Re KLGL and QCYY and Australian Prudential Regulation Authority

[2008] AATA 452

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 452

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  2007/4450 and  

GENERAL ADMINISTRATIVE DIVISION		)                 2007/4453
Re		KLGL QCYY

Applicant

And AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

Respondent

DECISION

Tribunal Mr P W Taylor SC, Senior Member

Date30 May 2008

PlaceSydney

Decision I refuse to make any order for production under s 37(2) of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”). I also refuse to make any direction under s 33(2) of the AAT Act requiring the Respondent to demonstrate its compliance with s 37 of the AAT Act in relation to the production of documents.

...............[sgd]...............................

Mr P W Taylor SC

Senior Member

CATCHWORDS

PRACTICE AND PROCEDURE – request for order the Respondent produce documents pursuant to section 37(7) of the Administrative Appeals Tribunal Act 1975 or alternatively direction under section 33(2) – documents requested not relevant to review of decision – power of Tribunal to order production of relevant documents limited to section 37(2) – request to make orders under sections 37(2) and 33(2) refused

Administrative Appeals Tribunal Act 1975 – ss 33, 37

Trade Practices Commission v Arnott's Ltd (No 2) (1989) 88 ALR 90

Re VBN and Australian Prudential Regulation Authority (2005) 92 ALD 455

Re Marnotta and Secretary, Department Of Health and Ageing [2004] AATA 800

Cosco Holdings Pty Ltd v Commissioner for Taxation (1997) 37 ATR 432

Re Control Investments Pty Ltd and Australian Broadcasting Tribunal (No 2) (1981) 3 ALD 88

Re Palmer and Minister for the Capital Territory (1979) 1 ALD 183

Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60

Re Spicer Axle Structural Components Australia Pty Ltd and Secretary, Department of Industry, Tourism and Resources (2005) 83 ALD 104

Re Thomas Cook Australia Pty Ltd and Collector of Customs (1994) 34 ALD 301

Australian Prudential Regulation Authority v VBN (2005) 88 ALD 403

Codelfa Construction Pty Ltd v State Rail authority of NSW (1982) 149 CLR 337

Interchase Corp Ltd (in liq) v Grosvenor Hill (Qld) Pty Ltd (No 1) [1999] 1 Qd R 141

Re Southland Coal Pty Ltd (rec & managers appointed)(in liq) (2006) 203 FLR 1

Re Mika Engineering Holdings Pty Ltd and Commissioner of Taxation (2006) 92 ALD 688

REASONS FOR DECISION

30 May 2008 Mr P W Taylor SC, Senior Member

1.These are applications for production orders under s 37(2) of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”) or, alternatively, directions under s 33(2).

2.Each of the Applicants seeks review of disqualification decisions made on 7 September 2007 under section 25A(1) of the Insurance Act 1973.  Those decisions arose out of certain reinsurance arrangements entered into in 1999 between HIH Insurance Ltd (“HIH”) and Hannover Re.  The Applicants were senior executives within Hannover Re and, for the purposes of this application, it is uncontentious that they were, respectively, responsible for either drafting or approving the reinsurance documents.

3.Those reinsurance documents can be summarised, sufficiently for the purposes of the present application, as involving three arrangements.  These were:

(a)An agreement entitled “Combined Loss Portfolio Transfer and Accident Year Protection” and referred to as “Hannover 1”.  This agreement was executed by HIH Insurance Ltd, Hannover Re (Ireland) Ltd and E + S Reinsurance (Ireland) Ltd.

(b)An agreement entitled “Combined Adverse Development and Y2K Cover” and referred to as “Hannover 2”.  This agreement was executed by HIH Insurance Ltd and Hannover Re (Australian Branch).

(c)A Letter of Credit Agreement expressed to be in favour of Hannover Re and executed by HIH Underwriting and Agency Services Ltd.

4.A critical finding in the decisions under review was that the combined effect of the contentious reinsurance documents was that they did not involve any transfer of risk to Hannover Re.  Nevertheless, the form of the contracts and, in particular, the absence of any reference to the Letter of Credit in either Hannover 1 or Hannover 2, was said to give the appearance of a transfer of risk.  That appearance was, at least, capable of facilitating HIH accounting for Hannover 1 and Hannover 2 in a way that significantly inflated the trading result reported in its financial statements.  The decisions under review concluded, to put it at its lowest, that each of the Applicants either had actual concerns or reasons to be concerned, about HIH’s likely accounting treatment of the contentious contracts and, in particular, their improper use to increase HIH’s apparent profitability.

