler of insurance who deals almost exclusively with insurance brokers. It is very important to Lumleys that those insurance brokers are honest. In his statement, Mr Costello said that Lumleys and Nationwide had been working together for a number of years. Lumleys is aware of Nationwide's problems but their dealings have always been amicable. It is most satisfied with the way in which Nationwide has handled matters during the period of the stay order. Were Nationwide to regain its registration, Lumleys would be happy to do business with it again.

In cross-examination, Mr Costello said that he was in a position to have a major input into decisions made on behalf of Lumleys but he could be overridden by the Board. He said that Mr Dean Achatz had told him of Nationwide's problems and that he, Mr Dean Achatz, had been to the boardroom to explain them. Although Mr Costello could not recall whether Mr Dean Achatz had given him a copy of the Commission's decision, he did recall that he had told him of the $290,000 deficit in the IBA. Lumleys had never experienced any difficulty in receiving money from Nationwide. It put a lot of pressure on its brokers and never had trouble being paid. Mr Dean Achatz had told him that Nationwide was refinancing and that all of its problems would be tidied up in a very short period. At that time, Lumleys had sent out the renewal notices and could not just stop trading with Nationwide. It was a practical matter to keep trading with Nationwide. Mr Costello said that he was not aware that insurers other than Lumleys were not being paid in 90 days but that was not of concern to him. So long as Lumleys was up to date he was all right. The fact that Lumleys was all right motivated it to keep trading with Nationwide, Mr Costello said in cross-examination.

Mr Dean Achatz told him, Mr Costello said, that Mr Adrian Achatz had siphoned off funds from the IBA. He did not tell him that he himself had continued to divert funds from the IBA. Mr Costello said that he was amazed that Mr Adrian Achatz had done it as he had had a lot of respect for Mr Adrian Achatz. He was surprised and very disappointed to learn that the diversion of funds had continued after his death. As to whether Lumleys would continue to do business with Nationwide was a matter that he would have to go away and really consider.

CONSIDERATION

Legislative framework

A person, whether an individual or a corporation, may not carry on business as an insurance broker in relation to either life insurance business or general insurance business unless he, she or it is registered under the Act in relation to such business (s. 19). Once registered, the registration has effect for a calendar year as does renewal of that registration (s. 21(3)).

Subject to s. 21(2), the Commission must renew an insurance broker's registration under the Act, if he or she applies to renew it, provided that person meets the requirements of s. 21(1A). Those requirements include the insurance broker's having produced satisfactory audited accounts of its business as an insurance broker in respect of the accounting period ending on, or not more than 12 months before, the day that the registration would end if it is not renewed (s. 21(1)(e)). What is meant by "satisfactory audited accounts" is defined in s. 21(7). They include those:
"(c) accounts that show that the sum of:
(i)the amount of an account maintained by the broker under subsection 26(1); and
(ii)the amount of prescribed investments by the broker; and
(iii)amounts due to the broker from insurance debtors;"

The Commission may refuse to register an insurance broker or to renew its registration if:
"(a) an applicant, or a director, employee or agent of an applicant has been convicted of an offence referred to in subsection 25(1); or
(b)an applicant, or a director, employee or agent of an applicant, is bankrupt or insolvent; or
(c)an applicant, or an associated insurance intermediary within the meaning of section 41B, has failed to discharge the ordinary obligations of an insurance intermediary as set out in decision-making principles in force under section 41A." (s. 21(2))
Since 1 July, 1998, the Commission has administered the Act. Prior to that date, it was administered by the ISC. Pursuant to s. 41A, it had formulated principles, known as decision-making principles, pursuant to s. 41A. It did so on 22 September, 1994 when it issued the Insurance Agents and Brokers Decision-making Principles No. 1 of 1994 ("1994 Principles"). Although the Commission is now responsible for the administration of the Act, the effect of Schedule 19 of the Financial Sector Reform (Amendments and Transitional Provisions) Act 1998 is that decision-making principles made by the ISC and in force immediately before 1 July, 1998 continued to have effect after that date as if they had been made by the Commission (Schedule 19, item 36(1)). Section 41A provides that, in making a decision under (among others) s. 21, the Commission must comply with any relevant decision-making principles.

