Re Abbott and Australian Prudential Regulation Authority
[2008] AATA 641
•23 July 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 641
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N 2005/1136
GENERAL ADMINISTRATIVE DIVISION ) Re CHARLES ABBOTT Applicant
And
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
Respondent
DECISION
Tribunal Mr P W Taylor SC, Senior Member Date23 July 2008
PlaceSydney
Decision The decision under review is set aside and in substitution therefor the Tribunal decides that Mr Abbott is not disqualified from being or acting as the holder of a senior insurance role. ...................[sgd]...........................
Mr P W Taylor SC
Senior Member
CATCHWORDS
INSURANCE – prudential regulation - fit and proper person – applicant disqualified by APRA from holding a senior insurance role – no statutory or fiduciary obligation on applicant as director to disclose his personal interest in transaction – voluntary partial disclosure by applicant of his personal interest does not affect his fitness to hold a senior insurance role – Tribunal rejected APRA’s claim that applicant was involved in authorising a transaction which affects his fitness to act in a senior insurance role - Tribunal rejected APRA’s claim that the applicant’s encouragement of payment to a creditor in which he had a material personal interest affects his fitness to act in a senior insurance role – the decision under review is set aside
Insurance Act 1973 – Sections 2A, 24, 25, 25A, 26, 126
Corporations Law (before 13 March 2000) – Sections 231, 232A, 235, 236, 242
Corporate Law Economic Reform Program Act 1999
Corporation Law (from 13 March 2000) – Sections 184, 191, 194
Income Tax Assessment Act 1936 – Sections 251BC, 251JA
Corporations Act 2001- Part 9.2 - Sections 1279, 1292
Migration Act 1958 – Section 501
Australian Securities and Investments Commission v Adler (2002) 168 FLR 253, (2002) 41 ACSR 72, (2002) 20 ACLC 576, [2002] NSWSC 171
Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80, [2002] NSWSC 483
R v Howard (2003) 48 ACSR 438, [2003] NSWSC 1248
R v Adler (2005) 53 ACSR 471, [2005] NSWSC 274
R v Williams (2005) 152 A Crim R 548, (2005) 216 ALR 113, (2005) 53 ACSR 534, [2005] NSWSC 315
R v Cassidy [2005] NSWSC 410
Kamha v APRA (2005) 147 FCR 516
R v Boulden [2006] NSWSC 1274
R v Cooper (2006) 58 ACSR 83, [2006] NSWSC 609, [2006] ALMD 6692
R v Kelly [2006] NSWSC 1142
R v Lo (2007) 174 A Crim R 451, [2007] NSWSC 105
R v Fodera (2007) 65 ACSR 109, [2007] NSWSC 1194
Phipps v Boardman [1964] 2 All ER 187
Maguire v Makaronis (1997) 188 CLR 449
Commonwealth Bank of Australia v Smith (1991) 42 FCR 390
Spellson v George (1992) 26 NSWLR 666
Boardman v Phipps [1967] 2 AC 46
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
Law Society of NSW v Harvey [1976] 2 NSWLR 154
Liquidators of Imperial Mercantile Credit Association v Coleman (1873) LR6HL 189
Castlereagh Motels Ltd v Davies-Roe (1966) 67 SR (NSW) 279
Woolworths Ltd v Kelly (1990) 22 NSWLR 189
Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1
Camelot Resources Ltd v MacDonald (1994) 14 ACSR 437
Incorporated Law Institute of New South Wales v Meagher (1909) 9 CLR 655
Hughes and Vale Pty Ltd v NSW (No 2) (1955) 93 CLR 127
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321
Clyne v New South Wales Bar Association (1960) 104 CLR 186
New South Wales Bar Association v Evatt (1968) 117 CLR 177
Smith v New South Wales Bar Association (1992) 176 CLR 256
Wentworth v New South Wales Bar Association (1992) 176 CLR 239
Health Care Complaints Commission v Litchfield (1997) 41 NSWLR 630
Health Care Complaints Commission v Abou Hatoum [2004] NSWCA 30
Dahia v Tax Agents’ Board of Victoria (1997) 36 ATR 1124
Toohey (formerly identified as ‘VBY’) v Tax Agents’ Board of Victoria [2007] FCA 431
Re Su and the Tax Agents’ Board of South Australia (1982) 82 ATC 4282
Albarran v Members of the Companies Auditors & Liquidators Disciplinary Board [2006] FCAFC 69, (2006) 151 FCR 466, (2006) 233 ALR 37, (2006) 59 ACSR 129, (2006) 24 ACLC 619
Re Wolstencroft and Companies Auditors & Liquidators Disciplinary Board (1998) 54 ALD 773
Southern Law Society v Westbrook (1910) 10 CLR 609
Law Society of New South Wales v Foreman (1994) 34 NSWLR 408
Pillai v Messiter (No 2) (1989) 16 NSWLR 197
Law Society of New South Wales v Moulton [1981] 2 NSWLR 736
Newbury v Dental Board of Victoria [2000] VSC 54
Rich v Australian Securities and Investments Commission (2004) 220 CLR 129, (2004) 209 ALR 271
Australian Securities and Investments Commission v Hutchings (2001) 38 ACSR 387
Vines v Australian Securities and Investments Commission (2007) 63 ACSR 505
Irving v Minister for Immigration, Local Government and Ethnic Affairs (1996) 68 FCR 422
Goldie v Minister for Immigration and Multicultural Affairs (1999) 56 ALD 321
Re Mlinar and Minister for Immigration and Multicultural Affairs (1997) 48 ALD 771
Re Kakar and Minister for Immigration and Multicultural Affairs [2002] AATA 132
Re Steele and Minister for Immigration and Multicultural Affairs (AAT 12319, 21 October 1997)
Re Msumba and Department of Immigration and Multicultural Affairs [2000] AATA 87
Minister for Immigration and Ethnic Affairs v Baker (1997) 73 FCR 187
REASONS FOR DECISION
23 July 2008 Mr P W Taylor SC, Senior Member 1. In March 2001 Mr Abbott was one of the directors of HIH Insurance Ltd (“HIH”). He had been a non-executive director of HIH since May 1997 and became the Deputy Chairman of HIH in January 2001. He was also the chairman of the Recapitalisation Committee of the HIH Board.
2. On 15 March 2001 HIH, and its related companies, applied to the Supreme Court of New South Wales for the appointment of a Provisional Liquidator. That appointment, and the subsequent liquidation of the HIH Group of companies, is a matter of notoriety. A Royal Commission into the HIH collapse was appointed in August 2001 and reported in April 2003. There were numerous prosecutions, and disqualification proceedings, involving former officers of companies within the HIH Group: see Australian Securities and Investments Commission v Adler (2002) 168 FLR 253, (2002) 41 ACSR 72, (2002) 20 ACLC 576, [2002] NSWSC 171; Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80, [2002] NSWSC 483; R v Howard (2003) 48 ACSR 438, [2003] NSWSC 1248; R v Adler (2005) 53 ACSR 471, [2005] NSWSC 274; R v Williams (2005) 152 A Crim R 548, (2005) 216 ALR 113, (2005) 53 ACSR 534, [2005] NSWSC 315; R v Cassidy [2005] NSWSC 410; Kamha v APRA (2005) 147 FCR 516; R v Boulden [2006] NSWSC 1274; R v Cooper (2006) 58 ACSR 83, [2006] NSWSC 609, [2006] ALMD 6692; R v Kelly [2006] NSWSC 1142; R v Lo (2007) 174 A Crim R 451, [2007] NSWSC 105; R v Fodera (2007) 65 ACSR 109, [2007] NSWSC 1194.
3. In addition to his HIH directorship, and many other directorships, Mr Abbott has been a solicitor for 45 years. He retired from legal practice in 1990, after decades as a partner in the legal firm Blake Dawson Waldron (“BDW”) and its predecessor. After July 1990 Ashkirk Pty Ltd (“Ashkirk”), the trustee of the Abbott Family Trust, had a succession of consultancy agreements with BDW. Under these agreements BDW agreed to pay Ashkirk an annual base fee and a commission on professional fees for matters introduced by Mr Abbott. The last of these consultancy agreements expired in December 2000. Although both parties then intended it would be renewed, BDW’s intentions altered after the failure of HIH and it decided not to renew the consultancy arrangement.
4. On 18 February 2005 the Australian Prudential Regulation Authority (“APRA”), acting under s 25A(1) of the Insurance Act1973, disqualified Mr Abbott from being the holder of a senior insurance role. This decision was based on APRA’s view that Mr Abbott’s conduct as a director of HIH satisfied it that he was not a fit and proper person to carry out the roles of a director or senior manager of a general insurer. APRA confirmed the disqualification on 3 August 2005, in response to Mr Abbott’s reconsideration request. Mr Abbott lodged his review application with the Tribunal on 1 September 2005.
APRA’s Contentions in relation to unfitness
5. APRA contends Mr Abbott’s unfitness is demonstrated by:
5.1: a failure to disclose to the HIH Board the fee percentage to which he was entitled under the Ashkirk consultancy agreement with BDW;
5.2:a failure to disclose to the HIH Board the extent of his interest in a consultancy agreement between Ashkirk and HIH Holdings (Asia) Ltd;
5.3:his alleged involvement in HIH paying $1,965,408 on 14 March 2001 as commission in relation to HIH’s proposed sale of properties to Consolidated Press Holdings Ltd;
5.4:his alleged involvement in HIH paying legal fees of $1m to BDW on 14 March 2001;
5.5:his conduct concerning HIH paying Ashkirk consultancy fees of $181,445 on 14 March 2001, when he knew there was a significant prospect of HIH’s insolvency, or external administration.
6. This conduct is said by APRA to evidence Mr Abbott:
6.1:lacking candour in dealing with the HIH Board in matters involving his direct financial interest;
6.2:allowing himself to be placed in a position of conflict between his duty to HIH (and its policyholders) and his personal financial interests;
6.3:demonstrating an unseemly and improper fixation on his own financial interests when the risk of HIH’s insolvency was apparent;
6.4:being willing to prefer his personal financial interests to those of HIH;
6.5:displaying a lack of diligence in ensuring HIH’s assets were not distributed otherwise than in payment of properly due debts.
7. APRA further contends that Mr Abbott’s conduct, particularly in obtaining payment of the Ashkirk invoices on 14 March 2001, is exacerbated by his failure to repay the money promptly in response to the liquidator’s demand. APRA also complains that Mr Abbott failed to acknowledge any impropriety in obtaining the payment, despite the fact, as it contends, it was unarguably a preferential payment.
Disclosure of the Ashkirk / BDW consultancy
8. Mr Abbott began to undertake insurance related consulting work, under contracts arranged with Ashkirk, in about 1995. His decision to use Ashkirk as the contracting principal was based on advice from both BDW and KPMG. It was a means of differentiating between work he did as a non-executive director, and other work that was in addition to any director’s responsibilities. When Ashkirk rendered invoices for its consulting work, it provided detailed diary note summaries outlining the time Mr Abbott had spent and the nature of the work done. The total invoice cost was calculated at an hourly rate for the time spent.
9. Mr Abbott did consistently disclose the Ashkirk consulting agreement with BDW. The disclosure is evidenced in various notices under Corporations Law ss 231 - 236. Mr Abbott produced copies of these notices, or correspondence referring to them, dated variously 15 August 1995, 10 July 1997, 6 January 1999, 16 and 22 February 1999 and 25 February 2000 (enclosing a copy of the 22 February 1999 Notice). The earlier notices and correspondence were directed to CE Heath International Holdings Ltd or HIH Winterthur International Holdings Ltd. The later notices were directed to HIH Insurance Ltd. The notices were tabled at the board meetings of the companies to which they were addressed. Consistent with that disclosure, the Ashkirk consultancy, and Mr Abbott’s interest in it, was noted in the 1999, and 2000 HIH Annual Reports. Those reports disclosed what HIH had paid to Ashkirk. They also disclosed the amounts HIH had paid to BDW.