5.Neither of the Applicants disputes, for the purposes of the present application, that the contentious contracts did not involve any transfer of risk.  However, they at least foreshadow a contention that the arrangements had a legitimate commercial purpose, even in the form in which they were drafted and executed.  The Applicants further contend that they had no reason to apprehend HIH’s intention to accord the arrangements an improper accounting treatment.  Indeed, one of the Applicant’s contentions is that the absence of risk transfer should have been apparent, to an appropriately informed and experienced person, from the contents of Hannover 1 itself.  They, therefore, dispute that even the form of the contentious agreements relevantly lent itself to any impropriety in relation to the appropriate accounting treatment.

6.The section 37 statements of reasons for the decisions under review indicate that the characterisation of Hannover 1 and, in particular, whether it relevantly disclosed the absence of any transfer of risk, is the subject of apparently conflicting expert evidence. The reasons conclude that knowledge of the letter of credit agreement was critical to a full understanding of the absence of any risk transfer. The Applicants complain that this conclusion represents an unreasoned rejection of the expert evidence they submitted. In particular, the Applicants complain that the effect of the conclusion was to accept contrary views, expressed in what is referred to in the reasons as the “Pearson Report”. The Applicants say that the Pearson Report was demonstrably flawed by erroneous assumptions. The Applicants further complain that, although the reasons for decision implicitly accept the force of their criticism of the Pearson Report, they nevertheless came to the same conclusion - that Hannover 1 and Hannover 2 were misleading, unless regard was also had to the effect of the Letter of Credit.

7.The Applicants complain that the reasoning process by which this result was achieved is opaque.  They highlight in particular the following paragraph of the reasons, which appears immediately after a recital of the various criticisms the Applicants made of the Pearson Report.

5.3I have taken these submissions into account in reaching my decision.  However, as set out elsewhere in these reasons, my decision to disqualify you is not based solely on my review of Ms Pearson's evidence, but taking into account all of the evidence referred to in this statement of reasons, in addition to Ms Pearson's report.

8.The Applicants’ particular complaint is that this partial disavowal of Ms Pearson's evidence, and the reference to “taking into account all of the evidence referred to”, provides no adequate reasoning process.  They say it does not disclose the actual reasons for the rejection of their contention, that the absence of risk transfer was relevantly patent on the face of Hannover 1.

9.The Applicants, or at least their legal advisers, have embarked on an industrious course of attempting to ensure the production of all documents relevant to the review proceedings.  As a result of that effort, which includes obtaining documents in response to requests under the Freedom of Information Act 1982, the Applicants and their advisers have reached the conclusions set out below.  The Respondent, Australian Prudential Regulation Authority (“APRA”), indicated, in the course of argument on this application, that it did not dispute the material substance of these propositions:

(a)Sparke Helmore (solicitors retained by the Respondent) prepared draft disqualification decisions before the operative appointment of the delegate who made the original disqualification decision;

(b)the draft disqualification decisions were reviewed by other officers of APRA, who provided comments to Sparke Helmore and a revised draft was prepared;

(c)the revised draft decisions were provided to the delegate, together with bundles of source materials;

(d)the delegate finalised his decisions:

(i)within either 4 or 12 days of being provided with the draft decision, files and documents, and

(ii)following a telephone conference with Sparke Helmore;

(e)in connection with the decisions under review (that is the review of the original disqualification decision) Sparke Helmore were again instructed by APRA to prepare draft reasons and advise;

(f)draft confirmation decisions were prepared by Sparke Helmore and provided to the maker of the reviewable decision

(g)the confirmation decisions under review were made:

(i)only a day or so after receiving the draft decisions, and

(ii)after a telephone conference with Spark Helmore.

10.The Applicants contend that these matters are clearly relevant to the decisions under review and to the review proceedings themselves.  In support of that contention, the Applicants tendered two memoranda recording that draft disqualification letters, with reasons for disqualification, were submitted to the original decision maker “for your consideration and amendment if you require”.  In each instance the original decision maker endorsed the memorandum “decision (instrument) letter and statement of reasons signed”.  The Applicants contend that this endorsement indicates the original decision maker merely accepted the draft decision submitted to him.  The Applicants also point to the fact that in each of the decisions under review, that decision maker expressly endorsed the factual findings made by the original decision maker. 

