"VAC" and Australian Prudential Regulation Authority

[2001] AATA 820

CATCHWORDS – prudential regulation – jurisdiction – reviewable decision – whether decision varied – no jurisdiction.

Administrative Appeals Tribunal Act 1975 – ss 25, 28, 29
Life Insurance Act 1995 – ss 16L, 16M, 16N, 16O, 16Q, 16R, 16S, 16T, 230, 236

DECISION AND REASONS FOR DECISION [2001] AATA 820

ADMINISTRATIVE APPEALS TRIBUNAL     )
  )          V2001/1067
GENERAL ADMINISTRATIVE DIVISION      )

Re                  "VAC"

Applicant

AndAUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

Regulation

DECISION

Tribunal:Miss S A Forgie (Deputy President)

Date:25  September, 2001

Place:  Melbourne

Decision:The Tribunal does not have jurisdiction to review any decision made by the respondent in relation to the amendment to the applicant's rules constituting a new benefit fund called the "Annuity Benefit Fund No 1".

S A FORGIE
  Deputy President

REASONS FOR DECISION

On 16 August, 2001, the applicant, whom I will call "VAC", applied for review of a decision of a delegate of the respondent, the Australian Prudential Regulation Authority ("APRA"), dated 13 July, 2001.  APRA submitted that the Tribunal does not have jurisdiction to consider the application and the issue of jurisdiction has been heard as a preliminary point.  At the hearing of that issue, "VAC" was represented by its solicitor, Mr Wellington, and APRA by its officers, Mr Gotlib and Mr Coleiro.  Written submissions were prepared on behalf of both "VAC" and APRA.

THE ISSUE

1. The issue in this case is whether APRA has made a decision that is reviewable by the Tribunal pursuant to s. 236 of the Life Insurance Act 1995 ("the Act"). Although I have decided that it has not made such a decision, I have, out of caution in view of the confidentiality provisions of s. 236(5) of the Act, changed the name of the applicant and in these reasons and also the name of the author of a report lest it identify the applicant.

BACKGROUND

1. Although they did not agree upon their effect, the history of events in this matter was not in dispute between the parties.  I will set them out as I find them to be established for the purposes of this hearing.

1. "VAC" is a friendly society registered under the Act. Over a period of eighteen months, there were various discussions between "VAC" and APRA regarding a new product being developed by "VAC". On 15 February, 2001, Mr Wellington wrote to APRA attaching a copy of a document setting out the key features of a product, which I will call "the Plan".

1. On 13 March, 2001, the Board of "VAC" resolved to amend its Rules by adopting a new Schedule D to those Rules. By doing so, it constituted a new benefit fund, which I will call "the annuity benefit fund". In accordance with s. 16L(2) of the Act and with Prudential Rules No. 40 made for the purposes of that provision, "VAC" applied to APRA for approval of the benefit fund rules in Schedule D ("benefit fund rules"). It did so on 14 March, 2001.

1. In a letter dated 17 April, 2001, Mr Omizzolo, an officer of APRA, advised "VAC" that it would not approve the benefit fund rules for the annuity benefit fund. There were several reasons for its decision. The first was that the benefit fund rules did not comply with certain items of Prudential Standard 2 and that, consequently, they did not comply with s. 16L(3) of the Act. The second related to endorsement of the annuity benefit fund as a complying assets test exempt annuity under the Social Security Act 1991.  APRA advised "VAC" that confirmation by the Department of Family and Community Services ("DFCS") that it was such a product was central to its consideration of whether it would approve the benefit fund rules.  The third issue raised by APRA related to insurance and re-insurance and to the nature of benefit fund assets as well as issues relating to the Australian Securities and Investment Commission ("ASIC").  Finally, Mr Omizzolo set out a number of matters under the heading of "Non PS 2 Matters".  They related to drafting errors in the benefit fund rules.

1. On 15 May, 2001, "VAC" sought review of APRA's decision and did so pursuant to s. 236(1) of the Act. It attached a technical analysis of the annuity benefit fund and of the application of the Prudential Standards to the product. As "VAC" acknowledged, its application was out of time but an extension of time was granted on 28 May, 2001. On 17 June, 2001, APRA referred "VAC"'s application to another of its officers, Mr Thomson, to review the decision and to either confirm, revoke or vary it in accordance with the provisions of the Act. APRA noted that, pursuant to s. 236(6) of the Act, the review had to be completed and the decision delivered to "VAC" by 14 July, 2001 if the decision of 17 April, 2001 were not to be taken to have been confirmed.