10. Typically Mr Abbott’s disclosure notices identified BDW as the entity in which Mr Abbott had an interest. They described the “nature and extent” of Mr Abbott’s interest as that of a “Consultant receiving remuneration being a fixed fee plus commissions for business generated”. The disclosure notices did not include details of either the fixed fee or the commission amount. In fact the fixed fee was about $25,000 per annum, plus a CPI adjustment. The commission rate was 10% of any professional costs (excluding disbursements) actually received by BDW for work on matters Mr Abbott introduced. If ongoing work was being done more than 12 months after the introduction, the commission amount was a matter for BDW's discretion. Mr Abbott explained that the actual content of his disclosure in these notices was based on BDW’s advice. Their advice was that the CPI indexation for the fixed fee, and the commission discretion for ongoing legal work, made a more precise disclosure difficult to express concisely.
11. Notwithstanding the advice on which Mr Abbott relied in relation to the form of his disclosure notices, APRA complains that Mr Abbott’s disclosures were deficient in not stating the commission percentage provided for in each agreement. No complaint is made about the actual commission rate. Neither is any complaint made about the absence of explicit disclosure of the base fee amount.
12. Mr Abbott says APRA’s criticism of his disclosure is misplaced because, with one possible exception, he did not introduce any HIH matters to BDW and had no real involvement in any of HIH’s decisions to retain BDW. Consistent with that claim, during the whole period of his HIH directorship, that is from 1997 until March 2001, Mr Abbott received only one commission payment from BDW in relation to HIH work. That was a payment of $8,935 in April 2001. This related to work BDW did as legal advisers to HIH Holdings (Asia) Ltd in connection with a proposed sale of its insurance business. The payment was made pursuant to an informal arrangement between Ashkirk and BDW.
13. The work to which BDW’s April 2001 payment related arose from the November 2000 deliberations of the HIH Board’s Recapitalisation Committee. Mr Abbott and Mr Randolph Wein were members of the Committee. The actual decision to retain BDW in relation to that matter was made by Mr Wein. Mr Wein had a long time association with Mr Williamson, a partner at BDW. That association arose from Mr Wein’s prior involvement with the Norwich Winterthur companies.
14. APRA did not contend that Mr Abbott was subject to any express disclosure obligation. Certainly neither HIH’s constitution nor any of the specific disclosure provisions in the Corporations Law mandated the disclosures that Mr Abbott in fact made. Those statutory disclosure provisions changed during the period of Mr Abbott’s HIH directorship, as a result of amendments that took effect on 13 March 2000. Before those amendments, Corporations Law s 231(1) required a director of a proprietary company to disclose at a board meeting any direct or indirect interest in any contract or proposed contract with the company. HIH was not a proprietary company. The s 231 disclosure obligation did not apply to Mr Abbott.
15. Corporations Law s 232A prohibited a public company director from voting on, or being present during any board consideration of, a matter in which they had a material personal interest. There is neither a contention, nor evidence, that there was any HIH Board consideration or decision of any matter to which the BDW / Ashkirk consultancy was material. The s 232A prohibition did not impose any prohibition or obligation on Mr Abbott in relation to the consultancy.
16. Corporations Law s 235 required a director to notify the relevant securities exchange of various specified interests. These included interests in contracts under which a director was entitled to shares in, debentures of, or interests in, a registered scheme made available by, the company or a related body corporate. The Ashkirk consultancy agreement with BDW was not within the scope of the disclosures required by s 235.
17. Corporations Law s 236 required a director to notify the company of their personal details sufficient to permit the company to lodge information with the Australian Securities and Investments Commission (“ASIC”) in accordance with Corporations Law s 242. Corporations Law s 236 also required a director to notify the company of any information necessary to permit the company to satisfy its obligations under the provisions of Chapter 6 of the Corporations Law (which dealt with the acquisition of shares). Neither of these disclosure obligations was relevant to the Ashkirk consultancy.
18. The Corporations Law was amended by the Corporate Law Economic Reform Program Act 1999, with effect from 13 March 2000. The amending Act renumbered the provisions dealing with the duties of officers and employees of corporations. As a consequence, the former section 231 became the new section 194. The amending Act also inserted a new specific general disclosure obligation - Corporations Law s 191. Under that new provision a director was required to disclose any “material personal interest in a matter that relates to the affairs of the company”. The disclosure had to be the subject of a notice, disclose the nature and extent of the director’s interest, and be given at a director’s meeting as soon as practicable after the director became aware of the interest in the matter.
19. The new disclosure obligation in Corporations Law s 191 was more specific than the previous disclosure obligation contained in the Law. But it still did not apply to mandate disclosure of Mr Abbott’s consultancy with BDW. That agreement did not itself directly relate to HIH. It would give rise to a matter that related to HIH only if Mr Abbott introduced an HIH legal matter to BDW, and thereby became potentially entitled to a commission entitlement under the terms of the consultancy agreement. Even then, the disclosure obligation only applied if his interest could properly be classified as “a material personal interest”. As a matter of fact, Mr Abbott’s evidence was that the only work BDW did from which he derived any commission payment in relation to HIH was work advising HIH Holdings (Asia) Ltd. BDW did no legal work for HIH that Mr Abbott introduced.
20. It follows from the preceding analysis that APRA was correct in not contending there was any specific statutory obligation that either required disclosure of the Ashkirk / BDW consultancy agreement, or mandated the content of any disclosure. But the contention tends to diminish the potential significance of a material matter. For a period of years, and in the absence of any relevant disclosure obligation, Mr Abbott did routinely and regularly disclose to the relevant company boards both the fact of the Ashkirk consultancy with BDW and the nature of his entitlements under the agreement.
21. As a director of HIH, Mr Abbott was subject to the ordinary obligations of a director. He was obliged to exercise reasonable care and diligence. He could not make improper use of corporate information, nor of his position as a director. But these obligations of themselves did not impose an independent positive disclosure obligation in relation to the Ashkirk / BDW consultancy. Neither in the circumstances of the present case, is there any evidence, or indeed any allegation, that Mr Abbott derived any relevant advantage under the Ashkirk / BDW consultancy from his position as a director of HIH.
22. Statutory disclosure obligations of the kind I have outlined above mandate immediate formal disclosure of any subsisting interests in relation to which a director may be confronted with conflicting interests or duties. Fiduciary obligations in relation to disclosure are not usually expressed to apply in the same way. Certainly a fiduciary, such as a director, must devote their efforts to the best interests of the corporation and conform with the standards required by the Corporations Law (and its now equivalent provision in the Corporations Act 2001). In situations of conflict between personal interest and duty to the corporation, the director’s duty may require disclosure of the interest. That disclosure must satisfy the description of being “full and frank”: Phipps v Boardman [1964] 2 All ER 187 at 205; in order to demonstrate that the duty has been performed with undivided loyalty: Maguire v Makaronis (1997) 188 CLR 449 at 465. But the detail of the disclosure that is required to satisfy that description is still a matter for judgment and will depend on the nature of the interest, the scope and subject matter of the duty, and the apparent materiality of the interest to the matter in question: Commonwealth Bank of Australia v Smith (1991) 42 FCR 390 at 393.
23. Because a fiduciary’s disclosure obligation may be an incident of the proper performance of their positive duties, it is typically related to particular transactions, or advice in relation to particular transactions. This means that the general principles requiring disclosure by a fiduciary will not be satisfied by merely general or preliminary information. Disclosure will not suffice where the precise basis for determining the transaction consideration has not been finalised, or where material terms of the transaction have not been revealed. What is required is an adequate and material disclosure sufficient to bring to the operative mind of the beneficiary all material considerations when they are required to give their real consent to, or rely on the fiduciaries’ advice in relation to, any particular transaction: Spellson v George (1992) 26 NSWLR 666.
24. It is important to bear in mind that a fiduciary’s disclosure obligations have a broader potential application than merely providing a beneficiary with sufficient information for them to make fully informed decisions in entering into transactions affecting them. They also apply to situations where a fiduciary derives a benefit from their role. They even apply where that benefit was something that had either been disavowed by the beneficiary or could not have been obtained by them. This amplitude of the fiduciary disclosure obligation is dramatically illustrated by the circumstances in Boardman v Phipps [1967] 2 AC 46 and Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 - where the trustees / directors were required to account for benefits that could not have been obtained by the beneficiaries or the company.
25. In the present case no prescriptive statutory disclosure obligations applied in relation to the Ashkirk / BDW consultancy. Neither, save perhaps in the unexplored circumstances of BDW’s retainer to advise HIH Holdings (Asia) Ltd, was there any transaction to which the Ashkirk / BDW consultancy applied, and to which a fiduciary disclosure obligation may have attached. Nevertheless APRA emphasised that Mr Abbott’s practice of making disclosure implicitly acknowledged the propriety of disclosure. APRA pointed out that the disclosure notices, which reflected the then form of Corporations Law s 191, acknowledged that the disclosure should extend to both the nature and the extent of the relevant interest. Nevertheless Mr Abbott did not disclose the extent of his interest.
26. APRA’s contention that disclosure of the “extent” of a personal interest requires a precise quantification, appears to have some support in the cases dealing with the general disclosure obligations of a fiduciary. In Law Society of NSW v Harvey [1976] 2 NSWLR 154 at 170 Street CJ said
Where there is any conflict between the interest of the client and that of the solicitor, the duty of the solicitor is to act in perfect good faith and to make full disclosure of his interest. It must be a conscientious disclosure of all material circumstances, and everything known to him relating to the proposed transaction which might influence the conduct of the client or anybody from whom he might seek advice. To disclose less than all that is material may positively mislead. Thus for a solicitor merely to disclose that he has an interest, without identifying the interest, may serve only to mislead the client into an enhanced confidence that the solicitor will be in a position better to protect the client's interest.
27. This statement was not made in the context of a non-disclosure complaint of the kind APRA makes in the present case. The solicitor in Harvey was a director and shareholder in a corporate mortgagor which, in turn, had applied the funds substantially for the solicitor’s personal benefit. The solicitor’s disclosure had been limited to the fact of his interest in the mortgagor. It did not include full disclosure of the real risks involved in the transactions, and the scope of the solicitor’s interest and involvement. When it is properly understood against the factual background to which it applied, Street CJ’s general statement does not warrant the conclusion that a fiduciary’s disclosure must inevitably extend to precise quantification.
28. On the other hand Street CJ’s statement does emphasise that a fiduciary’s disclosure obligation is not formulaic and may not be discharged by a mere description of the character of the interest disclosed. The same applies to the statutory disclosure obligations of a company director: Liquidators of Imperial Mercantile Credit Association v Coleman (1873) LR6HL 189 at 200, 205. (That was a case in which a stockbroker acted on a share and debenture placement. His undisclosed commission payable by the issuing company was almost 3 times the rate of return payable to the subscribing share and debenture holders.) And that is so irrespective of whether or not the obligation has been expressed as a requirement to disclose “his interest” or “the nature of his interest”: Castlereagh Motels Ltd v Davies-Roe (1966) 67 SR (NSW) 279 at 286. Consequently it makes no difference in substance that the disclosure obligation in Corporations Law section 231 was, at least by 2001, expressed as an obligation to disclose the “nature and extent” of the director’s interest. This is apparent from the NSW Court of Appeal’s endorsement, in Woolworths Ltd v Kelly (1990) 22 NSWLR 189 at 211 & 234 of the following passage from Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 at 14:
There is no precise formula that will determine the extent of detail that is called for when a director declares his interest or the nature of his interest. Rightly understood, the two things mean the same. The amount of detail required must depend on the nature of the contract or arrangement proposed and the context in which it arises. It can rarely be enough for a director to say ‘I must remind you that I am interested’ and to leave it at that, unless there is some special provision in the company’s articles that makes such a general warning sufficient. His declaration must make his colleagues ’fully informed of the real state of affairs’ … If it is material to their judgment that they know not merely that he has an interest, but what it is and how far it goes, then he must see to it that they are informed…
29. There are, of course, instances where disclosure of precise details may be important in assessing the sufficiency of disclosure. Gray was itself precisely such a case. There a director sought unsuccessfully to retain the benefit of a settlement agreement with the company. The settlement amount had been determined by other directors, on the basis of assumptions about the extent of Mr Gray’s numerous defaults. Those assumptions significantly understated, to his certain knowledge, the amount by which he had benefited from improper dealings in the company’s shares.