11.The Applicants contend that, notwithstanding the obligations imposed by section 37 of the AAT Act, the Respondent has failed to disclose the following categories of documents:

(a)The documents which passed between Spark Helmore and APRA and between APRA internal lawyers and other APRA personnel (such refusal being on the basis that all such documents are privileged, as they were created for the dominant purpose of giving or receiving legal advice).

(b)The documents which disclose the findings and reasons of the person(s) who actually reviewed the evidence and material, and undertook the reasoning process which underlined the initial disqualification decisions and the confirmation decisions.

(c)The documents which would disclose the findings and reasons (and the material relied on in doing so) of the person(s) who actually rejected the actuarial evidence submitted by the applicants.

12.The Applicants submit the Tribunal should order the production of these documents, pursuant to s 37(2) of the AAT Act. The Applicants, alternatively, contend the Tribunal should direct the Respondent to provide affidavit evidence demonstrating the irrelevance of the documents and, thus, the Respondent’s compliance with the obligations imposed by s 37(1) of the AAT Act.

13.The Respondent resists any orders being made.  The Respondent says the only documents that answer the Applicants’ descriptions are the various drafts that passed between its officers and Sparke Helmore.  The Respondent  submits that:

(a)The only relevant order potentially open to the Tribunal is an order under s 37(2) of the AAT Act, and the exercise of that power is contingent upon the Tribunal's opinion that the documents “may be relevant to the review of the decision”.

(b)The documents the Applicants seek are not, and cannot be, relevant to the decisions under review.

(c)The documents sought are, in any event, likely to be the subject of a valid claim for legal professional privilege, and requiring their production would be an exercise in futility, since the Tribunal would not and, perhaps could not, require their disclosure to the Applicants in any event.

The concept of relevance in Tribunal proceedings

14.Section 37(1)(b) of the AAT Act requires a decision maker to produce to the Tribunal every document in their possession or control that “is relevant to the review of the decision by the Tribunal”. Section 37(2) of the AAT Act gives the Tribunal a discretionary power to require the production of any documents that “may be relevant to the review”. Section 40(1A) permits the Tribunal to issue a summons to require the production of documents.

15.The Tribunal’s summons power is not expressly confined to “relevant” documents, but it is accepted that the proper exercise of that power requires satisfaction that the documents sought at least have what has been called “adjectival relevance” to the issues in the proceedings.  The concept of “adjectival relevance” is described, or illustrated, in many ways in the cases.  Those descriptions include whether or not the documents have the capacity to “throw light on the issues in the main case” Trade Practices Commission v Arnott's Ltd (No 2) (1989) 88 ALR 90 at 103; whether the documents are “connected with or pertinent to” the issues: Re VBN and Australian Prudential Regulation Authority (2005) 92 ALD 455 at 465; and whether or not the documents “could reasonably be expected to throw light on some of the issues in the principal proceedings”: Re Marnotta and Secretary, Department Of Health and Ageing [2004] AATA 800 at [42]. Essentially, what the concept of “adjectival relevance” refers to, is the capacity of the documents sought to support a conclusion or proposition that has an arguable relevance to the proceedings: Cosco Holdings Pty Ltd v Commissioner for Taxation (1997) 37 ATR 432.

16.The concept or quality of adjectival relevance is often contrasted with the pejorative epithet “fishing”, to indicate the distinction between the permissible and the impermissible scope of a summons seeking the production of relevant documents.  What the contrast is intended to highlight, is the requirement for a positive satisfaction that the documents sought are likely to inform the review process.  This likelihood concept is not, however, one that requires any estimate of probability.  The contrast between what is permissible and what is not, is essentially a distinction between documents in whose relevance there is a reasonable cause to believe and, on the other hand, documents whose potential relevance is essentially speculative: Cosco Holdings Pty Ltd v Commissioner for Taxation (1997) 37 ATR 432.

17.The Tribunal's summons power must, therefore, be regarded as extensive. The explicit relevance concept, contained in ss 37(1) and 37(2) of the AAT Act, must be regarded as carrying a similarly expansive connotation. Nevertheless, the concept of relevance requires positive satisfaction of a sufficient relationship between the documents, or class of documents, whose production is in issue and the matters to be determined in the proceedings. Furthermore, the notion of relevance carries with it a purposive connotation dealing with the capacity of the document to influence the determination of the proceedings. This capacity, and the criterion it involves, is different from the mere existence of some correlation between the document in question and either the subject matter of, or evidence or issues in, the review proceedings. For example, in the analogous context of judicial proceedings where the Evidence Act 1995 applies, the concept of relevance is defined by reference to the capacity of evidence to “rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding”. 

