Re PMMC/WJPJ and Australian Prudential Regulation Authority

[2009] AATA 801

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 801

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          Nos      2008/2692
  2006/0846

GENERAL ADMINISTRATIVE DIVISION        )

RePMMC/ WJPJ

Applicant

AndAUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

Respondent

DECISION

TribunalJustice Downes, President

Mr S E Frost, Member

Date15 October 2009

PlaceSydney

DecisionApplication for disqualification of Mr Frost refused.

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

Garry Downes
  President

CATCHWORDS

Application for disqualification of Tribunal Member on basis of apprehended bias – Stitt v Australian Prudential Regulation Authority [2009] AATA 601 – “double might test” – consistency of administrative law – application for disqualification refused.

RELEVANT ACT/S:

Administrative Appeals Tribunal Act 1975

CITATIONS

Stitt v Australian Prudential Regulation Authority [2009] AATA 601

Shi v Migration Agents Registration Authority [2008] HCA 31; 235 CLR 286

Ebner v Official Trustee [2000] HCA 63; 205 CLR 337

REASONS FOR DECISION

15 October 2009

Justice Downes, President

Mr S E Frost, Member

Summary

1.      JUSTICE DOWNES:   Between 1998 and 2001, the Applicant was a director of HIH Insurance Limited.  As is well known, that company and the group associated with it, subsequently collapsed and, in consequence, there was a well-publicised Royal Commission into the causes of the collapse.  The Australian Prudential Regulation Authority, since the collapse of HIH and importantly, since the findings of the Royal Commission were published, has itself investigated the affairs of the group.  That has led to a number of disqualifications of persons from being involved in management positions in insurance companies.  The Applicant is one of these persons.

2.      In May 2006, he was disqualified from being, in summary, a director or manager of a general insurance company.  That disqualification was made by a delegate of the authority namely, Peter Kennedy.  The disqualification decision was reconsidered in June 2006 by another delegate of the Authority namely, Susan Tongue and the disqualification decision was confirmed.  The Applicant has applied to the Administrative Appeals Tribunal for review of the disqualification decision.  The matter is now ready for hearing and, indeed, hearing dates have been allotted for it commencing on 23 November.  The tribunal has been constituted for the purpose of this hearing by myself and Member Stephen Frost.

3.      When the matter was before Mr Frost and myself a few weeks ago for directions, the Authority, through its counsel, informed the Tribunal that it was considering making application to the Tribunal for Mr Frost not to be a member of the tribunal for the hearing of the application.  The Tribunal invited the Authority to finally determine its position as quickly as possible and, if it decided to make a claim, to do so promptly.  The Authority has decided to make the application and the application has been heard before the Tribunal this morning.  The broad basis for the application is that because Mr Frost, forming part of a tribunal presided over by the Honourable B.J.M. Tamberlin QC, a Deputy President of the tribunal, considered an application for review of a similar decision relating to Robert Reginald Stitt, another former director of HIH Insurance Limited, there were reasons, broadly speaking, falling into the category of apprehended bias relating to Mr Frost, which ought to have caused him to recuse himself.

4.      In a broad sense the case involving Mr Stitt and the case involving the Applicant, involve similar issues.  They start by involving the management of the one company through its board and its audit committee.  However, they go further than that.  There are at least two particular transactions or subjects, which were central to the claim to the disqualification of Mr Stitt, by the Authority, which are also raised in the application by the Applicant.  The Authority says that Mr Frost, having been party to a decision of this Tribunal in which the decision of the Authority to disqualify Mr Stitt was set aside, and that decision being based on these similar considerations, a case of apprehended bias relating to the way in which Mr Frost might be thought to approach the application relating to the Applicant, is made out. 