1. On 13 July, 2001, Mr Thomson completed his review and concluded:

"The proposed design of the benefit fund is complex and unusual.  Its success is contingent on the successful approval of the proposed products as Complying Annuities of DFCS.  However, I am satisfied that the proposed benefits rules:

relate to the carrying on of insurance business;

are consistent with the LIA [Life Insurance Act]; and

have been adequately adopted.

Accordingly, I revoke the decision and recommend that APRA approve the benefit fund rules, subject to the amendment of the rules as outlined in Section 3 ('Non PS2 Matters') of Mr Omizzolo's letter to Mr Wellington dated 17 April 2001 … and to the amendments referred to in paragraph 5(f) above."

1. "VAC"'s Board accepted the recommended amendments and substituted a Schedule D to take account of those amendments. Consequently, it applied to APRA on 24 July, 2001 for approval of that substituted Schedule D containing the fund benefit rules as amended in accordance with Mr Thomson's recommendations. On 22 August, 2001, APRA issued approvals of the benefit fund rules under s. 16L(3). In its letter advising of its approval, APRA also advised "VAC" of the steps it needed to take to comply with ss. 16L(4) and 16M(2) of the Act.

1. "VAC" amended the fund benefit rules and substituted an amended Schedule D because it considered that the amendments were inconsequential.  As events have transpired, "VAC" now considers that the amendment to clause 14 of the benefit fund rules was not inconsequential.  Clause 14.1, showing the amendment in bold type, reads:

"14.     Annuities To Be Income Streams

14.1 It is intended that Annuity Contracts provide members with an 'assets test exempt income stream' as defined in the Social Security Act 1991. Subject to the registration by APRA of the amendments ensuring continued compliance with the Social Security Act 1991, to the extent that any term or condition of the Annuity Contract would at any time over the life of the Annuity Contract cause the Annuity to be determined to be other than an 'assets test exempt income stream', … ["VAC"] has the power to alter the term or condition of the Annuity Contract and notify Members accordingly."

1. As appears from Mr Thomson's reasons for review, these words were recommended by the author of the technical analysis of the annuity benefit fund and adopted by Mr Thomson, to meet APRA's concern that:

"… the proposed benefit fund rules permitted the unilateral change of the rules by …["VAC"] without any consultation with the members.  This is a significant concern.  However, it is clear from the proposed benefit fund rules that such action would only be triggered by a change to the benefit fund's Complying Annuity status.  Any such rule change would need to be approved by APRA before it took effect and APRA could refuse to approve the change if it thought that the members' rights and interests were being damaged."

1. There is now a difference of opinion between "VAC" and APRA as to the effect of the amendment.  In his letter of 10 September, 2001, Mr Wellington described the difference in the following terms:

"It was … ["VAC"'s]understanding based on the reviewer's report that he considered that the additional wording was necessary because otherwise the rules would contain a requirement for unilateral amendment to the Annuity Contract which could be against the members interests and … ["VAC"] did not at that time see any reason to object to such requirement.

However, other staff within APRA have now taken the view that the rules themselves now require the Annuity Contracts to provide assets test exempt income streams because clause 14.1 would require rule amendments if this wasn't the case, and that by approving them with the amended clause 14.1 APRA is taken to be making a positive statement that the rules provide for the issue of Annuity Contracts which are asset test exempt income streams. Following on from this position, APRA states that it cannot make such determination and on the 17th of August issued a Direction under section 230B of the Life Insurance Act that no members were to be admitted to the Fund until the status of Annuity Contracts as providing asset test exempt income streams was established by the Department of Family and Community Services. This Direction was varied by further Direction issued 6 September 2001 to allow one member admission to the Benefit Fund. Copies of these Directions are annexed hereto as Annexure 'C' and 'D' respectively.

The effect of these Directions has been to thwart the bringing into effect of the rule amendment because a product with benefits provided by the Benefit Fund cannot be marketed. … ["VAC"] would have proceeded immediately to appeal if it had known that this would be the outcome of the varied rule."

1. The Directions to which Mr Wellington referred were made under s. 230(2)(q) of the Act. The first, issued on 17 August, 2001, directed "VAC" "… that, unless and until DFCS endorses the annuity to be offered under the benefit rules of the Fund as a complying annuity, the Company shall not admit applicants for membership of the Fund under rule 3 of the rules of the Fund."  It did so on the basis that:

"A.The Company is proposing to offer an annuity under the benefit fund rules of its Annuity Benefit Fund No 1 ('the Fund'), a statutory fund within the meaning of section 29 of the Act;

B.The annuity is being offered to prospective policy owners of the Fund as an annuity which is a complying annuity; and

C.The Department of Family and Community Services ('DFCS') has not endorsed the annuity as a complying annuity;

D.Therefore I consider that the interests of prospective policy owners of the Company may be prejudiced; and

E.Accordingly, under paragraph 230B(1)(b), I consider that the following direction is necessary in the interests of the prospective policy owners of the Company."