18.That concept of relevance is more restrictive than the concept of “adjectival relevance” that generally marks the limits of a compulsive summons or subpoena power. Nevertheless, it contains an expression of the purposive relationship between the contentious documents and the matters to be determined in the proceedings, and that purposive relationship is at the essence of the concept of relevance to which s 37 of the AAT Act refers.

The Applicants’ contentions in relation to relevance

19.In the context in which the Applicants developed their submissions, the first category of documents should probably be understood as confined to the documents containing the draft decisions, and Sparke Helmore’s advice or instructions in relation to those drafts.  Unless at least that limitation was implied, the description would extend to documents that have no connection with the actual decision.  Even with that implied limitation, the description extends to include documents that, so far as appears, were never provided to, and not taken into account by, the person who made either of the original decisions or the decisions under review. 

20.Nevertheless, the Applicants contend that the documents sought, particularly those within the descriptions in the second and third categories, will reveal the real reasoning process involved in both the original decisions and the decisions under review.  They contend that is particularly the case in relation to the reasons for the rejection of their submissions, and the expert evidence they proffered, in relation to the proper characterisation of the effect of Hannover 1. 

21.The Applicants’ contentions ultimately involved two propositions. The first was that the actual reasons for decision must always be relevant in the sense required by s 37 of the Act. The second was that the ultimately relevant criterion was the Tribunal’s opinion that the documents “may be relevant”, and that this was a completely undemanding criterion. The Applicants submitted that, at the very least, the documents may be relevant because they may tend to reveal errors or inadequacies in APRA’s evaluation. Any such errors or inadequacies would or, at least, could be relevant to the Tribunal because they would properly inform the Tribunal about what significance, if any, it should attach to the decisions under review.

Relevance of the decision maker’s reasons

22.There is an undeniable sense in which the reasons for the decision under review are relevant to the Tribunal proceedings. The AAT Act mandates that a decision maker must provide a statement of reasons for any decision that is the subject of a review application: s 37(1)(a). But where, as in the present case, no onus operates either in favour of or against the decision under review, the decision is otherwise “relevant” not because of its own force, but only to the extent that it contains a selection of facts and a process of reasoning that may also commend itself to the Tribunal. The decision maker’s reasons may inform the efficiency of the review process and proceedings, but they cannot, of their own force or content, consistently with the Tribunal’s own decision making function and responsibilities, directly or indirectly influence the review decision. Even where the Tribunal’s review function is conditional upon satisfaction of relevant error in the decision under review, the relevant consideration is the ultimate result of the reviewable decision, rather than the sufficiency of the reasons on which it was based.

23.The Applicants relied upon Re Control Investments Pty Ltd and Australian Broadcasting Tribunal (No 2) (1981) 3 ALD 88, for the proposition that the reasons given by a decision-maker for reaching a decision are relevant to the review undertaken by the Tribunal. That proposition can hardly be denied. As President Davies J pointed out, the obligations imposed on a decision maker under s 37, the Tribunal's power to require additional particulars of findings or reasons under s 38 and the Tribunal's permissive power, under s 33(1) (to inform itself on any matter in such manner as it thinks appropriate), carries the necessary inference that the Tribunal may have regard to those findings of fact and the reasons for decision: see 3 ALD at 92-93.

24.This relevance of the decision maker’s reasons obviously requires that those reasons comply with the statutory requirements in ss 28 and 37 of the AAT Act. They must set out the findings on material questions of fact, refer to the evidence and give reasons for the way in which those findings have been applied in making the decision. The Applicants complain that, unless the disclosed statement of reasons complies with those requirements, they are potentially disadvantaged. They cite Re Palmer and Minister for the Capital Territory (1979) 1 ALD 183 at 196 for the proposition that the statement must contain the actual reasons for the decision. They complain, and the actual description of the second and third categories of the documents they seek reflects the complaint, that the s 37 reasons in the present case do not actually disclose the actual operative reasons for the decisions – particularly in relation to the rejection of their contentions about the proper characterisation of Hannover 1.