5.      So far I have been speaking in shorthand about the test, but I will come to the detailed test in a moment.  First, I would like to address the identity of the issues between the two cases, because it seems to me that, although, at a superficial level, it seems that there is a great similarity between the two cases, and in some respects it might be suggested even an identity, further examination of the material does not, I think, bear this out.  The basis for saying that there might at first appear to be an identity between the two cases, is probably best illustrated by a proposed set of agreed facts, prepared by the advisers to the Applicant, which seek to take almost word for word, findings of the tribunal in Mr Stitt’s matter and ask that they be made in the matter involving the Applicant.  The form, indeed, actually makes reference to Mr Stitt in each proposition sought to be made out, but then has in square brackets after Mr Stitt’s name “read [the Applicant]”. 

6.      So why is it that what looks like something very close or even identical, on further examination proves not to be so?  The first matter, I think, that one needs to take into account is exactly what it is that is to be considered by the Tribunal, and before it, of course, by the Authority, in determining whether a director should be disqualified.  The answer to that is it is the question of whether the director is a fit and proper person to hold that position.  The time at which this is to be tested is, in the light of the decision of the High Court in Shi v Migration Agents Registration Authority [2008] HCA 31; 235 CLR 286, highly likely to be the time of the hearing. However, it could not be earlier than the time at which the decisions of the authority were made, namely, the middle of 2006.

7.      So one starts with the proposition that although an important matter as to whether the Applicant is a fit and proper person to be a director or manager of an insurance company in 2009, may be his conduct eight or nine years earlier, it certainly is not the sole matter for consideration and may not even be the most important matter.  I do not know the answer at the moment, because I have not yet looked sufficiently at the material in the case in the way I will when it comes on for hearing but what the Applicant has done in the meantime, and what his position is now and how he conducts himself now, will be of significance and may be of great significance in determining this matter.  It is stating the obvious to say that this is a significant distinction between Mr Stitt and the Applicant. 

8.      Apart from anything else, I note that Mr Stitt is a lawyer and the Applicant is an accountant.  However, that is not what I am primarily referring to.  What Mr Stitt has done in the last nine years, which was relevant to the decision in his case, is of no relevance whatsoever to the decision in the present case.  On one view the relevant factor one should be looking at in determining this application, is the fitness and propriety of the Applicant, without regard to Mr Stitt, in being a director or manager of an insurance company.  If that were the test then there would be no basis for raising the issue of bias, because the factual issues are entirely different. 

9.      The Authority, in seeking to draw attention to what it is that appears in the decision relating to Mr Stitt, which gives rise to the apprehension, has taken us this morning to an examination of the topics that concern the activities of both Mr Stitt and the Applicant, as directors of HIH Insurance, in the period leading up to the collapse of the company.  In an effort to identify facts, which were found in the Stitt case, which will squarely arise in the present case, we have been taken to matters such as an apparent finding of the tribunal in the Stitt case that a non-executive director was entitled to “believe management.”  No doubt it would be added in this case that it was the same management.  On my examination of the reasons for decision in Mr Stitt’s case, the outcome in that case was not determined by findings of this kind, although the view that the Tribunal took relating to Mr Stitt’s entitlement to rely upon material he was informed of by management, was obviously a factor.  However, the Tribunal in Mr Stitt’s case made it very clear that they were dealing with the position of Mr Stitt and Mr Stitt’s knowledge and conduct.  Indeed, if they had dealt with the matter in any different way, they would, in my opinion, have been failing to carry out the task that was before them, which, I repeat, is about the fitness and propriety of a person to hold the office of director or manager and not about the culpability or otherwise of past conduct. 

10.     At paragraph 75 of their reasons, I note that the Tribunal referred to the fact that the Authority had called no oral evidence relating to the certain conduct, referred, but that Mr Stitt had dealt with it in considerable detail in his affidavit.  An examination of their reasons following shows that they were addressing Mr Stitt’s evidence.  The Applicant has also filed extensive evidence.  We were taken this morning, to an affidavit of the Applicant which exceeds 100 pages in length.  I have been informed that Mr Stitt is not to be a witness in the present case. 