Clause 4(1) of the 1994 Principles states that, for the purposes of s. 21:

"(a) the Commissioner [now the Commission] must consider whether the insurance intermediary has met the ordinary obligations of an insurance intermediary, as mentioned in clause 5;
(b)the Commissioner must assume that the insurance intermediary has met the ordinary obligations of an insurance intermediary unless, the Commissioner reasonably believes that the intermediary has:

(i)seriously breached; or
(ii)deliberately, wilfully, or recklessly breached; or
(iii)repeatedly breached;
an ordinary obligation."

What is meant by the "ordinary obligations of an insurance intermediary" is explained in clause 5. In so far as it is relevant, that provides that they are:

"(a) exercising reasonable care and skill in relation to carrying out the business of an insurance intermediary;
(b)…"

Section 25 is concerned with the suspension or cancellation of an insurance broker's registration. Provision is made for suspension or cancellation where a person has been convicted of an offence in respect of conduct relating to insurance or in respect of dishonest conduct in so far as the Commission considers that the offence renders the person unfit to carry on business as an insurance broker (s. 25(1)). In the circumstances of this case, s. 25(1A) is relevant and it provides:

"If:
(a)a person registered under this Part, or a director, employee or agent of such a person, becomes bankrupt or insolvent; or

(b)a person registered under this Part fails to discharge the ordinary obligations of an insurance intermediary as set out in decision-making principles in force under section 41A;

ASIC may:
(c)suspend the registration of the person for such period as ASIC considers appropriate; or

(d)cancel the registration of the person."

Has Nationwide failed to discharge the ordinary obligations of an insurance intermediary?

That Nationwide has been in breach of its statutory obligations was not in dispute between the parties. Mr Dean Achatz made no attempt to deny that it had been in breach. In particular, he made no attempt to deny, and I find, that Nationwide was in breach of the 90 day rule specified in s. 27 in respect of payments to some insurers up to the date of the hearing. I find also that Nationwide has a longstanding history of breaches and that they date back to 1997. Mr Dean Achatz was confident that Nationwide would no longer be in breach after the weekend following the hearing.

I also find that Nationwide has been in breach of s. 26 in so far as the sum of the balance of the IBA and the amount withdrawn from it and invested in accordance with s. 26(4) was less than the sum of the amounts that any insurer or any insured, or intending insured, is entitled to receive. Having regard to the minutes of meeting between Mr Dean Achatz and Mr Adrian Achatz and representatives of the Commission in 1997 and of the correspondence between them, I am satisfied that the IBA has been in deficit for some years. The extent of that deficit at any particular time is uncertain. On or about 31 October, 1997, it was in the order of $190,000. That is not to say that $190,000 had been misappropriated or used for purposes not authorised by the Act. It is to say, however, that it did reside in the IBA and there was a deficit in the IBA at the time. That deficit has continued over the years until it was in the order of $270,000. I am satisfied that the IBA is no longer in deficit and has not been in deficit since 15 June, 2001 when Mr Dean Achatz made the second instalment of a sum totalling $300,000.

No evidence was led that any insurer or insured has not received the payments to which he, she or it has been entitled. Indeed, those who gave evidence either on behalf of insurers or with knowledge of their business, were clear that they had received all payments from Nationwide. They had also received them in a timely fashion. I am satisfied, however, that some insurers, who were not called, waited substantial periods of time for payment or were not paid at all. Examples are detailed in a bank account reconciliation prepared by Mr Dean Achatz. That document reveals that QBE Insurance Limited has waited, at least on some occasions, for periods of approximately eighteen months, two years and three years (Exhibit N).

I am also satisfied that Nationwide has also been in breach of the Act in so far as the lodgement of its accounts is concerned. At times, extensions of time have been sought before the four month period for their lodgement has expired but, on others, they have been sought after the date. The reasons for their late lodgement and to the requests for extension have consistently referred to difficulties with Nationwide's accounting systems, staff difficulties and difficulties with the implementation of such matters as the GST.