25.Palmer was a very different case from the present. It involved a rating decision based on valuation of the applicant’s land. The supposed statement of reasons proffered to him did no more than reveal the result of the valuation that had been carried out, and the other properties whose values had been taken into account. Unsurprisingly, the Tribunal ordered the decision maker to provide a further statement of reasons under s 38 of the AAT Act.

26.The Applicants’ argument in the present case, in so far as it applies to the second and third categories of documents, is not really directed towards the decision maker’s reasons.  Nor, unlike the situation in Palmer, is this an application for an order under s 38 of the AAT Act, requiring the Respondent to provide additional statements or further particulars. Rather, the Applicants’ contention is that there is a relevant absence of patent reasoning and evaluation in the section 37 reasons. They suggest that the contentious documents may contain more explicit reasoning and, for that reason, they satisfy the requirement of s 37(2) that they “may be relevant to the review of the decision by the Tribunal”. The Applicants suggest that this possibility of more specific reasoning is a matter that they should be entitled to investigate by obtaining production of the documents.

27.The Applicants’ submissions touch on the difficulty of distinguishing between the absence of stated reasons, on the one hand, and the apparent inadequacy of the reasons advanced. This distinction is necessarily one of impression. In the present cases, the s 37 reasons for the two decisions under review occupy some 20 odd pages, and adopt the 30 odd pages of reasons of the original decision maker. They appear from their structure, length and substance to reflect a conscientious attempt to refer to the relevant evidence, and set out the reasoning for the conclusion that the absence of risk transfer was either not apparent, or, not sufficiently apparent, from the terms of Hannover 1, without disclosure of and regard to the Letter of Credit. In that regard, the reasons refer to various parts of evidence one or other of the Applicants gave to the HIH Royal Commission. The reasons seek to characterise that evidence as involving relevant concessions about the effect of Hannover 1 and the Letter of Credit.

28.That brief summary of the s 37 statements is not intended to convey any endorsement of the cogency of the reasoning they contain. Indeed, it may be that the reasons do not clearly convey whether and, if so precisely why, the decision maker positively concluded that Hannover 1 (taken on its own) involved a transfer of risk. But my impression is that if there is that kind of deficiency in the reasoning process (and I explicitly refrain from embracing that positive conclusion) it is a deficiency that goes to the actual reasoning process itself, rather than to its expression in the s 37 statements. That kind of deficiency is not one that points to the relevance of other documents merely because they might contain a reasoning process that the decision maker might have adopted but which, on the face of their published reasons, they failed to endorse or even acknowledge.

29.The Applicants further submission was that even if the decision maker’s disclosed reasoning was inherently deficient (as distinct from merely inadequately expressed) they might yet later be confronted, and disadvantaged, by a submission that the decision should nevertheless be regarded as representing a considered view of the responsible authority and accorded weight by the Tribunal on that basis.  They say that they should not be denied an opportunity to confront fully any and every aspect of the potential relevance of the decision and the decision maker’s reasons. 

30.This general proposition may be accepted, but the concern that underlies it is, in my opinion, misplaced.  Whilst a decision maker's reasons and findings are “not ... entirely irrelevant in a proceeding before the Tribunal” and the Tribunal is not obliged to consider the review proceedings entirely afresh “without reference to what the decision-maker has said about the issue in dispute” (Re Control Investments Pty Ltd and Australian Broadcasting Tribunal (No 2) (1981) 3 ALD 88 per President Davies J at 92) the Tribunal's ultimate function is undoubted. The seminal description of that function was given by Bowen CJ and Deane J in Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 at 68. Although it is a well-known statement it bears repeating:

The question for the determination of the Tribunal is not whether the decision which the decision-maker made was the correct or preferable one on the material before him.  The question for the determination of the Tribunal is whether that decision was the correct or preferable one on the material before the Tribunal.

31.In determining what is the “correct or preferable decision” the Tribunal may properly be influenced by the requirements of consistent administrative decision-making. In addition, those requirements of consistency and the principled exercise of statutory powers and discretions may well make it relevant for the Tribunal to take into account, and indeed apply, appropriate practices and policies formulated by a primary decision-makers. However, these general considerations simply do not mean that in the principled exercise of its review function the Tribunal should, or even could, consistent with its statutory function, merely accord significance to the mere fact of the decision under review. The entire purpose of the statutory obligations imposed by ss 37 and 38, together with the Tribunal's own function, and its express obligations under ss 43(1) and (2) contemplate a reasoned decision making process in which the Tribunal's decision is made with an unimpeded ability to “exercise all the powers and discretions” of the primary decision maker. Where there are significant errors in, or omissions from, the evident reasoning for the decision under review, it is proper to assume that this Tribunal would discharge its statutory review function without any deference to the decision under review.