30. But to insist on precise quantification in all circumstances involves according priority to form over substance. The criterion for the sufficiency of disclosure, in the context of both a fiduciary’s disclosure obligations and a statutory obligation to disclose the “nature and extent” of any interest, is whether it includes sufficient detail to understand the scope of the director’s interest and benefit: Camelot Resources Ltd v MacDonald (1994) 14 ACSR 437 at 443. And, as Lord Radcliffe pointed out in the passage from Gray, sufficiency is influenced by context.
31. In the present case, the disclosure contained in Mr Abbott’s numerous notices certainly did disclose the nature of his interest. It was a consultancy with a major Australian legal firm. It was a consultancy that might reasonably be inferred to relate to the professional work of that firm. Work conducted by the firm would be subject not only to the statutory provisions governing legal practitioners (which include provisions for the assessment of costs) but also to the fiduciary obligations to which solicitors are subject in relation to the work they do for clients. Furthermore, any contract of retainer that HIH might enter into with BDW would be the subject of specific negotiation, not involving Mr Abbott. That negotiation would either involve fees struck on the basis of BDW’s usual terms and conditions or determined by specific negotiation in the light of the particular circumstances. In any such negotiations HIH would reasonably be expected to participate as an experienced and informed regular user of legal services related to its business. There is no reason to conceive, nor was any suggested in the evidence, that HIH’s ignorance of the precise commission rate under the Ashkirk consultancy would be material to the terms under which HIH might contract in future with BDW.
32. Furthermore, even if one could identify some basis for imposing a non-statutory disclosure obligation on Mr Abbott, it is difficult to see that Mr Abbott could properly be regarded as having relevantly failed in his disclosure, unless he had been called on to perform it in relation to some particular transaction or benefit. In the absence of some specific contrary provision in HIH’s memorandum and articles (and none existed in the HIH Constitution), it was only if and when such a contingency arose that the sufficiency of his disclosure would (or could) become material to the HIH Board. And it is only a failure to make full and frank disclosure in relation to such a contingency that would materially inform any assessment of Mr Abbott’s fitness. In the present case there was simply no clear evidence of any such contingency and certainly no evidence that explored the circumstances of any particular legal services agreement between HIH and BDW. In the absence of evidence of that kind no meaningful assessment could be made of Mr Abbott’s conduct that would provide a proper basis for an adverse conclusion about his fitness to act in a senior insurance role.
33. Finally, in the absence of any applicable statutory disclosure requirement, APRA’s contention about the inadequacy of Mr Abbott’s disclosure seems to involve some implicit analogy with, or perhaps extension of, the ordinary fiduciary obligations in relation to disclosure. But in taking any shortcoming of that kind into account in an assessment of Mr Abbott’s fitness, it would be necessary to bear in mind the essential nature and purpose of a fiduciary’s disclosure obligation. It is a stricture intended to ensure compliance with the highest standards of fiduciary conduct. Those standards are enforced irrespective of either the honesty of, or the absence of culpable default by, the fiduciary: MacDonald (1994) 14 ACSR 437 at 443. They are also enforced irrespective of the underlying reasonableness and fairness of any transaction that may arise in connection with the impugned disclosure and the absence of fully informed consent: see Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134.
34. On the evidence adduced in these proceedings no circumstances arose in which Mr Abbott’s obligations as a director required him to disclose to HIH the actual percentage to which he was entitled under the Ashkirk consultancy with BDW. In the absence of such an obligation, it is difficult to justify any adverse view of Mr Abbott’s fitness to act in a senior insurance role. He clearly and consistently disclosed to HIH the fact of the Ashkirk consultancy, and the basic nature of his interests under it. The form of the disclosure was based on BDW’s advice. The same form of disclosure had been followed for several years. There was no evidence of complaint from HIH about the sufficiency of the disclosure. The nature of the Ashkirk consultancy, and the commission arrangement that was disclosed, implied that the commission percentage was unlikely to be a significant factor in the costs that BDW might charge. In the totality of these circumstances there is really no basis for regarding the absence of specific disclosure of the Ashkirk commission percentage as relevantly informing an assessment of Mr Abbott’s fitness. He consistently disclosed the consultancy, and its basic effect. The absence of precise details of the actual percentage entitlement under the agreement could not, in the circumstances of this matter, lead to an adverse finding about Mr Abbott’s fitness.
35. At the commencement of the review proceedings APRA’s opening submissions suggested that its non-disclosure complaints would not be sufficient on their own to provide a basis for a finding of lack of fitness. Sometimes a contention of that kind is a euphemistic indication that the point is not really thought to be material, but may have some cumulative relevance in the light of other matters. In this instance, although the concession itself was apt, the reservation that accompanied it was unrealistic. Perhaps with further reflection, APRA’s concession might reasonably have been taken further.
Disclosure of the Ashkirk consultancy with HIH (Asia) Ltd
36. In early 1998 Mr Wein was managing HIH Winterthur International Holdings Ltd's Hong Kong office. Prompted by the fallout from the 1997 Asian financial crisis, he conceived the idea of expanding HIH's operations in the Asian area. In about June or July 1998, after discussion at a HIH Board meeting in February 1998, Mr Wein enlisted Mr Abbott's assistance in developing a strategy for a proposed capital raising to permit the proposed expansion.
37. A detailed proposal was prepared, and provided to Mr Williams, the then Chief Executive Officer of HIH, in February 1999. The proposal involved a proposed capital raising of approximately US$100 million by HIH (Asia) Holdings Ltd. Mr Abbott's role was to assist in the preparation of an appropriate Information Memorandum. It also involved liaising with investment bankers, brokers and potential investors.
38. HIH Holdings (Asia) Ltd entered into a consultancy agreement with Ashkirk on 19 April 1999. The agreement was expressed to relate to the proposed Asian expansion strategy. It covered the period from 26 February 1999 to 30 September 1999. The proposed capital raising to which the agreement referred never took place. However, the consultancy was periodically extended, with the last extension being granted on 24 November 2000.
39. The April 1999 consultancy agreement specifically described a range of activities required of Ashkirk in relation to the proposed capital raising and expansion strategy. The agreement provided for a base fee of US$350 per hour, with two additional increments of US$150 per hour and US$100 per hour, in the event of successful documentation, and then actual implementation, of the capital raising and expansion strategy.
40. The remuneration terms of the April 1999 consultancy, including the success fee amounts, were the subject of expert advice. Mr Abbott obtained advice from an independent consultant about the appropriate levels of remuneration for this kind of work undertaken in Hong Kong. Mr Abbott disclosed that advice to Mr Wein. Mr Wein in turn confirmed to Mr Abbott that the proposed remuneration accorded with legal advice he had obtained. It also accorded with his own opinion and with internal advice from company officers, about the appropriateness of the terms of the proposed consultancy agreement and the rates for which it provided. The decision to enter into the consultancy agreement was made by Mr Wein, in consultation with Mr Williams. Mr Wein actually signed the agreement on behalf of HIH Holdings (Asia) Ltd.
41. Mr Wein reported his progress on the proposed Asian expansion strategy to the HIH board meeting on 3 June 1999. The minutes record that Mr Wein was then authorised to proceed with further development of the project. They noted that it involved an outside capital contribution. The minutes also record that Mr Abbott had declared his interest, in that Ashkirk had been engaged as a consultant in connection with the project.
42. Despite the authority the HIH Board gave to Mr Wein at the June 1999 meeting, the capital raising proposal was, for various reasons, postponed in the latter part of 1999. During 2000, working under the extended April 1999 consultancy agreement, Mr Abbott assisted Mr Wein in attempting to develop another proposal, involving other Asian investors. However, nothing came of that proposal. In the latter part of 2000 HIH resolved to sell its Asian assets. Following that decision Mr Abbott worked closely with Mr Wein in an attempt to develop a strategy to effect the sale. As a result of the publicly reported declining fortunes of HIH the attempt was unsuccessful.
43. Again APRA does not contend Mr Abbott failed to comply with any statutory disclosure obligation. What APRA contends is that the 19 April 1999 consultancy agreement with HIH Holdings (Asia) Ltd involved a significant conflict of interest. It contends that the nature of this conflict required Mr Abbott to disclose the terms of the agreement fully to the HIH Board. APRA also contends that Mr Abbott failed to ensure that the HIH Board received independent advice about those terms.
44. The significant conflict of interest for which APRA contends is the express provision in the 19 April 1999 consultancy agreement for a success fee related to the then proposed capital raising. It is not contended that there was any lack of disclosure by Mr Abbott to HIH Holdings (Asia) Ltd. Nor is it contended that Mr Abbott was a director of that company. In these circumstances, no tenable complaint of nondisclosure could have been made by that company in respect of the terms of the written agreement which it executed: see Woolworths Ltd v Kelly (1990) 22 NSWLR 189.
45. In the absence of a tenable basis for any complaint by HIH Holdings (Asia) Ltd about non-disclosure, it is difficult to see what disclosure obligation could apply in relation to HIH itself. The proposed capital raising was, as the draft information memorandum showed, a document of HIH Holdings (Asia) Ltd. Buried within the detail of the Information Memorandum was a proposal that HIH would be issued with options over a portion of the unissued capital of HIH Holdings (Asia) Ltd. However, it is by no means clear that either the issue, or the exercise, of these options, if the capital raising proposal had ever been implemented, would, in any event, have been material to the "success fee" entitlement under the 19 April 1999 agreement.
46. Rather than develop its nondisclosure contention by any argument involving analysis of the precise terms of the proposed Information Memorandum, APRA argued that the April 1999 Ashkirk consultancy itself exposed Mr Abbott to a relevant conflict of interest. This argument might perhaps have involved three issues. The first was the amount and the commerciality of the success fee. The second was the question of Mr Abbott’s suitability to carry out the work required. The third was the fact of the success fee and the propriety of its non-disclosure. Neither the first nor the second of these possibilities was taken up by APRA. The unchallenged evidence of Mr Abbott demonstrated that the April 1999 consultancy was the freely negotiated agreement between Ashkirk and HIH Holdings (Asia) Ltd. Both parties had operated with the benefit of informed advice to the effect that the terms and rates in the agreement were completely in accord with prevailing market practice in Hong Kong. It may reasonably be inferred therefore, that it was commonly and commercially perceived to be inherently desirable to include this kind of success fee contingency in a remuneration agreement. The second matter, Mr Abbott’s suitability to carry out the work relating to the proposed capital raising, would have been difficult to question. Mr Abbott had a substantial background in legal practice with special interests in corporate finance. Furthermore, the fact of his involvement in the April 1999 consultancy, which was all that was required to raise the question of his suitability for the task, was in fact disclosed to the HIH Board.
47. The third potential issue relating to the April 1999 consultancy was the fact of the success fee and the propriety of its non-disclosure to the HIH Board. APRA’s contention was that the fee arrangement itself gave rise to a material conflict between Mr Abbott’s interest and his duty, presumably to HIH itself. This contention involves a considerable distortion of the intended commercial purpose, and presumably the reasonably expected effect, of a success fee contingency. The commercial logic which necessarily underlies such an agreement is the belief and expectation that providing a contingent fee will provide an additional incentive, beyond any express or implied contractual obligation of reasonable, or even best, endeavours, for the promisee to exert themselves wholeheartedly in achieving the desired contingency. Furthermore, since the promisor has presumably freely agreed on the contingency that will trigger the success fee entitlement, it may be assumed to be an outcome that the promisor itself enthusiastically desires should be fulfilled, even at the cost of the additional fee.