Do these breaches of the Act mean that Nationwide has failed to discharge the ordinary obligations of an insurance intermediary as set out in the 1994 Principles? That is to say, has it failed to exercise reasonable care and skill in relation to carrying out the business of an insurance intermediary? What is reasonable care and skill in this context? I was not referred to any authorities in the context of the Act and the regulation of insurance brokers but there are authorities relating to the conduct of people in other occupations. None of the witnesses from insurers addressed the issue. It was also apparent that none had considered the impact of Nationwide's breaches beyond the immediate impact those breaches had upon his own insurer. Putting aside the continuing withdrawals from the IBA after February, 2000, each knew of Nationwide's breaches under the Act and had been happy to continue trading with it provided his insurer received its premiums in accordance with its credit policies. Those policies were at least consistent with the 90 day rule imposed under the Act. The continuing withdrawals from the IBA after the date of Mr Adrian Achatz's death caused Mr Craig and Mr Costello both to pause and consider the matter seriously. Each would need to think about the issues. Mr Craig put the onus upon the Tribunal by saying that if it thought that Mr Dean Achatz had acted as a broker should, then NTI would continue to trade with it.

As I have said, neither Mr Craig, Mr Slape nor Mr Costello was specifically asked to consider what is appropriate practice and reasonable care and skill when acting as an insurance broker. Indeed, had they been asked, their evidence would not have been determinative of the matter. The majority of the High Court considered the standard of care that was required of an ophthalmic surgeon who failed to warn a patient that, as a result of surgery on her right eye, she might develop a condition known as sympathetic ophthalmia her left eye. She did develop that condition and was ultimately rendered almost totally blind. In considering whether the surgeon, Dr Rogers, had been in breach of the duty of care owed to Mrs Whitaker, the majority concluded the standard of care required of a surgeon is reasonable care and skill. "The standard of care … is that of the ordinary skilled person exercising and professing to have that special skill." (page 487). It relates both to the provision of treatment and of advice. The majority couched the standard of care in general terms and it has been adopted in relation to those pursuing occupations other than those related to the medical profession. It was adopted, for example, in relation to the legal profession by the New South Wales Court of Appeal (Heydon and Ors v NRMA Ltd and Ors [2000] NSWCA 374, 21 December, 2000, Malcolm AJA McPherson AJA Ormiston AJA).

In determining what is "reasonable care and skill", the majority rejected the "Bolam principle" i.e. a doctor is not negligent if he or she acts in accordance with a practice accepted at the time as proper by a responsible body of medical opinion even though other doctors adopt a different practice. As Lord Scarman summarised the principle, "… the law imposes the duty of care: but the standard of care is a matter of medical judgment." (Sidaway v Governors of Bethlem Royal Hospital [1985] AC 871 at 881. The majority of the High Court said:

"In Australia, it has been accepted that the standard of care to be observed by a person with some special skill or competence is that of the ordinary skilled person exercising and professing to have that special skill ((32) Cook v Cook (1986) 162 CLR 376, at pp. 383-384; Papatonakis v Australian Telecommunications Commission (1985) 156 CLR 7, at p 36; Weber v Land Agents Board (1986) 40 SASR 312, at p 316; Lewis v Tressider Andrews Associates Pty Ltd [1987] 2 Qd R 533, at p 542). But, that standard is not determined solely or even primarily by reference to the practice followed or supported by a responsible body of opinion in the relevant profession or trade ((33) See, for example, Florida Hotels Pty Ltd v Mayo (1965) 113 CLR 588, at pp. 593, 601). Even in the sphere of diagnosis and treatment, the heartland of the skilled medical practitioner, the Bolam principle has not always been applied ((34) See Albrighton v Royal Prince Alfred Hospital [1980] 2 NSWLR 542, at pp 562-563 (case of medical treatment). See also E v Australian Red Cross (1991) 27 FCR 310, at p 360). Further, and more importantly, particularly in the field of non-disclosure of risk and the provision of advice and information, the Bolam principle has been discarded and, instead, the courts have adopted ((35) Albrighton v Royal Prince Alfred Hospital [1980] 2 NSWLR 542, at pp 562-563, F v R (1983) 33 SASR 189, at pp 196, 200, 202, 205; Battersby v Tottman (1985) 37 SASR, at pp 527, 534, 539-540; E v Australian Red Cross (1991) 27 FCR, at pp 358-360) the principle that, while evidence of acceptable medical practice is a useful guide for the courts, it is for the courts to adjudicate on what is the appropriate standard of care after giving weight to 'the paramount consideration that a person is entitled to make his own decisions about his life' ((25) F v R (1983) 33 SASR 189, at p 193." Rogers v Whitaker (1992) 175 CLR 479 (per Mason CJ, Brennan, Dawson, Toohey and McHugh JJ at page 487; see also; Gaudron J from page 492 in a separate judgement.)