11.     Of course it was open, as they did, to the advisors of the Applicant to seek agreement from the Authority that some facts found in the Stitt matter should be carried over into this matter.  Of course, there is no obligation for that to occur.  If there are facts found in the Stitt matter with which the Authority does not agree, it naturally will be open to it to put its case at the hearing. 

12.     The test which needs to be applied in determining whether this application should succeed or not, as set out in the Authority’s written submissions, is:

Whether a fair-minded lay observer, having knowledge of the material objective facts, might reasonably apprehend that the Member might not bring an impartial and unprejudiced mind to the determining of the application.

13.     As has been said many times, judges and tribunal members are not required to come to a hearing with a blank mind, merely with an open mind.  Indeed, it would be highly undesirable, I think, if judges and tribunal members were required to come to a hearing with a blank mind.  Nevertheless, I recognise that, as many judges have said, the test is a particularly stringent one.  It contains what has been described as a “double might”.  It is a test that is perhaps now more stringent than tests were in the past and a test that cases have shown can be fairly easily satisfied.  However, I do not think that it has been satisfied in the present case. 

14.     I do not think it has been satisfied in the present case because, in effect, of the reasons I have already given, to the effect that the issue in this case relates to a particular person, and that particular person’s fitness and propriety.  It is true that it relates to that person’s diligence as a director and the Stitt case also related to that person’s diligence as a director.  That does not seem to me, in the overall circumstances, to be sufficient.  The broad reason I think it is not sufficient, is because as the cases show, it is even under the test, necessary to identify “what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits.”  (Ebner v Official Trustee [2000] HCA 63; 205 CLR 337 at 345 per Gleeson CJ, McHugh, Gummow and Hayne JJ).

15.     The words of the sentence I have just quoted relate to the decision of the case “other than on its legal and factual merits.”  I do not think that really a word has been said in the submissions that have been put before us today, which would lead the fair minded lay observer, or anyone else, to imagine that Member Stephen Frost would decide this case in any way other than on its legal and factual merits.  There has not even been a suggestion from the Authority that there is something in the decision in the Stitt case, which shows some firm commitment to a proposition of fact, or something of that kind.  I have read the decision and I can see nothing in it for myself, which would cause any fair minded lay observer to have any doubts that Mr Frost would decide this case, other than in accordance with the law. 

16.     He might come to the case with a mind which is not blank, but there is absolutely nothing whatsoever in what he said in the decision, or in what has been put to the Tribunal this morning, which suggests that his mind is not open to being changed, if that is necessary, that if there is some fact that he has found that is wrong or is doubtful, that he would not listen with care to what is put.  Indeed, I noticed when I read his decision, that Deputy President Tamberlin and he made a number of observations relating to evidence that might have been given in the Stitt case that was not given and I have no doubt that that is a matter which might form a helpful function in assisting the Authority to prepare for the hearing of the present case. 

17.     So, for all these reasons I have come to the conclusion that the case that Mr Frost should be disqualified because of apprehended bias, in accordance with the words of the test I have described above, must fail. 

18.     Now, I want to go on and make one or two further observations, but I begin by saying that I accept that they are not relevant to the question that the Tribunal has had to decide and that the reasons I have given above are the reasons for that decision.  But I do think it is appropriate that the matters that have been raised today by the Authority should be looked at in their context. 

19.     I begin by noticing that the very decision that is the subject of review in these proceedings, and I mean both the original decision of Mr Kennedy and the confirming decision of Ms Tongue, were made by the same persons who made the decisions in the Stitt case.  In the case of Mr Stitt, Mr Kennedy made the primary decision and Ms Tongue made the confirming decision. 