“Facilitative” documents and legal advice

32.Up to this point I have addressed the Applicants’ submissions that were directed towards demonstrating the relevance of the documents sought by virtue of their capacity to inform about the true reasons for the decisions under review.  In the light of what I have said I am not of the opinion that the documents sought may be relevant on that basis.  But the Applicants pressed the application on a somewhat wider basis, particularly in relation to the disclosure of those documents that suggested legal advice in relation to the making of the decision.  In that context the Applicants relied on Re Spicer Axle Structural Components Australia Pty Ltd and Secretary, Department of Industry, Tourism and Resources (2005) 83 ALD 104.

33.In the Spicer matter the Tribunal required the production under s 37(2), and subsequently ordered the disclosure, of legal advice that had been relied upon by the respondent in making the decision under review. At that time the decision maker's production obligation under s 37(1)(b) was limited to documents “considered by [the person] to be relevant to the review of the decision by the Tribunal”. Section 37 was amended in 2005 and s 37(1)(b) altered to adopt the more simple, and more objective, criterion that the decision maker's production obligation extended to the contents of any document that “is relevant to the review of the decision by the Tribunal”.

34.In Spicer DP Forgie considered that the word “relevant” in section 37 was to be given its plain and ordinary meaning. That meaning was the minimal requirement of “bearing on, connected with or pertinent to the matter in hand”. The learned Deputy President considered that the s 37 criterion of being relevant was not restricted to one of its more usual forensic connotations – in effect, the quality of tending to be probative of a fact in issue and which I have indicated earlier in these reasons. The Deputy President then went on to described the nature of the Tribunal's decision making function. She pointed out that it inevitably involved the application of the legislation under which the reviewable decision was made. She concluded that legal advice, which admittedly in that case directly involved the interpretation and application of the legislation in question and had in fact been relied on by the decision maker, was necessarily directed towards the identification and interpretation of the applicable legislation and would therefore “be relevant” and so should be lodged with the Tribunal under s 37(1)(b). Similarly, in relation to the Tribunal's power under s 37(2) to order the production of documents that “may be relevant to the review of the decision by the Tribunal”, the Deputy President concluded that “documents that are concerned with the interpretation or application of the pertinent law are relevant”.

35.An essential part of the reasoning of the Deputy President in Spicer was the notion that relevance, for the purposes of s 37 of the AAT Act, was not restricted to documents that were of themselves probative in a factual sense. She considered that the s 37 concept of being “relevant” extended to documents that were merely “facilitative”. In so concluding, the learned Deputy President differed from a view that had been previously expressed by the Tribunal in Re Thomas Cook Australia Pty Ltd and Collector of Customs (1994) 34 ALD 301 at 304. In that case, Senior Member Handley had taken the view that the obligations imposed under s 37 of the AAT Act were principally concerned with the production of documents upon which the decision maker’s statement of reasons was based, and “which are necessarily factual and material in nature”.

36.In Spicer, DP Forgie went on to consider the question of disclosure of the contentious legal advice. She concluded that, under the then form of s 37(1)(b) and s 37(1AE), the decision maker's obligation to produce the documents to other parties to the proceedings was conclusively dependent upon the decision maker’s subjective opinion about the relevance of the documents. Where the decision maker contended for the irrelevance of the documents, and they were produced only in response to a Tribunal order under s 37(2), there was no necessary disclosure obligation, or corresponding entitlement. The question of disclosure to the other parties was then a matter for the exercise of the Tribunal's discretion under s 35(2)(c). In that regard, the learned Deputy President said:

[38] Having regard to the provisions of ss 33, 35, 39 and 40 as well as of s 37, I have concluded that the Tribunal may not ignore a claim for legal professional privilege when making an order disclosing documents lodged in compliance with an order under s 37(2).  If a claim for legal professional privilege is made out, it may not order disclosure of that document to any party to the preceding other than the decision maker.

37.In the end result in Spicer, the learned Deputy President concluded that the legal advice in that case should be disclosed because privilege had been waived. It had been waived because the substance and effect of the advice had been disclosed to the other party, in the course of discussions and meetings that were otherwise evidenced in the contents of documents produced by the decision maker in discharging the obligations under section 37(1) of the AAT Act.