On what evidence is the standard to be ascertained? This was a matter considered in the judgement of Malcolm AJA in Heydon and Ors v NRMA Ltd and Ors:
149 As to the question of the admissibility and relevance of expert evidence regarding the duty of care in the context of proceedings against a lawyer, in Boland v Yates Property Corporation Pty Ltd [1999] HCA 64; (2000) 74 ALJR 209 at [45], Gleeson CJ noted without comment that in proceedings before Branson J in the Federal Court the defendants gave evidence and, in addition, there was further evidence from expert valuers, and from senior counsel experienced in valuation law and practice, noting that:
"Her Honour relied upon that evidence, and upon her own opinions and judgment, in reaching her conclusions."
150 Further at [47] the Chief Justice noted that:
"Branson J referred to evidence given before her by Mr Simos concerning his opinion on the relevant issues. She also referred to evidence given by two legal experts, Mr McClellan QC and Mr Davison SC. Mr McClellan was called by Yates, and Mr Davison was called on behalf of the defendants. Mr McClellan was not asked to, and did not, express an opinion on whether the approach adopted by Messrs Simos and Webster to the subject of special value was one which could reasonably have been taken by competent senior and junior counsel. Mr Davison, a barrister with extensive experience of valuation law and practice, expressed the opinion that the views which had formed the presentation and conduct of the primary litigation by Mr Simos and Mr Webster were views which could reasonably have been held by competent senior counsel at the time of the proceedings and, in addition, were views with which Mr Davison personally agreed."
151 In Boland paras [48] and following the Chief Justice quoted from and examined in some detail the judgment of Branson J below, in which her Honour approached the matter, as indicated in para [49], having regard principally to the expert evidence, by attaching weight also to her own reading of the authorities, to form the view that no negligence had been established against any counsel or solicitor in connection with the presentation of the claim. In the result, the decision of Branson J was upheld. In relation to the particular aspects of the case which I have mentioned, Gaudron and Gummow JJ agreed with Gleeson CJ. Callinan J made a number of observations of some relevance. His Honour said at [307]:
"The nature and scope of the duty of lawyers to exercise reasonable care, particularly when litigation is in prospect or being, must be assessed in the knowledge that litigation always involves some uncertainties..."
His Honour also said:
"[309] In determining whether, in giving an opinion or advice on the conduct of the case, lawyers have been negligent it will not necessarily be a proper base for criticism that they had recommended or acquiesced in an approach which might have seemed to some to be novel in law or one upon which minds might differ. So to, as counsel for the respondent submitted, regard has to be had to what the law might reasonably be perceived to be at the time that the conduct in question occurred.
[310] In the last 20 years it is possible to point to many changes in legal thinking in and as a result of decisions of this Court. (Burnie Port Authority v General Jones Pty Ltd) (1994) 179 CLR 520; Theophanous v Herald & Weekly Times Ltd (1994) 182 CLR 104; Lange v Australian Broadcasting Corporation (1997) 189 CLR 520. See also the discussion by Brennan J of presumptions as to the state of the law from time to time in Giannarelli v Wraith (1988) 165 CLR 543 at 583-586). There are also a number of decisions of this Court on important matters in which different Justices have taken diametrically opposed views (Wik Peoples v Queensland) (1996) 187 CLR 1; Gould v Brown (1998) 193 CLR 346; Re Wakim; ex parte McNally (1999) 73 ALJR 839). All of this is to highlight the increased difficulty which lawyers face in making decisions as to the way in which to conduct some complex cases and advise their clients."
152 In the light of these authorities, I consider that expert evidence would have been both relevant and admissible in the present case, but it remains for the Court to determine what is the appropriate standard of care and whether, in the instant case, the relevant advice was given consistently with or in breach of that standard.
153 The judgment of Branson J and the consideration of it by Gleeson CJ (with whom Gaudron and Gummow JJ agreed in Boland), to which I have referred, assumes both the admissibility and relevance of the evidence to the determination to be made by the Court.
154 In the present case there was no witness called for the purpose of giving evidence of any relevant professional standard or practice. In para 1197 of his judgment the learned trial Judge said that he expressed "no view on whether expert evidence could or should have been called" and that it fell "to the court itself to provide that content" (citing authorities).
155 As Kirby P (as he then was) said in Waimond v Byrne (1989) 18 NSWLR 642:
"In default of any evidence as to professional standards or common practice in a situation such as the present, it falls to the court itself to provide its definition of the scope of the duty of care owed by reference to general principles."
The same may be said of the position of counsel: Negal v Power (1967) SASR 373 at 376; Fox v Everingham (1983) 76 FLR 170 at 178-179; and Amadio Pty Ltd v Henderson (1998) 81 FLR 149 at 217."