The Direction was varied by a further Direction issued on 6 September, 2001 to admit, on certain conditions, one member to membership of the Fund for the sole purpose of presenting a test case to the Department of Family and Community Service.

CONSIDERATION

1. As I have said, "VAC" lodged its application for approval of the benefit fund rules for the annuity benefit fund pursuant to s. 16L(2) of the Act. Section 16L(3) goes on to provide that:

"APRA must, in writing, approve the benefit fund rules if:

(a)the application has been made for approval of the rules in accordance with subsection (2); and

(b)APRA is satisfied that:

(i)the carrying on of the activities to which the rules relate constitutes the carrying on of life insurance business; and

(ii)the rules are consistent with this Act; and

(c)APRA is satisfied that the rules have been adequately adopted.

APRA must give the company written notice of its decision whether to approve the rules."

1. If APRA approves benefit fund rules pursuant to an application made to it under s. 16L, the company must lodge a copy of the rules with ASIC in accordance with any requirements determined by the Commission (s. 16M(2)).  The day on which those rules are to come into force is set out in s. 16M.  It is either the day of lodgement with the Commission, the day specified in the rules themselves or, if the company applying for their approval is not a friendly society, the day it becomes a friendly society.  If more than one day is applicable, the date of effect is the latest of those days (s. 16N).

1. Once benefit fund rules have been approved by APRA under s. 16L and have come into force under s. 16N, they are part of the constitution of the company that applied for their approval (s. 16O).  Amendment of those rules is not effective unless it has been approved by APRA.  Amendment may result from an application made by a friendly society pursuant to s. 16Q or from a decision by APRA that an approved benefit fund's rules are deficient because they are inconsistent with the Act (s. 16R).  Provision is made for lodgement of the amended benefit fund rules with ASIC (s. 16S) and for the date on which they are to come into force (s. 16T). 

1. Section 236 provides for the review of certain decisions made under the Act. In the context of this case, a person affected by a reviewable decision may first request APRA to reconsider the decision (ss. 236(2) and 8 and the Schedule to the Act). The "person affected by a reviewable decision" in this context is "the company in relation to which the decision was made" i.e. "VAC" (s. 236(1)(c)).  The "reviewable decision" is, again in the context of this case, "a refusal to give an approval under subsection 16L(3)" (s. 236(1)(cb)).  A request for review must be lodged within 21 days after the person receives notice of the decision or within such further time as APRA allows (s. 16(3)).  

1. When it receives the request for review, APRA must:

"… reconsider the decision and may, subject to subsection (6), confirm or revoke the decision or vary the decision in such manner as … [APRA] thinks fit." (s. 236(5))

If APRA does not confirm, revoke or vary the decision within 60 days of receiving the request for review, it is taken to have confirmed that decision on the last day of the review (s. 236(6)).

1. An application may be made to the Tribunal "… for review of a decision of … [APRA] that has been confirmed or varied under subsection (5)" (s. 236(8)). No time limit for that application is prescribed in s. 236 although a period of 28 days beginning on the day the decision is taken to be confirmed is prescribed in the case of a decision taken to have been confirmed pursuant to s. 236(6). It follows from the provisions of s. 28 of the Administrative Appeals Tribunal Act 1975 ("AAT Act") that, in respect of a decision that has been confirmed or varied under s. 236(5) and in respect of which written reasons have been given for the decision, a person must lodge an application for review no later than 28 days after the day on which notice of the decision is furnished to him, her or it (AAT Act, s. 29(2)(b)(i)).

1. In its application, "VAC" sought an order that the Tribunal approve the amendment to the benefit fund rules lodged on 24 July, 2001.  It referred in the application form to a decision by Mr Omizzolo and, in Annexure A to the application, to the decision by Mr Thomson.  I will consider both decisions.

1. In the first instance, I note that the application for review was lodged in the Tribunal on 16 August, 2001.  There must be an initial question whether that application was lodged within the time allowed by s. 29(2)(b)(i).  There is nothing in the papers to indicate when "VAC" received notification of APRA's decision made on 13 July, 2001.  Clearly, the application for review would be out of time if review were sought of the decision of 17 April, 2001.  If it should transpire that the application is out of time, any application to extend that time would need to consider whether it is relevant to take into account the fact that the rules have been amended, at "VAC"'s request, in a manner consistent with Mr Thomson's recommendations.  That would then raise a question whether reconsideration of the decision has been overtaken by events and reconsideration would be of no effect.  In view of the decision I have reached regarding jurisdiction, I have not sought submissions from the parties on this aspect.