48. In these circumstances it distorts reality to characterize an agreement of this kind as one that involves a relevant conflict of interest between the promisor and the promisee. In negotiating the remuneration terms of the consultancy agreement itself the parties would, no doubt, have had opposing interests. But that opposition of interest, whilst they were merely negotiating towards a mutually acceptable rate of remuneration, is substantially irrelevant – at least in the absence of any challenge to the commerciality or objective reasonableness of the fee itself. Once the agreement has been struck the interests of the contracting parties, in relation to the pursuit of the identified "success fee" contingency, are wholly aligned. There is no substance in the contention that a success fee in an agreement of this kind gives rise to a relevant conflict of interest between the parties to the agreement, or between Mr Abbott’s personal interests and his duties to HIH.
49. The true position is that APRA did not identify a principled basis for a contention that Mr Abbott owed any disclosure obligation to the HIH Board in relation to the April 1999 Ashkirk consultancy. Neither did it establish the existence of any standard or accepted practice of disclosure in relation to which Mr Abbott’s conduct was shown to have been materially deficient. In the absence of any such disclosure obligation or practice there is nothing in the consultancy agreement itself, or in the circumstances of Mr Abbott's voluntary, though admittedly partial, disclosure to the HIH Board on 3 June 1999, that could lead to an adverse opinion about his fitness to carry out a senior insurance role.
The Cooper intermediary fee
50. On 14 March 2001 HIH paid $1.965m to a firm of solicitors retained by Messrs Cooper and Tilley. The payment was a fee for the role they claimed to be able to play in facilitating negotiations with Consolidated Press Holdings Ltd for the sale of the HIH property portfolio. Mr Wein authorised the payment. APRA contends Mr Abbott was present at the time and at least acquiesced in the payment being made. Mr Abbott denies any knowledge of the payment.
51. The only evidence implicating Mr Abbott in this payment was provided by Mr Howard, the former Chief Investment Officer of HIH. Mr Cooper approached Mr Howard in December 2000 enquiring about HIH’s interest in selling some of its investment properties. Mr Howard prepared a list of properties, with indicative prices, and gave this to Mr Cooper.
52. In mid February 2001 Mr Cooper arranged a meeting with Mr Tilley and Mr Howard. He presented Mr Tilley as being close to Mr Kerry Packer, the chairman of Consolidated Press Holdings Ltd. Mr Packer was a man whose wealth, assertiveness and opportunistic business acumen had for a long time been legendary in Australian business and financial circles. Mr Tilley told Mr Howard that Mr Packer would be interested in acquiring all of HIH’s investment properties in one line, if the properties were satisfactory and the price sufficiently discounted. He claimed, with the credibility Mr Packer's reputation justified, that the proposed purchase could be completed much quicker than might be the case with most other purchasers.
53. Towards the end of February 2001 Mr Cooper telephoned Mr Howard and confirmed Mr Packer's potential interest in completing the purchase "at the right price". Mr Howard informed Mr Wein of that interest. A meeting was then arranged on 2 March 2001 between Mr Wein, Mr Howard, Mr Tilley and other people whom Mr Howard did not name but referred to in his evidence as "various representatives of Consolidated Press".
54. At the 2 March 2001 meeting, Mr Tilley, and one of the Consolidated Press representatives, confirmed their interest in the proposed purchase. Mr Wein informed them that HIH would need time to get necessary information together and to arrange for their respective lawyers to formalise the sale terms. Whilst that was being done HIH would give Consolidated Press an exclusive period of 14 days to review the property portfolio and make an offer. He said that HIH envisaged a discount across the board of approximately 30% to 40% on the book value of the property portfolio.
55. This meeting, and the proposal Mr Wein had outlined, was reported to the HIH board meeting that took place later that afternoon. The Board minutes record that Mr Abbott, as the chairman of the board's Recapitalisation Committee, was authorised to work with Mr Wein and Mr Howard to further the negotiations "should CPH express an interest in proceeding".
56. Mr Cooper contacted Mr Howard again after the 2 March 2001 meeting. He emphasised Mr Tilley's access to Mr Packer, and Mr Packer's potential interest in concluding the purchase. He said HIH would have to pay a fee. He would send Mr Howard a proposal. Shortly afterwards he sent Mr Howard a crudely drafted, and excessively optimistic, letter of offer. This document sought to obtain for Mr Packer an exclusive option to purchase such of HIH properties as he chose at a discount of up to 62% of the book value. It provided for a US$2m commission fee. Half of that fee was to be payable on the signing of "this agreement". Unsurprisingly, Mr Howard regarded the proposal contained in the "letter of offer" as uncommercial.
57. On 6 March 2001 HIH’s lawyers and those acting for Consolidated Press Holdings met to discuss the terms of the proposed property sale. HIH had not yet prepared the detailed property information that had to be provided to Consolidated Press Holdings. That information was to be prepared by HIH’s lawyers and a property consultant it retained. It did not in fact become available to HIH until 15 March 2001.
58. Mr Cooper sent Mr Howard a further US$2m fee proposal on 7 March 2001. The proposal indicated that he would accept an amendment to the previous proposal for an immediate payment. Instead, "a deposit of $1.5 million AUSD" was to be paid into the trust account of a nominated firm of solicitors. Mr Howard thought Mr Cooper's US$2m fee proposal was too high. He discussed it with Mr Wein. Mr Wein thought it was too high. Mr Howard contacted Mr Cooper and told him any fee involving that sort of number was "not going to fly".
59. On 8 March 2001 the proposed transaction with Consolidated Press Holdings became complicated by another development. Some months earlier HIH had entered into a joint-venture with Allianz Australia Ltd. Under the terms of the joint-venture HIH had a put option. It exercised the option on 7 March 2001. The result of so doing was to trigger pre-emptive rights over some of the properties HIH proposed selling to Consolidated Press Holdings. The consequence of this development was that HIH could no longer proceed with the proposal to sell the whole property portfolio in one line. Mr Howard wrote to Mr Cooper on 8 March 2001 informing him that HIH was not in a position to proceed with the sale as originally proposed. He asked for Mr Tilley and Mr Cooper's patience while HIH attempted to resolve the situation with Allianz.
60. Mr Cooper did not react sanguinely to this development. He telephoned Mr Howard and told him he regarded HIH as having granted an option over the entire property portfolio. He threatened to take injunction proceedings to restrain transfer of any of the properties to Allianz.
61. These developments were reported to the HIH Board meeting on Sunday 11 March 2001. Mr Howard also told the board that a commission fee would be payable for the introduction to Consolidated Press Holdings. He told the Board the fee that had been proposed was unacceptably high, and the final fee had yet to be negotiated. Mr Howard said he had a conversation with Mr Abbott, shortly after this meeting. Mr Abbott reminded him that the board had authorised continued negotiations with Consolidated Press Holdings and told him to "just get on with it".
62. Late in the afternoon of 12 March 2001 Mr Howard received a further fee proposal signed by Mr Tilley and written on the letterhead of Linkshore Pty Ltd. This still referred to a total fee of US$2 million with an immediate payment of US$1m. A modification of the earlier fee proposal was a claim to have the right to purchase a unit in one of the properties at a price of $600,000. This proposal was also unacceptable. Mr Howard responded with an offer of US$1m plus commission of 1.5% on the value of any sales to Consolidated Press Holdings.
63. Mr Howard then contacted Mr Cooper. He told him of HIH's offer. There was further discussion. He said they finally agreed on a fee involving an immediate payment of US$1m plus US$250,000 payable when sales to Consolidated Press Holdings exceeded $20m at an overall commission of 2.5%. Shortly after this discussion Mr Howard received a further fax from Linkshore signed by Mr Tilley. The fax partly confirmed Mr Howard's discussion with Mr Cooper. But it also sought payment of US$500,000 instead of the US$250,000 that had been agreed. Mr Howard immediately contacted Mr Cooper and queried the change. Mr Cooper said it was "just a try" and confirmed the acceptability of the US$250,000 they had previously discussed.
64. Mr Howard then met with Mr Wein in Mr Wein’s office. He said he showed Mr Wein a copy of the most recent Linkshore fax from Mr Tilley. He explained that he had negotiated the US$500,000 payment referred to in the letter down to US$250,000. Mr Howard said Mr Abbott was present at this meeting and that he also gave Mr Abbott the fax from Mr Tilley. Mr Wein approved the fee proposal.
65. Mr Howard reported that approval to Mr Cooper, either late on 12 March 2001 or on the morning of 13 March 2001. On the afternoon of 13 March 2001 Mr Tilley and Mr Cooper sent Mr Howard an invoice for the US$1m component of the agreed fee. The invoice was for an amount of AUD$1,965,408.80. Mr Howard also received an amended fee proposal letter from Mr Tilley. This version removed the reference to a payment of US$500,000 and substituted the agreed amount of US$250,000.
66. Mr Howard said he then met with Mr Wein at about 6.20pm on 13 March 2001. He said Mr Abbott was also present. He gave a copy of the letter, and the invoice to Mr Wein and, he said, also to Mr Abbott. He told them that it was the invoice for the fee agreement he had discussed with them the previous day. He reminded them that it involved an immediate payment of US$1m, even though no heads of agreement had yet been signed with Consolidated Press Holdings. Mr Wein told him to proceed with the transaction as outlined in Mr Tilley’s letter. Mr Howard said Mr Abbott agreed and handed him back the letter and the invoice.
67. Mr Howard made a note on Mr Tilley’s Linkshore letter, on either the 13th or the 14th of March 2001. The note was as follows:
Agreed with R Wein & C Abbott on Monday at approximately 4 p.m. Further agreed with R Wein at conclusion of audit committee (Tues 13/3/01 6.20pm) mtg at which I detailed that I had negotiated the arrangement from US$1M and US$1M to US$1M and 2.5% effective payment on sales higher than $20M. R Wein said to sign on his behalf.
68. Several features of this note merit attention. First of all it obviously refers to two separate meetings. Secondly, it refers to Mr Abbott being present at the first meeting, but it does not refer to him in relation to the second meeting. Third, it cites Mr Wein, but not Mr Abbott, as having approved the payment. Fourth, it suggests Mr Howard reported the fee reduction, from the original US$2m claim, at the second meeting.
69. Mr Howard has given several different accounts of these conversations. His claim that Mr Abbott was present at the second meeting, and agreed with the payment, is contained in his statement to the Tribunal in these proceedings. Indeed, in that statement he said Mr Wein handed Mr Abbott the final Linkshore fee proposal letter and that Mr Abbott read it. Mr Howard gave similar evidence at the HIH Royal Commission.
70. There are really two aspects to Howard’s evidence in relation to the meeting on 13 March 2001. The first is his claim that Mr Abbott actually agreed with the decision to make the payment. The second is his claim that Mr Abbott was at least present when Mr Howard discussed the fee proposal with Mr Wein, and was thus presumably aware of the decision. Mr Abbott denied both of Mr Howard’s claims.
71. Mr Howard ultimately disavowed any suggestion that Mr Abbott had actually approved the payment, in the sense that he exercised any executive authority in relation to it. Mr Howard agreed that Mr Wein was the only one who had the authority and it was Mr Wein’s authority that Mr Howard had set out to obtain. He said none of his evidence should be taken as suggesting the contrary.
72. Mr Howard’s evidence that Mr Abbott was present at the 13 March 2001 meeting, and aware of Mr Wein’s payment decision, was the subject of a direct attack. The attack challenged both Mr Howard’s honesty in his dealings with Mr Wein at the 13 March 2001 meeting, and also the objective reliability of his evidence.
73. Mr Howard’s association with Mr Cooper certainly involved dishonesty in relation to other matters. In December 2003 Mr Howard pleaded guilty to two charges involving dealings with Mr Cooper. He was given a 3 year suspended sentence on those charges. The charges involved contravention of the Corporations Act 2001 s 184(2)(a)&(b) and were that:
73.1:between 2 and 16 January 2001 he had dishonestly used his position as an employee of HIH Casualty and General Insurance Ltd by facilitating payment of $737,500 to a company associated with Mr Cooper, despite knowing that the payment obligation had already been discharged;
73.2:between 2 December 2000 and 15 March 2001 he had used his position and received cash totalling $124,000 in return for facilitating payments by HIH in favour of Mr Cooper or companies associated with him.