It is clear from these cases that, while it is for the court to determine the standard of care, it is not done in isolation. It may take into account evidence of those who are engaged in an occupation similar to that carried on by the person whose conduct is in question. Expert evidence may be given. The court may take into account the legitimate expectations of those who seek the advice or services of those engaged in the occupation. Where any services or advice proffered are necessarily attended with uncertainties, those uncertainties may also be taken into account.

It seems to me that considerations such as these are equally applicable in considering whether or not an insurance broker has exercised reasonable care and skill in relation to carrying out the business of an insurance intermediary. Also applicable are the statutory standards that regulate the conduct of an insurance broker. They are set out in the Act and I have referred to some of them earlier in these reasons. What is apparent from the provisions of the Act generally is that it is intended to protect the insuring public and, to some extent, the insurers. It does so, for example, by ensuring that an insured's payments of premium is transmitted promptly, or at least within 90 days, to the insurer and by protecting in an IBA payments made by and to an insured. Integral to that protection is the accuracy and independent scrutiny of an insurance broker's accounts and records of his, her or its IBA. Consequently, the Act provides for the accounts to be made available within four months of the end of a broker's financial year to enable that independent scrutiny to take place.

Returning to Nationwide's case, I am satisfied that it has been in breach of the Act in the three areas to which I have referred over an extended period i.e. failure to lodge accounts, breach of the 90 day rule, and deficiencies in its IBA. These are not isolated breaches over that extended time but repeated breaches. Indeed, they are breaches that have continued over an extended period of time even though they have been brought to its attention by the predecessor of the Commission, the ISC. Breaches in relation to the 90 day rule extend back to 1997 as do delays in the lodgement of the accounts. Irregularities in payments into the IBA and a failure to account for $190,000 extend back to 1997. Failure to lodge the accounts and breaches of the 90 day rule have extended up to the present time. Some of the irregularities identified in 1997 in relation to the IBA have been corrected but deficiencies in it have continued since at least 1998. None of the breaches can be said to be minor matters. The failure to provide accounts has been for extended periods. During that time, it is impossible for the Commission to carry out its function to ensure that the insuring public is protected. Failure to pay premiums within 90 days fails to protect the insuring public. The deficiency in the IBA is significant. Before the deposit of $300,000 in June, 2001, the deficiency had reached a figure in the order of $270,000.

None of these breaches could be put down to a "one off" error or an oversight that may occur from time to time by an insurance broker exercising reasonable care and skill in carrying out its business. Mr Dean Achatz offered explanations for them. Those explanations have their foundation in Nationwide's poor accounting systems and in his father's misapplication of funds from the IBA to the Trust. I am not satisfied, however, that an insurance broker exercising reasonable care and skill would have permitted the Nationwide's accounting systems to have continued for such a long time in such a poor state if, indeed, he, she or it would have permitted them to be in a poor state in the first place. As for the misapplication of the funds from the IBA, there is no explanation other than that Mr Adrian Achatz and Mr Dean Achatz consciously chose, perhaps at differing times, to apply them to purposes unrelated to the purposes for which insureds paid those funds. That is not the action of a broker exercising reasonable care and skill.