20.     The Authority, in the submissions put this morning, has gone out of its way to argue – and I do not doubt the correctness of this – that the apprehended bias rules apply equally to administrative decision-making, as they do to judicial decision-making and apply at all levels of decision-making, not merely to a formal tribunal like the Administrative Appeals Tribunal.  In those circumstances a real question, if the Authority had been successful in its application in this case, must have been raised as to the status of the decision that the Tribunal is being asked to review.  It probably would not make any difference, because, as was held in the very early days of this Tribunal, the Tribunal has jurisdiction to review decisions, even if improperly made and for practical purposes the result in the present case would be the result in the Tribunal.  However, it is a comment on the way in which the Authority goes about dealing with matters such as this, to note that it proceeds in a way which appears, on the face of it, to contravene the rules that have been urged by the same authority before us this morning.  I would like to venture the view that there may not be any lack of propriety in the way that the Authority deals with matters, although I would not wish to be thought to be offering any concluded view. 

21.     Both the Authority and this Tribunal are part of the administration of the Commonwealth and exercise the administrative power of the Commonwealth.  We both have the role of carrying out proper, efficient and good administration on behalf of the Commonwealth.  The Tribunal is required by its statute to be fair, just, economical, informal and quick.  Section 33 of the Act requires the Tribunal to proceed as efficiently as possible. 

22.     This case might well have been heard along with the case involving Mr Stitt.  Indeed, there is possibly a very good basis for saying that it should have been.  Earlier this year, I decided a number of cases involving the Zurich Australian Insurance Ltd company, in which five directors had been disqualified under exactly the same provisions as the provisions that are applicable to the Applicant.  I specifically handled the case management of that case and required that all of the applications be heard together. 

23.     One of the reasons I gave, at the time I made these directions, was that it would avoid the possibility of an application such as the present.  However, if I had decided that case by separate reasons for decision, given over two or three days, would it have been appropriate for the Applicants who were lucky enough to come second and third in that order, to rush to me with an application that I should disqualify myself from deciding the second and third cases?  I think not.  Yet, what the Authority is putting to the Tribunal today, if successful, would mean that the Tribunal would have to differently constitute itself for hearings where there were similar backgrounds as there were in the Zurich cases and there are in the HIH cases.  That does not seem to me to be good administrative decision-making notwithstanding the requirements to be just and fair. 

24.     One of the principles guiding the way in which the Administrative Appeals Tribunal carries out its functions and which is common to all administrative decision-making, and which was, initially, I think, espoused by Sir Gerard Brennan, when he was President of this tribunal, is the importance of consistency in administrative decision-making.  It would, to my mind, be a bad thing that if two directors were involved in similar conduct, that the results relating to them were different.  In those circumstances, it occurs to me that it may even be a positive advantage that the same person who has heard one case involving similar facts should then hear any subsequent case. 

25.     In a very real sense, as I have said in many decisions, the decision of the Tribunal becomes the decision of the authority or other body whose decisions are being reviewed.  It follows that at present, the decision of the Tribunal relating to Mr Stitt is the decision of the Authority, there being no appeal from the decision made by Deputy President Tamberlin and Mr Frost, in place of a decision of the Authority made by Ms Tongue and, before her, Mr Kennedy.  That fact is a fact which, it seems to me, would be appropriate for the Authority to take into account.  

26.     For all these reasons, it is my view that the constitution of the Tribunal for the hearing of this matter should remain unchanged. 

27.     MR FROST:   There is only one thing that I want to add to that.  The general approach, in Australia at least, is that when an application is made for a judge or a tribunal member to recuse him or herself from a hearing, the decision whether to disqualify is generally made by that person.  Just for the sake of clarity, I should emphasise that I agree entirely with the reasons that his Honour the President has given just now, and those reasons were delivered after a discussion that he and I had just before he delivered them.  That is all. 

I certify that the twenty-seven (27) preceding paragraphs are a true copy of the reasons for the decision herein of Justice Downes, President and Mr S E Frost, Member

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

Claire Doherty, Associate

Date/s of Hearing:  15 October 2009

Date of Decision:  15 October 2009
Solicitor for the Applicant:                  Piper Alderman
Counsel for the Applicant:                 Mr J Kelly SC, Mr A Coleman
Solicitor for the Respondent:             Sparke Helmore
Counsel for the Respondent:           Mr S Wheelhouse SC, Ms S Phillips