1. Turning to the Tribunal's jurisdiction to review the decision of 17 April, 2001, I have concluded that it does not have any jurisdiction. The decision was an initial decision made under s. 16L(3) and has not been reviewed pursuant to s. 236(5) of the Act. The Tribunal derives its power from s. 236(8) and its power is confined by that section to reviewing those decisions that have been confirmed or varied under s. 236(5). It does not derive its power from any other source such as, for example, s. 25 of the AAT Act for, although fundamental to any consideration of the Tribunal's jurisdiction, s. 25 does not confer any jurisdiction on the Tribunal.  Rather, it provides that an "… enactment may provide that applications may be made to the Tribunal for review of decisions made in the exercise of  powers conferred by that enactment;…" (AAT Act, s. 25(1)(a)). The effect of s. 25 is that regard must be had to the terms of the enactment to decide whether or not the Tribunal has been given jurisdiction.   

1. Mr Wellington submitted that Mr Thomson's decision of 13 July, 2001 varied Mr Omizzolo's decision of 17 April, 2001. Mr Omizzolo's decision was that APRA did not approve the benefit fund rules for the annuity benefit fund. In doing so, Mr Omizzolo not only gave a number of reasons for APRA's refusing to register the benefit fund rules on the basis that they were not consistent with the Act but also queried a number of matters. He queried, for example, whether ASIC should review aspects of the arrangements and whether a meeting should be held amongst "VAC", APRA and ASIC. Mr Omizzolo also recommended a number of drafting changes to the benefit fund rules.

1. Mr Thomson revoked the decision.  He recommended approval of the benefit fund rules subject to the drafting amendments recommended by Mr Omizzolo and the amendment suggested by the author of the technical analysis of the annuity benefit fund and recommended by him.  His recommendation cannot be construed as a new decision substituted in place of Mr Omizzolo's decision.  Its effect was to remove, as it were, the decision refusing to approve the benefit fund rules, but it did not replace it with a decision approving the rules.  Mr Thomson's decision cannot be taken to have varied Mr Omizzolo's decision.  Wording his decision in terms of a revocation militates against any such variation.  So too does the substance of the decision.  If Mr Thomson's decision were properly characterised as a variation of Mr Omizzolo's decision, it would mean that a decision negating a decision to refuse approval so that there is, in effect, no decision on "VAC"'s application for approval but with a recommendation to approve if "VAC" were to take certain action in the future, is a variation of a decision to refuse approval.  That is stretching the meaning of "vary" too far.  In its ordinary meaning, it means "to change or alter, as in form, appearance, character, substance, degree, etc. …" (The Macquarie Dictionary, 3rd edition, 1997).  On its face, that definition would encompass as a variation, a complete change in the substance of the decision.  The ordinary meaning of "vary" must, however, be read in its context.  Its context makes reference to "confirm" and "revoke" as well as "vary".  If meaning is to be attributed to those words, the word "vary" must be limited so that it does not impinge upon them.  In the case of the decision of 13 July, 2001, its effect is to revoke the earlier decision and it cannot simply be said to be a change in substance that stops short of a revocation.

1. As the decision of 13 July, 2001 is a decision that revokes that earlier decision, the Tribunal cannot have jurisdiction to review it under s. 236(8).  As I have said, that section provides that an application may be made "… for review of a decision of … [APRA] that has been confirmed or varied under subsection (5)". In this case, APRA's decision has been revoked, but not confirmed or varied, on review. In view of the specific provision in s. 236(5) that, subject to s. 236(6), APRA may "… confirm or revoke the decision or vary the decision in such manner as … [it] thinks fit." on review, it would seem that Parliament has made a conscious decision that only decisions to confirm or vary the decision are reviewable. That follows from the omission of any reference to revoked decisions in s. 236(5).  As I have found that APRA's decision of 13 July, 2001 revoked its earlier decision of 13 April, I am satisfied that the Tribunal does not have jurisdiction to review that later decision.

1. If review is sought of APRA's ultimate decision to approve the benefit fund rules, it is not a decision that is reviewable by this Tribunal. It is not a decision of which "VAC" has sought review by APRA pursuant to s. 236.  As it is not a decision that is "a refusal to give an approval under subsection 16L(3)" and so is not a reviewable decision, it is not a decision of which "VAC" may seek review (s. 236(1)(cb)).

1. For the reasons I have given, APRA has not made any decision reviewable by the Tribunal.

I certify that the twenty seven preceding paragraphs are a true copy of the reasons for the decision herein of Miss S A Forgie (Deputy President)

Signed:          ........................................
  C.E. Hutchins, Associate

Date of Hearing       14 September, 2001
Date of Decision       25 September, 2001
Solicitors for the Applicant               Wellington Taylor & Associates
Officers for the Respondent             Mr Gotlib and Mr Coleiro