It follows that I am satisfied that Nationwide has failed to discharge the ordinary obligations of an insurance intermediary as set out in the 1994 Principles. It does not follow automatically from that conclusion that Nationwide's registration as an insurance broker should be cancelled. Section 25(1A) does not make it mandatory and it is a matter of discretion. What matters should be taken into account in considering whether or not that discretion should be exercised? This question has been considered in the context of many cases concerned with disciplinary action taken in respect of persons engaged in certain professional activities.

At the heart of those cases is the principle that I must bear in mind that we are not imposing a penalty. As the Full Court of the Federal Court said in Australian Securities Commission v Kippe and Another (1996) 67 FCR 499 (Von Doussa, Cooper and Tamberlin JJ) in relation to a banning order made under s. 829 of the Act against a dealers representative:

"The immediate and direct legal effect intended by a banning order is not to impose a penalty or punishment on the person concerned, but to be preventive in that it removes a perceived threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein." (page 508)

This approach is consistent with the more recent judgement of the New South Wales Court of Appeal in New South Wales Bar Association v Hamman [1999] NSWCA 404, (Unreported, Mason P, Priestley JA and Davies AJA, 29 October 1999). The court considered disciplinary proceedings against a legal practitioner and said:

"… Disciplinary proceedings against a legal practitioner are concerned with the protection of the public (Wentworth v New South Wales Bar Association (1992) 176 CLR 239 at 250-251). Their object is not to punish the practitioner but to protect the public and to maintain proper standards in the legal profession. …" (paragraph 21)

Authorities such as New South Wales Bar Association v Evatt (1968) 117 CLR 177 (Barwick CJ, Kitto, Taylor, Menzies and Owen JJ) and Hardcastle v Commissioner of Police (1984) 53 ALR 593 (Bowen CJ, Gallop and Lockhart JJ) acknowledge that, in achieving the objects of public protection and the maintenance of proper professional standards, an order made in disciplinary proceedings may involve great deprivation for the person who is the subject of that order. Despite that, the object of the order is not to punish or to extract retribution.

Cancellation or suspension of a person's right to engage in his or her chosen profession does not only follow because a person has intentionally committed a wrong-doing. As Kirby P said in Pillai v Messiter [No.2] (1989) 16 NSWLR 197:

"… The public needs to be protected from delinquents and wrong-doers within professions. It also needs to be protected from seriously incompetent professional people who are ignorant of basic rules or indifferent as to rudimentary professional requirements. Such people should be removed from the register or from the relevant roll of practitioners, at least until they can demonstrate that their disqualifying imperfections have been removed. …" (page 201)

How is the public to be protected? In Re Wolstencroft and Companies Auditors and Liquidators Disciplinary Board (1998) 54 ALD 773 (Deputy President Forgie and Mr Way, Member) the Tribunal, which was reviewing a banning order made in respect of an auditor, considered in what respects the public is to be protected. It said:

"It follows from the view taken by the full court of the Federal Court in the Kippe case that our choice of one of those courses must be guided by what is in the public interest in two senses. First, there is a public interest in ensuring that the individual follows the appropriate course of action in the future. Second, there is the public interest in ensuring that the public can be secure, or as secure as is reasonably possible, in the knowledge that those who are entrusted with the auditing of accounts can be properly entrusted with that task. It is particularly important that auditors ensure that the financial information of whom they audit is presented fairly within an identified financial reporting framework. That is so because their reports are relied upon by those who are both related to and unrelated to the subject of the audit. Those people must have confidence that they can rely on the audited accounts." (page 786)

In considering whether Nationwide's registration should be cancelled, I have kept in mind that the decision I reach must have at its heart the protection of the public. The fact that any decision to cancel may have grave financial implications for Nationwide or for Mr Dean Achatz and his family is not relevant if cancellation is what is required to protect the public.