Legal advice – relevance, production and disclosure

38.In the Spicer case, it was very clear, and indeed appears not to have seriously been contested, that the contentious legal advice addressed central issues about the interpretation of the relevant legislation, and its potential application to the circumstances of the case. 

39.In the present case, no argument was advanced by the Applicants to suggest that any particular legal issue is likely to arise in the Tribunal’s review proceedings. Certainly, no such issue is either apparent from, or implicit in, the s 37 reasons. So far as appears from those reasons, and the course of submissions on this application, the contest in the review proceedings will involve (i) the proper characterisation of the effect of Hannover 1, in particular, (ii) irrespective of the characterisation of Hannover 1, whether the transaction had either an apparent or perhaps an arguable genuine commercial substance and form and (iii) whether the Applicants were relevantly affected by apprehension or knowledge about the chance of HIH misrepresenting the nature of the transaction. In these circumstances, the mere fact that Sparke Helmore provided advice to APRA does not demonstrate that their advice “is relevant” to the Tribunal review.

40.The basic thrust of my reasoning places a somewhat different emphasis on the concept of relevance to that taken by DP Forgie in Spicer. However, I note that the learned Deputy President did not consider the possible analogy between the s 37 power and the Tribunal’s summons power, neither did she explicitly consider the concept of adjectival relevance. Furthermore, I doubt that any difference of emphasis would be likely to lead to any materially different outcome. The ordinary meaning of “relevant” to which the learned Deputy President referred is itself necessarily dependent on context. This is a necessary consequence of the idea that the character of being “relevant” depends on the nature of the task in hand, and the purpose for which relevance is being assessed. That context is relevantly provided by the Tribunal’s basic decision making functions under the AAT Act and, in addition, its obligations of informality, expedition, economy and fairness (see ss 2A and 33(1)) and its power to limit the scope of the facts and issues it determines (s25(4A)). These considerations must inform the principled assessment of whether a particular document either “is relevant” or “may be relevant” to the review of the proceedings by the Tribunal.

41.Furthermore, it is apparent from the decision in Australian Prudential Regulation Authority v VBN (2005) 88 ALD 403 at [11], that the concept of facilitative relevance does itself contain limits related to the decision and the perceived directness of connection between the documents in question and the decision under review. As a consequence, the s 37 concept of relevance does not require (i) the production of legal advice which, though it may have been available to the decision maker, was not considered in the course of arriving at the impugned decision or (ii) the production of legal advice that is related merely to the decision making process: Australian Prudential Regulation Authority v VBN (2005) 88 ALD 403 at [11] and [32] FCA 1868. These considerations reinforce the view I expressed above, that the mere fact that Sparke Helmore provided advice to APRA does not demonstrate that their advice “is relevant” to the Tribunal review. In the present case, I am not satisfied that there is any other basis on which it would be proper to conclude that communications with Sparke Helmore may be relevant to the review proceedings.

The production of drafts of reasons for decisions

42.It is apparent from APRA’s acknowledgment, in the course of argument, that the only documents that would potentially come within the second and third categories of documents, sought by the Applicants, are the drafts of the s 37 reasons. The potential relevance of these drafts was argued on the basis of alternative possibilities, that the drafts had been (i) immaterially altered (that is, merely “rubber stamped”), (ii) materially altered or (iii) disregarded or rejected.

43.The position of draft documents is a rather contentious matter in many areas.  Where the issue for determination is the objective meaning of a document, such as the interpretation of a contract or statutory provision, drafts are generally inadmissible, save to the extent that they may cast light upon objective facts that form part of the objective background.  Contractual drafts, in particular, are inadmissible because the matter to be determined is the objective meaning of the contractual terms, and the courts regard the inferences from drafts as generally incapable of providing meaningful assistance in that interpretation exercise:  Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352. Of course, contractual drafts are commonly regarded as discoverable, because they are accepted as coming within the concept of “adjectival” relevance, to which I have referred earlier. They may satisfy that description for one or more of many reasons. They may bear indirectly on the proper objective understanding of the final document. They may reveal the extent to which particular facts can be shown to have been commonly known by the contracting parties. They may reveal a mistake in the mutually intended wording or meaning of the final agreement wording. They may bear upon the credit of particular witnesses, in relation to matters other than the meaning of the agreement.