74. The matters to which Mr Howard pleaded guilty included a payment of $148,200 to Mr Cooper on 14 March 2001. They did not involve the payment to Linkshore Pty Ltd. Nevertheless, in the course of his cross examination in these proceedings Mr Howard conceded that in his dealings with Mr Wein on 12 and 13 March 2001 he had been intent on organising a benefit for Mr Cooper. He had been dishonest in reporting to Mr Wein having negotiated the fee down from the US$2m proposal. His conduct had left Mr Wein with the understanding that the reduced fee proposal was the best deal that Mr Howard could negotiate for HIH in the circumstances. He took advantage of that understanding in obtaining Mr Wein’s authorisation.
75. The background of Mr Howard’s association with Mr Cooper, and Mr Howard’s admission about having taken advantage of Mr Wein, demand caution in evaluating his evidence. So too does the passage of time since the events in question. Both of those considerations suggest the primary importance of objective circumstances and contemporaneous records.
76. The objective circumstances include the reality that only Mr Wein had authority to approve the fee payment to Mr Cooper and Mr Tilley. His authority was both necessary and, other than formal Board approval, the only authority that was sufficient. On the other hand, Mr Abbott’s approval was irrelevant to the propriety of any payment. I infer that Mr Howard’s conversation with Mr Wein about approving the payment was unlikely to have been focused on Mr Abbott’s conduct. I infer also that Mr Abbott was in fact unlikely to have been involved in the approval discussion. In the pressures and urgent activity that marked HIH’s last days there were likely to have been many occasions when Mr Wein and Mr Abbott were together, including occasions when Mr Howard was also present. The possibility that Mr Howard’s recollections of one occasion merged subconsciously with recollections of another is very real.
77. Mr Howard’s handwritten note on the 13 March 2001 letter is the only contemporaneous, or nearly contemporaneous, record of the meetings to which he referred. It was written to record the authority he had been given to make the payment. It records the circumstances in which the authority was given. In relation to the meeting on 13 March 2001, at which Mr Howard says he was given approval to make the payment, the note refers to Mr Wein, but not Mr Abbott. This, to my mind, is very significant in evaluating Mr Howard’s evidence.
78. Furthermore, it is also significant that Mr Howard’s note records him as having discussed the abandonment of the original US$2m fee proposal with Mr Wein at the meeting on 13 March 2001. In fact the US$2m fee claim had been rejected on 12 March 2001. Mr Howard had reported it in his first meeting with Mr Wein. Mr Howard’s own evidence was that he gave Mr Wein a copy of the altered fee proposal letter at the 12 March 2001 meeting. That fact rather strongly suggests that Mr Howard’s note conflates the details of the two meetings on 12 and 13 March 2001. That is itself significant. But what is even more significant is that, despite the conflation of some details, Mr Howard’s note did not refer to Mr Abbott as being present at the 13 March 2001 meeting.
79. APRA relied on an exchange of emails between Mr Howard and Mr Wein in July 2002. This occurred just before Mr Howard gave evidence at the HIH Royal Commission. Mr Howard set out his recollection of the 13 March 2001 meeting and sought Mr Wein’s confirmation. In his brief account Mr Howard merely said that Mr Abbott was present at the meeting. He did not include a claim that he gave Mr Abbott the fee proposal letter. He did not claim Mr Abbott saw the letter. He did not claim Mr Abbott approved the payment. He said merely that Mr Abbott was present when Mr Wein authorised the payment.
80. In his short email reply Mr Wein said he could confirm Mr Howard’s email “concurs with my recollection”. But it is readily enough apparent from the whole of Mr Wein’s response that he was addressing himself to the question whether Mr Howard had been authorised to make the payment. Nothing in Mr Howard’s enquiry, or in Mr Wein’s response, suggests that either man regarded Mr Abbott’s presence at the 13 March 2001 meeting as a material consideration. In these circumstances it would not be appropriate to regard Mr Wein’s email as providing any confirmation of Mr Howard’s claim in relation to Mr Abbott.
81. Mr Howard’s oral evidence to the Tribunal, when evaluated against the objective circumstances, and his own note, is quite conclusively against the proposition that Mr Abbott authorised the commission fee payment to Mr Cooper and Mr Tilley. His evidence is unreliable in its claim that Mr Abbott was present at, and relevantly agreed with, Mr Wein’s authorisation of the payment.
82. Mr Abbott agreed that the proposal to attempt the sale of HIH’s property portfolio was a matter that had been pursued by the Recapitalisation Committee the HIH board established at its 12 October 2000 meeting. He had discussed the matter in mid January 2001 with Mr Wein. Some months before that HIH had entered into the joint venture with Allianz Australia Ltd, and expected to receive a substantial cash payment. However that expectation was disappointed by a reassessment of the reserves required in relation to the outstanding liabilities of the business transferred to the joint-venture. This had caused unexpected additional pressure on HIH's cash flows. That in turn led to consideration of the possible sale of HIH's property assets.
83. Mr Abbott had contacted James Fielding Group, property and investment managers, with a view to having that organisation either assist HIH in effecting a sale, or form a syndicate to purchase the property assets. Mr Abbott met with James Fielding representatives in early February 2001. At that stage the James Fielding Group and GE Capital were proposing a joint-venture to purchase the properties. They sought a six-week exclusive dealing period. Mr Abbott refused that proposal. But he did say that he would not personally be involved in attempting to effect the sale of the properties to other purchases whilst the James Fielding Group venture was investigating the proposed purchase.
84. Mr Abbott attended the HIH board meeting on 2 March 2001. At that meeting he became aware of Consolidated Press Holdings potential interest in purchasing HIH's property portfolio. Mr Abbott discussed the matter with Mr Wein. Mr Abbott's preference was to deal with the GE Capital / James Fielding Group venture - because they were proposing a purchase price with a substantially lesser discount than the 30% to 40% Mr Wein had discussed with Consolidated Press Holdings. However, Mr Wein was sceptical that GE Capital would maintain their interest in the purchase. HIH's cash flows were very tight. He considered that the cash injection HIH urgently required was more likely to be received by pursuing the proposed transaction with Consolidated Press Holdings.
85. The interest of both Consolidated Press Holdings and the GE Capital / James Fielding Group as potential purchasers of HIH's property assets was discussed at the HIH board meeting on 11 March 2001. The likelihood of a commission fee being payable in relation to any purchase by Consolidated Press Holdings, was reported to the board. However, Mr Abbott could not recall Mr Howard either being present at the meeting or conveying any information about negotiations in relation to the amount of the fee.
86. Mr Abbott had a short discussion with Mr Howard after the board meeting on 12 March 2001. This occurred in the early afternoon and amounted to no more than a conversation about "getting on with" the Board's instruction to pursue the Consolidated Press Holdings proposal. Mr Abbott said he had no further dealings with Mr Howard in relation to that matter. He said he had no recollection of being present at any subsequent meeting with Mr Wein and Mr Howard about the commission fee proposal. He could not recall being present at either of the meetings on 12 and 13 March 2001, to which Mr Howard referred in his evidence. He said that he did not recall ever being told that any intermediary fee was to be paid. He certainly did not know the amount of any such fee. He says he did not authorise either the negotiation, or the payment, of such a fee.
87. It is possible to interpret much of Mr Abbott's evidence in relation to the commission fee issue as involving, on the one hand, a categorical denial of having authorised the payment of any fee and, on the other hand, a less emphatic mere absence of recollection about having been present at the meetings on 12 and 13 March 2001. Indeed, he was cross-examined to that effect. And it is clear that there were some respects in which his recollection was probably unreliable. For example, he prepared, at Mr Wein’s request, an addition to the 11 March 2001 board minutes. That addition did refer to the payment of the commission fee in relation to the proposed purchase by Consolidated Press Holdings. Even though Mr Abbott said he had no recollection of that matter being discussed at the board meeting, Mr Wein’s request suggests his recollection was different and was consistent with Mr Howard's evidence. In this instance, I think Mr Abbott’s recollection is likely to be faulty.
88. However, I do not think that any fault in Mr Abbott's recollection extends to his presence at either of the meetings on 12 and 13 March 2001, where Mr Howard reported the details of the commission fee agreement to Mr Wein. Nor do I think Mr Abbott was mistaken in his denial about having authorised or agreed to the payment of the commission fee. It is a reasonable inference from Mr Abbott's conduct in cultivating the interest of the James Fielding Group, and in an undertaking not to promote the sale of the properties to another purchaser, that he was far from wholeheartedly supportive of selling the properties to Consolidated Press Holdings. His preference for the James Fielding Group could only have been enhanced by his belief they were interested in purchasing at discounts substantially less than had been proposed to Consolidated Press Holdings. It is reasonable to infer that the prospect of a multi-million-dollar commission fee payable to Mr Cooper and Mr Tilley would, in those circumstances, have been information he was unlikely to forget. He did, after all, remember the terse comment he made to Mr Howard, after the 11 March 2001 board meeting - that Mr Howard "should get on with it". Given Mr Abbott's preference for the James Fielding Group’s proposal, that comment should, in my opinion, be regarded as reflecting a measure of dissatisfaction about the board's preference for dealing with Consolidated Press Holdings. It provides a small additional reason to conclude that if Mr Abbott had been present at the meetings on 12 and 13 March 2001, he is highly unlikely to have forgotten what occurred at them.
89. Furthermore, Mr Abbott's evidence tends to be corroborated by Mr Howard's note - to which I have referred above. Despite its claimed contemporaneity, the note plainly conflates the details of at least two meetings with Mr Wein. It certainly does not record Mr Abbott as being present at the 13 March 2001 meeting. It does not even refer to Mr Abbott's presence in relation to Mr Howard's self proclaimed, though apparently misleading, success in relation to a reduction in the fee amount.
90. There is a further aspect of Mr Abbott's evidence which tends to corroborate his denial of being present at the 13 March 2001 meeting. Mr Howard's note refers to the Board's Audit Committee meeting on 13 March 2001. Mr Abbott attended that meeting, but Mr Howard did not. The meeting started at about 4.30pm and continued until about six o'clock. Immediately after the Audit Committee meeting Mr Abbott left HIH's offices and went to the Intercontinental Hotel. He had work to do there, reading documents for the proposed transaction with NRMA Insurance Ltd. A meeting to finalise that transaction had been arranged for later that evening. Mr Abbott was preparing himself for that meeting. I would conclude, therefore, that Mr Abbott had a good reason to have left HIH's offices immediately after the Audit Committee meeting. Conversely, he had no apparent reason to delay and concern himself with a meeting between Mr Howard and Mr Wein. He had no reason to delay because (i) he was not directly involved with the Consolidated Press Holdings proposal, and (ii) his consent was neither necessary nor sufficient to conclude any negotiations in relation to a commission fee.
91. Having regard to the evidence I have analysed in the preceding paragraphs, I accept Mr Abbott’s evidence that he was not present at either of the meetings Mr Howard had with Mr Wein on 12 and 13 March 2001 in relation to the commission fee paid to Mr Cooper and Mr Tilley. I do not accept that he gave any personal approval for the payment of any such fee. I do not accept Mr Howard’s evidence that Mr Abbott was present during Mr Howard’s discussion with Mr Wein about the details of the fee amount or the approval to pay part of it immediately.
92. It was not clear whether APRA contended Mr Abbott’s mere knowledge that some commission fee would be paid was sufficient to require an adverse finding against him. Certainly APRA contended that his acquiescence in the payment authorised by Mr Wein was indicative of unfitness. This contention rested on the proposition that there was no commercial justification for making the payment in advance of having reached a binding agreement with Consolidated Press Holdings in relation to the proposed sale.
93. In normal circumstances it would, of course, be highly unusual to pay commission before the relevant transaction had been concluded. This normal position is even more appropriate to adopt in the case of a commission payment of the magnitude involved in the present case. APRA says the requirements of ordinary prudence are even more telling in the present case because HIH had already met with Mr Tilley and the proposed transaction had progressed to the stage of the respective parties’ lawyers meeting with a view to formal documenting of the proposed transaction. There was, says APRA, no commercial justification for an immediate payment being made.