In this case, it seems to me that cancellation is the appropriate decision to make. Certainly, it must be said that Mr Dean Achatz has made great efforts in the last few months to bring the IBA back into surplus and he has made efforts to finalise the accounts. At the same time, it must be said that he has worked with an inadequate accounting system and one that I am satisfied he was told was inadequate by the Commission back in 1997. Despite that, he took no steps to change it and that is so even though he said that he had responsibility for the accounts from a time before his father's death. He was present at meetings where the ISC had raised the deficiencies in Nationwide's accounting systems and acknowledged in giving evidence that it had told him that alternative software was available to overcome the system's shortcomings. That really brings me to the heart of the matter. Having considered the written material and having listened to Mr Dean Achatz's evidence, I am satisfied that he has difficulty in implementing changes he needs to make in his business practices and so has difficulty in meeting the requirements imposed on him by the Commission and ultimately by the Act. At the same time, he is prepared to make statements leading the Commission, to think that he has the task in hand. This was apparent from his correspondence to the Commission in 1999 and 2000 seeking an extension of time in which to lodge the accounts for the year ending 30 June, 1999 and in his affidavit dated 29 April, 2001 (Exhibit E) setting out his five phase plan. At neither time was he as far advanced in the preparation of the accounts as he purported to convey to the Commission and the Tribunal.

Of even greater concern is the deficiency in the IBA. In his affidavit sworn on 24 May, 2001 (Exhibit F), Mr Dean Achatz attributed all responsibility for the deficiency to his late father. There was no mention of his own ongoing withdrawals from the IBA to pay the expenses of the Trust at that time. Certainly, he admitted them at the hearing but they are of concern as is his initial denial of them. Of concern also is the need he feels to persuade his mother of the desirability of selling the properties in the Trust should the need arise to meet its expenses. That is so even though he is now the sole Trustee of the Trust and the sole director of Nationwide and even though this issue was raised with him at the hearing. There can be no doubt that a person who is dutiful son should seek to explain the need as should a person who has concerns for the feelings of others. When a dutiful son or a caring person is responsible not only for a mother's feelings but also for the money of insureds and potential insureds, he cannot allow the mother's feelings to sway him from the path of merely explaining the need to sell the properties to a path whereby he improperly uses the money of insureds to defray the expenses of the Trust. In light of the emphasis that he placed on the need to persuade his mother of any need to sell the properties, I am not satisfied that he understands that he, as sole trustee, has the power to do what is required for the proper administration of the Trust.

As the sole director of Nationwide, Mr Dean Achatz is the controlling mind of Nationwide. Although he has worked hard to bring the accounts up to date and to remedy the deficiency in the IBA by the date of the hearing, I am not satisfied that he has put in place systems of accounting that will rectify its past deficiencies or that he fully understands the need to separate the demands of his family from the need to act in accordance with the Act at all times. Certainly, he completed a course in a new computerised accounting system on 28 August, 2001 but there is no evidence that he has yet put that system into place or how long it will take him to do so. Cancellation will give Nationwide time to get its systems in order. It follows that I am satisfied that cancellation of Nationwide's registration is required in the interests of protecting the insuring public.

The Commission cancelled its registration for eighteen months. That seems to me to be an appropriate period of cancellation. It will give Nationwide an opportunity to get its systems in order and for it to come to a proper understanding of its obligations as an insurance broker. At the same time, it will protect the public by ensuring that other insurance brokers are made aware that serious consequences follow should they not only fail to meet the ordinary obligations of an insurance intermediary as set out in the 1994 Principles but also fail to take proper steps to remedy the systemic and other problems that led to the failure in the first instance.

For the reasons I have given, I affirm the decision of the respondent dated 20 March, 2001.
I certify that the seventy six preceding paragraphs are a true copy of the reasons for the decision herein of Miss S A Forgie (Deputy President)
Signed:          .....................................................................................
  Catherine Hutchins (Associate)
Date of Hearing  16 August, 2001
Date of Decision   27 September, 2001
Counsel for the Applicant            Mr S. Lane
Solicitor for the Applicant           Cosoff Cudmore Knox
Officer for the Respondent          Mr Caleo, Australian Securities & Investment Commission

[2001] AATA 822

27 September 2001