44.In the case of expert evidence, there is a degree of controversy about the extent to which draft expert reports attract privilege and their disclosure resisted.  (Some cases have held that uncommunicated draft reports cannot attract privilege: see Interchase Corp Ltd (in liq) v Grosvenor Hill (Qld) Pty Ltd (No 1) [1999] 1 Qd R 141 at 150-1. Other cases have held that the dominant purpose of a draft document is necessarily the same as the purpose of the ultimate report and attracts the same privilege: Re Southland Coal Pty Ltd (rec & managers appointed)(in liq) (2006) 203 FLR 1). The adjectival relevance of drafts is generally accepted – so as to make the drafts amenable to discovery or production (to a court or tribunal) in response to a subpoena or summons. But the adjectival relevance of draft documents of these kinds is provided by their capacity (if they are disclosed despite the potential privilege claim) to aid in evaluating the credibility of the expert’s opinion, the sufficiency of the material on which it was based and, in some instances, whether it is the result of a truly objective and unbiased assessment.

45.The potential adjectival relevance of documents of these kinds cannot be pursued to any meaningful extent in relation to drafts prepared by, or provided to, the decision makers of reviewable decisions.  This is fundamentally because in the Tribunal’s review proceedings, at least in the absence of specific statutory provisions, neither party bears any onus of proof or persuasion and the motives or credibility of the decision maker is essentially irrelevant to the Tribunal’s function:  see Re Mika Engineering Holdings Pty Ltd and Commissioner of Taxation (2006) 92 ALD 688.

46.Neither am I of the opinion that draft documents “may be relevant to the Tribunal’s review”, on the wider basis that they may contain relevant information and, in particular, information that has been omitted from the published s 37 reasons. The expression “may be relevant”, as the Applicants rightly submitted, is one of permissive generality. But it nevertheless is linked to a requirement that the Tribunal has formed a positive opinion about possible relevance. The expression “may be relevant” is apt because, by necessary hypothesis, the Tribunal will exercise the power when it does not know the contents of the contentious documents, and may only know their general class or character: see Australian Prudential Regulation Authority v VBN (2005) 88 ALD 403 at [35]. But s 37(2) of the AAT Act could not reasonably have been intended to confer on the Tribunal a power to require the production of documents because of a merely intellectual or speculative possibility of relevance. The threshold requirement that the Tribunal form an opinion requires some process of evaluation, based on reason and reasonable inference. In the present case, the most one knows about the drafts is that (i) some revision or alteration was made of the first version and (ii) the original decision maker may have signed the statement of reasons without material alteration. In my opinion, these matters provide no basis for reaching a positive opinion that the draft documents may be relevant to the review proceedings.

Residual Discretion not to Order production

47.It is not necessary to consider, in the present case, whether s 37(2) of the AAT Act contemplates that the Tribunal could properly refuse to require production of a document, even if it was affirmatively satisfied of its relevance, or possible relevance. I express no opinion on that point.

Privilege and Production

48.It is not appropriate to attempt to determine whether the documents, whose production has been sought, would attract legal professional privilege.  Even if the documents were privileged, I regard it as an open question whether the Tribunal then could either permit their disclosure, or should order their non-disclosure.  These matters were discussed in Spicer and again by the Federal Court in Australian Prudential Regulation Authority v VBN (2005) 88 ALD 403. As the consideration in those cases reveals, the point is not without difficulty.

Decision

49.I am not of the opinion that the documents whose production has been sought by the Applicants may be relevant to the review of the decision by the Tribunal. Accordingly I refuse to make any order for production under s 37(2) of the AAT Act. Having regard to the decisions in Spicer and Australian Prudential Regulation Authority v VBN (2005) 88 ALD 403, s 37(2) is the Tribunal’s only power to order the production of apparently relevant documents. For both these reasons I also refuse to make any direction under s 33 of the AAT Act requiring the Respondent to demonstrate its compliance with s 37 of the AAT Act in relation to the production of documents.

I certify that the 49 preceding paragraphs are a true copy of the reasons for the decision herein of Mr PW Taylor SC, Senior Member

Signed:         .....[sgd]...............................................................................
  Associate

Date of Hearing  28 May 2008
Date of Decision  30 May 2008
Counsel for the Applicant         Mr P H Greenwood
Solicitor for the Applicant          Ms Caitlin Murray
Counsel for the Respondent     Mr James Stevenson and Ms Vanessa Whittaker
Solicitor for the Respondent     Mr Anthony Carter