94. This contention involves a degree of simplicity that has a doubtful application to the circumstances confronting HIH in early March 2001. It also makes some large assumptions about the terms on which the payment was made. As to the former point, I have referred earlier to the dissension that arose as a result of HIH exercising its put option in relation to the Allianz joint venture. The result of this was potentially to prevent HIH selling some of the properties to Consolidated Press Holdings. Mr Howard reported to the HIH Board on 11 March 2001 the opposition that Mr Cooper claimed had arisen from this development. Furthermore the progress of the sale depended on HIH’s ability to maintain CPH’s interest whilst it assembled the required information about the properties. This information did not become available to HIH until 15 March 2001. Even then, CPH had to evaluate the information. That would require at least further time, and might throw up difficulties with particular properties. Finally, despite insisting that it should be entitled to purchase all of the HIH property assets, CPH was also (according to Mr Cooper) claiming a right to reject some properties. All of these considerations introduced a measure of uncertainty, and the risk of delay, into the proposed transaction. On the other hand, HIH’s pressing need was to complete an acceptable purchase as soon as possible. In these circumstances the decision that confronted Mr Wein late in the evening on 13 March 2001 was one that called for swift but impressionistic assessment of the risks involved as they then appeared. On the information Mr Howard had conveyed to Mr Wein, it is far from clear that payment of the fee involved any breach of duty or impropriety. That is especially doubtful when regard is had to the terms of the payment, as Mr Wein apparently understood them.
95. The terms of the commission arrangement, particularly in relation to the initial payment, are a matter of controversy. Apparently Mr Wein believed that the payment was to be held in a solicitor’s trust account pending the completion of the proposed sale to Consolidated Press Holdings. This is hardly a surprising understanding given that (i) the final letter referred to a “proposal to slightly restructure” the originally proposed fee, (ii) in at least one of the exchanges about the fee the initial payment was described as a “deposit”, and (iii) the payment was required to be made to a solicitor’s trust account.
96. Mr Howard disputed that Mr Wein’s understanding was justified by the terms of the final fee letter of 13 March 2001. But even Mr Howard said that, irrespective of whether or not it was explicitly stated in any of the documents, his understanding was that the fee was subject to a refund condition. It was refundable by Messrs Tilley and Cooper if Consolidated Press Holdings did not complete the purchase, unless the reason was a default by HIH.
97. Whether Mr Wein or Mr Howard’s understanding of the transaction was correct is unnecessary to decide. On either view the terms of the transaction, at least as HIH understood them, were not accurately or adequately recorded in the Linkshore letter and invoice. If there is a criticism to be made on that account, the principal criticism could be directed at Mr Howard – because it was concededly his function to negotiate in the best interests of HIH, and to sign the fee proposal letter on HIH’s behalf. Proper discharge of those functions could reasonably be regarded as taking appropriate care in the circumstances to ensure that the proposal, as he understood it to have been agreed and authorised, was properly recorded.
98. However it is unnecessary to come to any concluded view on matters involving the conduct of Mr Howard or Mr Wein in relation to the commission fee agreement and its payment. On the findings I have made, Mr Abbott was aware of a commission fee proposal – as a consequence of the information given to the HIH Board meeting on 11 March 2001. But that information indicated the proposed fee was still the subject of negotiation. Mr Howard did report the fee details to Mr Wein at the meetings on 12 and 13 March 2001. But Mr Abbott was not present at those meetings and knew nothing about the fee payment that Mr Wein authorised.
99. Having regard to findings I have made, the circumstances of the commission fee paid to Messrs Cooper and Tilley do not relevantly involve Mr Abbott. They are not relevant to an evaluation of Mr Abbott’s conduct. They do not justify any adverse finding in relation to his fitness to act in a senior insurance role.
Payment of the Ashkirk invoices on 14 March 2001
-- HIH’s position as at 14 March 2001
100. Wednesday 14 March 2001 was HIH’s last day before the provisional liquidators were appointed. In the preceding months it was known to be facing difficulties. In September 2000 the HIH Board had approved the joint venture arrangement with Allianz Australia Ltd. Mr Wein and Mr Abbott had both opposed HIH’s decision to enter the joint venture. But the Board hoped it would provide a needed capital injection and provide an ongoing cash flow. In November 2000 Ernst & Young, chartered accountants, provided a report to Westpac Banking Corporation expressing concern about HIH’s solvency. Mr Abbott agreed that, from at least the time of Ernst & Young’s report, he was aware of the risk of HIH’s insolvency. Mr Abbott said he had asked Ernst and Young whether HIH was solvent. Ernst & Young’s response was they did not know of any reason why HIH was insolvent.
101. By the end of November 2000 cash flow constraints were evident to Mr Abbott, and remarked on by him in a letter to Mr Cohen, the HIH Chairman. In December 2000 HIH appointed Mr Randolph Wein as its new Chief Executive Officer. On 1 January 2001, the Allianz joint venture commenced operating.
102. By early 2001 Mr Wein and Mr Abbott were basically working full time in an attempt to ensure HIH’s survival. Asset sales were being actively considered by HIH. At about the same time, Mr Matthew May, a BDW partner, also began to work full time at HIH’s premises. His task was to manage the various legal problems that were emerging for HIH.
103. As events unfolded into March 2001, it was clear to Mr Abbott, and indeed to the HIH Board, that HIH had difficulties. It was precisely because of that awareness that Mr Wein, Mr Abbott, and other HIH officers had been devoting considerable efforts to the task of trying to resolve those difficulties. Mr Abbott had been working for many months without any formal agreement about payment for his work. In January 2001 HIH had sought advice from an external consultant about appropriate payment arrangements for work done by board members. That advice was provided at the end of February 2001. It was formally approved by the HIH board on 26 February 2001. On 2 March 2001 Ashkirk entered into a further consultancy agreement with HIH. The agreement reflected the payment rates recommended by the external adviser and approved by the board. APRA expressly abandoned at the review hearing any criticism of Mr Abbott in relation to HIH’s approval of the payment rate recommendations.
104. The problems HIH confronted were so severe that, as Mr Abbott acknowledged, the Board needed expert assistance. In February and March 2001 HIH engaged:
104.1:Boston Consulting, to assist in the development and implementation of HIH’s revised business plan;
104.2:a new internal finance manager;
104.3:KPMG, to undertake a review of HIH’s financial position;
104.4:BDW, to provide additional legal advice, particularly in relation to corporate governance;
104.5:Deutsche Bank, to provide financial advice and assist in asset sales.
105. Mr Abbott claimed that no one said to him at any stage that HIH was actually, or likely to be, insolvent. Nevertheless, he agreed that the question of HIH’s solvency was a real pressing issue, not just an academic issue, in the months leading up to and including March 2001. However, by the early part of March 2001 Mr Abbott said he also saw things starting to happen that gave him a growing confidence in the company’s prospects of survival. He had been working closely with Mr Wein in formulating a business plan for HIH’s future operations. He said he was confident that HIH’s core business was sound, he had confidence in Mr Wein and he expected HIH would be able to operate profitably. The positive developments on which he remarked included:
105.1:a joint venture with QBE Insurance entered into on 6 March 2001 in relation to HIH’s professional indemnity business;
105.2:the exercise on 7 March 2001 of the put option to the Allianz joint venture – which was expected to result in a payment of $125m;
105.3:commutation of reinsurance arrangements with Hanover Re and Swiss Re – which were expected to return about $300m;
105.4:the sale of HIH’s workers compensation and funds management businesses to NRMA Insurance Ltd on 13 March 2001 - for $130m;
105.5: the prospect of an imminent sale of the HIH property portfolio – at the 30% discount proposed to CPH, and a probable market value of about $450m, the proposed sale would realise $300m.
106. Against this background, Wednesday 14 March 2001, like many of the days that preceded it, involved Mr Abbott in many hours of work dealing with HIH’s affairs. Very early that morning, at about 2.30am, he had concluded the sale agreement with NRMA. After the deal had been agreed, he left HIH’s offices at about 3.30am. He was back at HIH by about 7.00am.
107. Mr Abbott, Mr Wein and others met with KPMG representatives, including Mr McGrath and Mr Dunn, at about 10.30am that day. Mr Abbott did not have a good recollection of this meeting. Indeed he did not mention it in his affidavits. But his recollection of the meeting was prompted during his cross examination. He knew there was to be a meeting with KPMG on 14 March 2001. Indeed, following the successful conclusion of the NRMA deal earlier that morning, he had wanted to make sure KPMG was aware of that development and took it into account in their review. As Mr Abbott recalled events, he thought the meeting with KPMG had been scheduled for 10.00am. But when he first arrived for the meeting, no-one else was ready. By about 10.30am Mr Wein, Mr McGrath and Mr Dunn had arrived.
157. In Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 380, Toohey & Gaudron JJ addressed the criterion of fitness to hold a broadcasting licence. Their Honours pointed out that the question of fitness is not confined to the consideration of a person’s misconduct. It may, depending upon the statutory context, also involve a consideration of their character, capacity and reputation. Their Honours said:
The expression "fit and proper person", standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of "fit and proper" cannot be entirely divorced from the conduct of the person who is or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur. The list is not exhaustive but it does indicate that, in certain contexts, character (because it provides indication of likely future conduct) or reputation (because it provides indication of public perception as to likely future conduct) may be sufficient to ground a finding that a person is not fit and proper to undertake the activities in question.
Whether the fitness and propriety of a licensee to hold a commercial licence are sufficiently ascertained by reference to its character or reputation, or must be ascertained by reference to the conduct of its affairs and activities, is a question the answer to which must be found by implication from the provisions of the Broadcasting Act dealing with the grant, renewal and revocation or suspension of a commercial licence and from the activities to be undertaken pursuant to the licence.
158. The purpose of the “fit and proper” criterion is frequently described as being entirely protective. Statements to this effect commonly appear in decisions involving the admission or licensing of legal practitioners: see Clyne v New South Wales Bar Association (1960) 104 CLR 186 at 201-202; New South Wales Bar Association v Evatt (1968) 117 CLR 177 at 183-184; Smith v New South Wales Bar Association (1992) 176 CLR 256 at 270; Wentworth v New South Wales Bar Association (1992) 176 CLR 239 at 250-251. The same protective function is avowed in relation to the licensing of other professionals: Health Care Complaints Commission v Litchfield (1997) 41 NSWLR 630 at 637F-638B (sexual misconduct by doctor); Health Care Complaints Commission v Abou Hatoum [2004] NSWCA 30 at [6]; as well as in the case of tax agents registered under the Income Tax Assessment Act 1936: see Dahia v Tax Agents’ Board of Victoria (1997) 36 ATR 1124; Toohey (formerly identified as ‘VBY’) v Tax Agents’ Board of Victoria [2007] FCA 431; and the disqualification of persons from acting as company managers: ASIC v Adler (2002) 42 ACSR 80 at [56]. In the case of the disqualification power conferred by s 25A of the Insurance Act 1973, the protective nature of the power is underscored by the provisions of sections 2A and 26 of the Act: Kamha v APRA (2005) 147 FCR 516 at [73] – [74]. Section 2A describes protection of policy holders as the main object of the Act. Section 26 permits APRA to determine that a person, who would otherwise be disqualified, is not a disqualified person, if APRA is satisfied the person is highly unlikely to be a prudential risk.
159. The protective nature of the disqualification power means that the personal circumstances of the affected person are of less significance than if the power was purely punitive. Those less significant personal circumstances include any punishment that has been imposed in relation to the impugned conduct, hardship arising from that conduct, hardship apprehended to follow from the exercise of the power, contrition and, where relevant, compensation: see ASIC v Adler (2002) 42 ACSR 80 at [79] – [80]. But the protective principle informs the proper exercise of the discretionary power. It is not directly relevant to the threshold assessment of fitness, on which the exercise of the disqualification power depends. Its relevance for that purpose is indirect and is confined to the nature of the function to which the disqualification power relates. The nature of the function may provide a basis for implications about the matters relevant to, and the relative weight to be afforded them in, the assessment of the person’s fitness.
160. Sometimes the terms of the relevant statutory provisions may inform the breadth of the considerations relevant to an assessment of “fitness”. For example, ss 251BC & 251JA of the Income Tax Assessment Act 1936 deal with the entitlement to prepare tax returns and the registration of tax agents. A pre-requisite for registration as a tax agent is that the relevant persons be “fit and proper”. Sub-section 251BC(1) sets out a number of prescriptive criteria relevant to an assessment of when a person is otherwise “fit and proper” to act as an agent in relation to taxation matters. But the subsection is not exhaustive and Davies J commented upon the width of the potentially relevant considerations in Re Su and the Tax Agents’ Board of South Australia (1982) 61 FLR 1 at 4-5; (1982) 82 ATC 4282 at 4286-7. His Honour said:
The function of a tax agent is to prepare and lodge income tax returns for other persons. A person is a fit and proper person to handle the affairs of a client if he is a person of good reputation, has a proper knowledge of taxation laws, is able to prepare income tax returns competently and is able to deal competently with any queries which may be raised by officers of the Taxation Department. He should be a person of such competence and integrity that others may entrust their taxation affairs to his care. He should be a person of such reputation and ability that officers of the Taxation Department may proceed upon the footing that the taxation returns lodged by the agent have been prepared by him honestly and competently.
161. In Albarran v Members of the Companies Auditors & Liquidators Disciplinary Board [2006] FCAFC 69; (2006) 151 FCR 466; (2006) 233 ALR 37; (2006) 59 ACSR 129; (2006) 24 ACLC 619 the Full Court of the Federal Court of Australia considered the requirements of fitness and propriety that apply to liquidators registered under Part 9.2 of the Corporations Act 2001. In that case, referring to the registration and cancellation provisions in ss 1279 and 1292 of the Corporations Act 2001, the Full Court said
[26] Plainly, Pt 9.2 of the Corporations Act is a statutory regime designed to limit those who are entitled to be, and hold themselves out as being, auditors and liquidators, to people who have the required professional skill and competence and who are otherwise fit and proper persons to occupy such positions. To call it a licensing regime is not to affix a label to the words of Parliament; rather, it is to describe, with tolerable accuracy, the nature of the provisions in language adequate to describe certain types of governmental power. Parliament has given to the Commission the task of attending to registration of auditors and liquidators. It has given to the Board the task of deciding whether a person who has registration as an auditor or liquidator should have his or her registration cancelled or suspended. The circumstances in which this may occur for a liquidator (see 1292(2)) reflect the underlying necessary qualities for registration: skill, competence and being otherwise a fit and proper person to hold the position. The position, it is to be recalled, is one of some responsibility in the commercial community and in corporate life and administration, involving not only the requirements of probity and skill in dealing with commercial affairs, but also in dealings with courts whose work may encompass the affairs of companies.
162. The concept of public protection implicit in the statutory use of the “fit and proper” criterion involves at least two considerations. The first is the public interest in ensuring that the person will in fact follow the appropriate course of action in the future. The second is the public interest in ensuring confidence, so far as is reasonably possible, that the person can properly be entrusted to undertake the tasks that attach to the licensed activity or office involved: Re Wolstencroft and Companies Auditors & Liquidators Disciplinary Board (1998) 54 ALD 773 at 785 [54]-[55].
163. The notion that the “fit and proper” criterion may properly involve consideration of matters of reputation, including an assessment of the rather abstract concept of “public confidence” has long been accepted, at least in the context of the admission and licensing of legal practitioners. In Incorporated Law Institute of New South Wales v Meagher (1909) 9 CLR 655 at 681 Isaacs J described the relevant question as being entirely prospective and as requiring a satisfaction that the person was “worthy of public confidence” and was able to demonstrate their “worthiness and reliability for the future”. In Southern Law Society v Westbrook (1910) 10 CLR 609 O’Connor J referred to the “absolute confidence which must be reposed [by the public] in persons who fulfil the duties of solicitors”. In similar vein, a relevant consideration in determining a person’s “fitness” may involve an assessment of the person’s ability, because of the tarnish to their reputation as a result of prior misconduct, to conduct their professional practice effectively in their dealings with other members of the profession: see the discussion in Law Society of New South Wales v Foreman (1994) 34 NSWLR 408 at 444-445.
164. The question of “fitness” is not confined to a consideration of the impact of personal impropriety. Ignorance or incompetence in relation to the matters to which the criterion applies is inconsistent with satisfaction that the person is fit and proper. Consequently, demonstrated incompetence provides an independent ground for removing the name of a legal practitioner from the roll: Pillai v Messiter (No 2) (1989) 16 NSWLR 197 at 201. Incompetence in this sense includes a relevant lack of understanding: Law Society of New South Wales v Moulton [1981] 2 NSWLR 736 at 740. It also includes carrying on a professional practice that significantly involves the pursuit of discredited theories or principles: Newbury v Dental Board of Victoria [2000] VSC 54.
165. In the present case the disqualification power in s 25A(1) of the Insurance Act 1973 is explicitly additional to the automatic disqualification status triggered by conviction for relevant offences (against the Insurance Act 1973, the Corporations Act 2001 and the Financial Sector (Collection of Data) Act 2001) and bankruptcy: see s 25(1) of the Insurance Act 1973. The additional power in s 25A of the Insurance Act1973 is conditioned only on a satisfaction that the person is not “fit and proper”. This necessarily reinforces the primacy of objective assessment of fitness and frees it from the need to identify proven past impropriety. Furthermore, because the power is not expressed to confer a discretion to determine the period of disqualification, it reflects a view that the power serves a purely protective function. In such a case, where the relevant statutory power is conditioned only on satisfaction of a lack of current fitness, the appropriate order is to remove the person’s continuing qualification - either by cancellation or, depending on the existence of the relevant statutory power, indefinite disqualification. The purpose of such a course of action is to impose on the person the obligation to show affirmatively at some future time their relevant suitability: Rich v Australian Securities and Investments Commission (2004) 220 CLR 129; (2004) 209 ALR 271 per McHugh J at [42] - citing Australian Securities and Investments Commission v Hutchings (2001) 38 ACSR 387 (directors disqualified for life but with the right to re-apply on three months notice after five years).
166. It is consistent with the protective purpose of the “fit and proper” criterion that the relevant assessment does not turn on an actual satisfaction that future irregularity is likely to occur in all, or even a significant number, of instances. It is implicit in the way in which the reported cases have dealt with the question that the satisfaction required is satisfaction that the person can be relied upon to act in a proper manner in all of the circumstances likely to occur in the ordinary course of the activities to which there registration licence relates: see for example Health Care Complaints Commission v Litchfield (1997) 41 NSWLR 630 at 639. That assessment may necessarily be influenced by knowledge of past events. But the mere fact of past irregularity does not of itself necessarily indicate the relevant risk of a possible future transgression: Re Wall and Civil Aviation Safety Authority (1998) 28 AAR 154 (pilot contravening civil aviation regulations on one occasion). Neither does past misconduct necessarily connote, or even create a presumption in favour of, a person’s present lack of fitness: Vines v Australian Securities and Investments Commission (2007) 63 ACSR 505 at [61] – [62]; New South Wales Bar Association v Evatt (1968) 117 CLR 177 at 183.
167. The notion that either a person may fail to demonstrate they are “fit and proper”, or that a licensing authority may not be satisfied that they are, even in the absence of an apprehension of the actual probability of misconduct or relevant irregularity, is consistent with the relevance of public confidence referred to earlier in these reasons. That notion is arguably implicit in the dual criterion of both “fit” and “proper”. It is also consistent with the standards that may be required to be observed by the person in the proper conduct of the licensed activity. This is particularly relevant in relation to the management of a general insurer. As the fate of HIH shows, the proper management of such a corporation requires prudence, propriety, ability and good judgment. It requires them in an environment of significant risk and where the company’s insured rely on it for indemnity protection in relation to losses or liabilities they are unlikely to be able, and certainly unwilling, to meet from their own resources. In relation to the management of insurer corporations of that kind there is a very considerable public interest in maintaining the confidence of the public, the company’s insured and other creditors, and of the members of the corporation.
168. Where there is ample evidence of a person’s “fitness” - in terms of their knowledge, qualifications, physical and intellectual ability, experience and demonstrated past performance - the fundamental assessment to be made concerns whether the person is someone who it is “proper” that they should have the status in question. This inevitably involves consideration of the person’s character and the degree of confidence that good character will characterise their future conduct.
169. The term “good character” is also an oft used statutory criterion. In the context of s 501(6)(c) of the Migration Act 1958 the term “good character” has been interpreted as referring to a person’s actual moral qualities, rather than their reputation: Irving v Minister for Immigration, Local Government and Ethnic Affairs (1996) 68 FCR 422 at 425 (per Davies J) and 431-432 (per Lee J). There is no similar statutory context in the Insurance Act 1973 that would necessarily exclude reputation from relevance in assessing a person’s fitness to act in a senior insurance role. But assessment of the person’s moral qualities must certainly be material to that assessment. The difficulty is that there are no precise parameters by which to distinguish between “good” and “bad” character: Irving 68 FCR 422 at 428A; and the significance of conduct in the assessment of character will inevitably vary according to the purpose for which the assessment is being made: Goldie v Minister for Immigration and Multicultural Affairs (1999) 56 ALD 321 at 324: Irving 68 FCR 422 at 433A; Re Mlinar and Minister for Immigration and Multicultural Affairs (1997) 48 ALD 771 at 776 [17].
170. In some contexts assessment of a person’s character is said to involve a comparison of the person’s conduct with the attributes of ordinary standards of reasonable behaviour and social conduct accepted within the Australian community: Re Kakar and Minister for Immigration and Multicultural Affairs [2002] AATA 132 at [13]. A person could not be fit and proper to act in a senior insurance role unless they at least complied with those standards. And no doubt the conduct of such a person might reasonably be expected to conform to a more lofty and confined, though perhaps less readily defined, standard. Nevertheless, “good character”, like “fit and proper”, is a criterion of sufficiency, rather than an inflexibly prescriptive ideal. A person may be of good character despite past unsatisfactory conduct and even if they do not meet the highest standards of ethical conduct: Goldie v Minister for Immigration and Multicultural Affairs (1999) 56 ALD 321 at 324 [8] (failure to answer pending disputed criminal charges in another country is not in itself evidence a person is not of good character).
171. The reality is that character findings, and findings about whether a person is “fit and proper”, that are made in a forensic setting are primarily matters of impressionistic inference based on evidence of a person’s actual conduct, rather than expert psychological assessment: Irving (1996) 68 FCR 422 at 425C; Re Steele and Minister for Immigration and Multicultural Affairs (AAT 12319, 21 October 1997). Such an assessment permits considerable breadth of permissibly relevant considerations. That breadth of relevance, as well as the practical difficulty of a character assessment based wholly on evidence of objective conduct, makes it inevitable that evidence of a person’s reputation will often be admissible not only as a permissible, but also as a reliable, basis for an inference about the nature of their character: Irving (1996) 68 FCR 422 at 425 (per Davies J). The appropriateness of the inference in any particular case will necessarily depend on satisfaction that the repute is based on accurate awareness of, and a sound capacity to evaluate, the person’s conduct and particularly the conduct that has been impugned.
172. Whatever the source of the information on which it is based, the assessment of a person’s character or fitness involves a conclusion about the person’s relevant qualities and capacities: Irving 68 FCR 422 at 431G; ReMsumba and Department of Immigration and Multicultural Affairs [2000] AATA 87 at [37]. It is not merely an opinion about the standard of conduct involved in particular acts or omissions: Minister for Immigration and Ethnic Affairs v Baker (1997) 73 FCR 187 at 194. Consequently, past conduct deficiencies do not preclude a finding of current good character, and may not even materially inform an assessment of a person’s current character and fitness. It will not materially inform that assessment if it is isolated and aberrant, in terms of the person’s intrinsic qualities and likely behaviour. But because both the assessment of character and fitness certainly include a person’s intrinsic qualities and capacities, the assessment is not confined to consideration of a person’s usual or prevalent behaviour. Episodic, and even isolated, episodes of misconduct may, depending on their particular circumstances, provide telling objective evidence that a person does not have the required attributes of character or fitness: Baker (1997) 73 FCR 187 at 195.
173. As APRA submitted, an inquiry for the purposes of s 25A of the Insurance Act 1973 will involve an assessment of whether the person has, and could be relied on to bring to bear, the requisite integrity, diligence, independence and personal disinterest, in the management of a general insurer. I summarised earlier in these reasons the basic nature of APRA’s contention that Mr Abbott was not a fit and proper person. Those contentions asserted conflict of interest, lack of candour, lack of diligence, preference for his own financial interests and what was described as an unseemly and improper fixation on his own financial interests at a time of peril for HIH and its policyholders. In its Statement of Facts and Contentions APRA suggested that these qualities were relevantly evident “in the months before 15 March 2001 in the performance of his functions as a director of HIH”.
174. APRA put its case in this way at a time when it was still contending that Mr Abbott had engaged in misconduct in relation to a recommendation about director’s remuneration that was put to the HIH Board in February 2001. That contention was explicitly abandoned at the commencement of the review hearing. In the light of that abandonment, I should proceed on the basis that APRA’s considered view is that no materially relevant criticism should be made of Mr Abbott in relation to that matter.
175. Once that matter is removed from consideration, as a result of APRA’s express abandonment of it, few matters were put forward in the present hearing that went beyond Mr Abbott’s conduct in the days immediately preceding 15 March 2001. They were confined to the complaints of partial disclosure in relation to the Ashkirk consultancies with BDW and HIH (Asia) Ltd. Those matters could not on their own merit characterisation as unseemly conduct. Neither could they relevantly inform, having regard to the totality of Mr Abbott’s conduct relating to the disclosure matters, any proper assessment of whether Mr Abbott was a fit and proper person to carry out a senior insurance role.
176. In these circumstances it is appropriate to proceed on the basis that APRA’s Statement of Facts and Contentions, in so far as it sought to impugn Mr Abbott’s conduct “in the months before 15 March 2001", lacked a sound factual basis. In truth, the substance of APRA’s criticisms really turns on Mr Abbott’s conduct on the tumultuous days of 13 and 14 March 2001. Most specifically they turn on an assessment of his conduct in encouraging the pre-emptive payment of the Ashkirk invoices on 14 May 2001.
177. I have found that Mr Abbott’s conduct in encouraging the pre-emptive payment of the Ashkirk invoices on that day was improper. Nevertheless, his conduct in encouraging and receiving payment in these circumstances did not breach any law or involve any misuse of his position as a director of HIH. I do not consider that Mr Abbott’s conduct on that day indicates a lack of good character. Neither do I consider that it leads to satisfaction that he is a person who is not fit and proper to act in a senior insurance role.
178. The events of 14 March 2001, involving the payment of the Ashkirk invoices, occurred at a time of extraordinary crisis and uncertainty. The judgments that were made that day, by Mr Wein, by KPMG and by Mr Abbott, were those of people who were experienced and able. There was an obvious interest of all concerned, including the policyholders and other creditors, to have HIH continuing to trade, if that could profitably occur. But the difficulties HIH faced were patent and its prospects of overcoming them were uncertain. The uncertainty was evident from what appears to have been the differing views of at least Messrs Wein and Abbott, on the one hand, and, on the other, the essential basis of KPMG’s recommendation.
179. Situations involving different views about the likelihood of insolvency cannot be resolved except with the certainty of hindsight. Conduct that occurs without the benefit of hindsight must be evaluated with a proper and realistic regard to the subjective knowledge, belief and intentions of the persons involved. The evaluation also involves a consideration of the reasonableness of that conduct in the totality of the relevant circumstances.
180. In the circumstances of the present matter, on the evidence adduced in the review proceedings, Mr Abbott was aware of both the risk of HIH’s insolvency and of KPMG’s recommendation to appoint a provisional liquidator. By some time on the evening of 14 March 2001, he agreed, though perhaps reluctantly, with KPMG’s recommendation. But he also believed Ashkirk was entitled to be paid for the work it had done. That belief was objectively reasonable. He believed that Ashkirk was in the same category as the other consultants that had been paid that day. That view was, in my opinion, reasonable in relation to Ashkirk itself, but does not adequately address Mr Abbott’s own position as a director of HIH. Mr Abbott also did not believe that HIH was insolvent. Rather he believed there was a real prospect that it would continue to trade and had a realistic prospect it would return to profitability. That view appears to have been optimistic in view of the full extent of the information KPMG presented at the meeting on the morning of 14 March 2001. But it was honestly held and it is significant that in its further report on that day KPMG retreated from a positive statement about HIH’s likely Group insolvency.
181. Mr Abbott did not intend that Ashkirk should, by obtaining payment before a provisional liquidator was appointed, obtain a benefit to which it would not be entitled if HIH’s ultimate insolvency did eventuate. Neither did he believe that Ashkirk’s receipt of the payment would in any sense operate to the material disadvantage of HIH. Even though Ashkirk did obtain the pre-emptive payment, there was no evidence to suggest that, if HIH demonstrated an entitlement to recover the payment as an insolvent transaction, there was any material risk of non-recovery from Ashkirk.
182. I am fortified in the conclusion to which I have come by a consideration of two further matters. The first is the narrow compass of the criticisms that were advanced by APRA of Mr Abbott’s conduct as a director of HIH. Having regard to the notoriety of the HIH liquidation, and the plethora of criticisms that have been sustained against other HIH officers, the absence of more extensive complaints against Mr Abbott is a conspicuously eloquent statement about his ability, conduct, character and repute. That eloquence is underscored by my rejection of all but one of the criticisms that APRA made of Mr Abbott.
183. The second consideration that fortifies my conclusion is the evidence of Mr Abbott’s exemplary background and good repute. Mr Abbott was admitted as a solicitor in 1963 and has continuously held an entitlement to practice as a solicitor since that time. He became a partner of Blake & Riggall in 1970. After the merger of that firm with Dawson & Waldron he continued as a partner in the merged firm, Blake Dawson Waldron, until he retired in 1990.
184. Most of Mr Abbott’s extensive legal practice was heavily involved with general commercial law. From about 1975 onwards he developed a special interest and expertise in banking and finance. Those qualifications and experience, bespeak a personal competence and together those attributes undoubtedly facilitated his many later board appointments, particularly in the insurance industry.
185. Before being appointed to the HIH Board (initially in 1995 as an alternate director) Mr Abbott was a director of Norwich Australia’s general insurance arm, Norwich Winterthur Ltd. He had been appointed to that board in 1977. He was appointed to the board of Norwich Union Life in 1985. He became a member of the board of the Norwich Winterthur General insurance group, after the acquisition of CIC insurance Limited, in 1988. He maintained various directorships within the Norwich group of companies until 1999.
186. Mr Abbott also has an impressive business background of his own, apart from his involvement in the insurance industry. In 1971 he established Jawcamb Pty Ltd as a property and investment company. He continued to develop its activities, and diversify into related companies, over the next two decades. In 1981 he established a publicly listed property company. In 1983 he established the ASX listed Cities of Australia Property Trust. Thereafter, between 1984 and 1987, he developed several property trust interests.
187. Two of Mr Abbott’s former partners at Blake and Riggall, Mr Cornell and Mr MacKinnon, speak of their knowledge of him over a lengthy period. Mr MacKinnon describes his association with Mr Abbott over a wide range of activities, including not only their partnership in the legal practice Blake and Riggall, but also, over a period of 30 years as chairman of Jawcamb Pty Ltd. Mr MacKinnon recited Mr Abbott’s extensive commitment to the Victorian Polo Association and the Australian Polo Council over a period of two decades. Mr MacKinnon noted that Mr Abbott was awarded an Australian Sports Medal in 2000 in recognition of his services to Australian Polo.
188. Mr Abbott provided other impressive, and unequivocal, evidence endorsing his long-standing reputation for honesty, integrity and ability. This evidence included that of Bishop James Grant, the Alumni and Bequest officer at Trinity College, University of Melbourne. Bishop Grant, spoke of his association with Mr Abbott over a period of 50 years. He described him as displaying the highest level of integrity, openness, honesty and competence.
189. Mr Peter Griffin AM is a director of Rothschild Australia Ltd and a number of other companies. He is also a director of the Murdoch Childrens Research Institute, the Melbourne Community Foundation and President of the Cancer Council of Victoria. He has known Mr Abbott for over three decades, firstly as client of his stockbroking firm. For 13 years Mr Abbott and Mr Griffin served together on the Investment Committee of the Murdoch Childrens Research Institute. Mr Griffin also vouches for Mr Abbott’s integrity, honesty and competence.
190. John Winneke AC, the former President of the Victorian Court of Appeal, has known Mr Abbott personally and professionally for over 50 years. He describes Mr Abbott as competent legal practitioner and a person of good character.
191. Mr Gregory Waters is the former internal audit general manager of the HIH Insurance Group. He first had dealings with Mr Abbott in 1995 in connection with the merger of CIC Insurance Ltd and CE Heath International Holdings Ltd. He was aware of Mr Abbott’s role as Chairman of the HIH Recapitalisation Committee in 2000, his work with the HIH Holdings Asian management in relation of the sale of that business and also the potential sale of HIH's property assets. Mr Waters said that in his observation and experience, Mr Abbott was one of the few people within the HIH organisation who, in a critical time in the life of the company, was striving to understand and find a solution to the company's difficulties. Mr Waters regarded Mr Abbott and Mr Wein as the only senior people within HIH in whom he had complete trust and to whom he felt he could look for support in relation to any matters he brought to their attention.
192. This evidence bespeaks Mr Abbott’s extensive and creditable career both in legal practice and in his corporate and business life. It testifies to his long standing and enduring capacity and reputation for honesty and competence. Mr Waters’ evidence, in particular, credits Mr Abbott with unfaltering reliability and dedication even with the maelstrom of difficulties that beset HIH. There was no challenge to any of this evidence.
193. Mr Abbott says that because of the consequences of the HIH collapse, in particular his involvement in the Royal Commission, he has been unable to generate income for over six years. He is currently 67 years of age and not in a financial position to retire. He anticipates the business interests he contemplates pursuing are his last opportunity to earn income and generate a level of financial security for his retirement. He is apprehensive that his prospects in that regard would be severely diminished by the continuation of the disqualification under the Insurance Act 1973 s 25A. The continued disqualification, he apprehends, may perpetuate the difficulties he has encountered, and may continue to encounter, in rebuilding a professional life, given the public opprobrium associated with having been a director of HIH.
194. Mr Abbott does not wish to return to involvement in the insurance industry. He has not held any insurance role since he resigned from the HIH Board on 15 March 2001. He has no intention of pursuing any future role in the insurance industry. Consistent with that view he has made an open offer to submit to an Enforceable Undertaking in accordance with the Insurance Act 1973 s 126.
195. It is not necessary to consider Mr Abbott’s personal circumstances at any length. Neither is it necessary to address the question of whether an enforceable undertaking should be accepted. The evidence adduced does not satisfy me that Mr Abbott is not a fit and proper person to be, or to act as, a director, senior manager or agent of the kind referred to in s 24(1) of the Insurance Act 1973.
196. The decision under review is set aside.
I certify that the 196 preceding paragraphs are a true copy of the reasons for the decision herein of Mr P W Taylor SC, Senior Member
Signed: .......................[sgd].........................................................
T Aviram, AssociateDate/s of Hearing 23-26 June 2008
Date of Decision 23 July 2008
Counsel for the Applicant Mr B Walker SC and Mr A Coleman
Solicitor for the Applicant Mr S Morris, Piper Alderman
Counsel for the Respondent Mr J Stevenson SC and Mr P Braham
Solicitor for the Respondent Mr A Carter, Sparke Helmore
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