Y v Australian Prudential Regulation Authority

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FEDERAL COURT OF AUSTRALIA

Y v Australian Prudential Regulation Authority [2006] FCAFC 37

STATUTORY INTERPRETATION – Insurance Act 1973 (Cth), s 25A – whether Australian Prudential Regulation Authority (‘APRA’) has the power to disqualify certain individuals after finding that they were not fit and proper persons to be or act as someone referred to in s 24(1) – whether 25A extends to a person who has at some time made a decision or exercised some influence and there is at least some risk they will do so in the future – s 25A is not dependent on criterion of factual connection between subject of the power and Australian insurance industry –

STATUTORY INTERPRETATION – Royal Commissions Act 1902, s 6DD and 6M –whether the use by APRA or its officer of certain evidence at a Royal Commission contravenes s 6DD or 6M – whether officer of APRA contravened s 6M by giving a notice to show cause why individual should not be disqualified under s 25A of the Insurance Act 1973 (Cth), based on facts of which he testified before a Royal Commission – whether APRA would do so by proceeding to disqualify him on the basis of those facts.

Australian Prudential Regulation Authority Act 1998 (Cth)
Excise Procedure Act 1907 (Cth), 7, 9, 10, 11
Insurance Act 1973 (Cth) ss2A, 3, 11, 12, 24, 25, 25A.
Royal Commissions and Other Legislation Amendment Act 2001 (Cth)
Royal Commissions Act 1902 (Cth) s2, 6A, 6DD, 6M, 6N
Royal Commissions Act 1912 (Cth),
Witness (Public Inquiries) Protection Act 1892 (UK)

Attorney-General v Butterworth [1963] 1 QB 696
Kamha v Australian Prudential Regulation Authority [2005] FCAFC 248

Y & ANOR v AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY & ANOR

NSD1793 OF 2005

X & ANOR v AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY & ANOR

NSD1794 OF 2005

EMMETT, ALLSOP & GRAHAM JJ
22 MARCH 2006
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD1793 OF 2005

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT

BETWEEN:

Y
FIRST APPELLANT

Z
SECOND APPELLANT

AND:

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
FIRST RESPONDENT

MARK GODFREY
SECOND RESPONDENT

JUDGES:

EMMETT, ALLSOP & GRAHAM JJ

DATE:

22 MARCH 2006

PLACE:

SYDNEY

THE COURT ORDERS THAT:

  1. The appeal be dismissed.

  1. The appellants pay the respondents’ costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD1794 OF 2005

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT

BETWEEN:

X
FIRST APPELLANT

Z
SECOND APPELLANT

AND:

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
FIRST RESPONDENT

MARK GODFREY
SECOND RESPONDENT

JUDGES:

EMMETT, ALLSOP & GRAHAM JJ

DATE:

22 MARCH 2006

PLACE:

SYDNEY

THE COURT ORDERS THAT:

  1. The appeal be dismissed.

  1. The appellants pay the respondents’ costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

ON APPEAL FROM A SINGLE JUDGE OF THE…

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Details
Case
[2006] FCAFC 37
Decision Date

CaseChat Overview and Summary

The case of Y v Australian Prudential Regulation Authority involved an appeal against the decision of the Australian Prudential Regulation Authority (APRA) to disqualify Y from holding a senior insurance role. The appeal was dismissed by the court, which found that APRA had the jurisdiction to exercise its power of disqualification under the Insurance Act. The court held that the power to disqualify a person from holding a senior insurance role was subject to a nexus requirement, which was satisfied in this case as Y had made decisions affecting the Australian operations of the insurer and there was at least some risk that Y would do so in the future. The court further held that the applicants had not discharged the onus of establishing that APRA would not be entitled to be satisfied that Y was not a fit and proper person to hold a senior insurance role.

The primary issue before the court was whether APRA had the jurisdiction to exercise its power of disqualification under the Insurance Act. The court held that the power to disqualify a person from holding a senior insurance role was subject to a nexus requirement, which was satisfied in this case as Y had made decisions affecting the Australian operations of the insurer and there was at least some risk that Y would do so in the future. The court further held that the applicants had not discharged the onus of establishing that APRA would not be entitled to be satisfied that Y was not a fit and proper person to hold a senior insurance role. The court also found that the evidence presented by APRA demonstrated that Y was not a fit and proper person to hold a senior insurance role. The court rejected the applicants' argument that the power to disqualify should be limited to persons who had made decisions affecting the Australian operation of the insurer and there was at least a remote chance that they would take up a senior insurance role in the future.

The court's reasoning was based on the legislative framework of the Insurance Act and the submissions made by both parties. The court held that the power to disqualify a person from holding a senior insurance role was subject to a nexus requirement, which was satisfied in this case as Y had made decisions affecting the Australian operations of the insurer and there was at least some risk that Y would do so in the future. The court rejected the applicants' argument that the power to disqualify should be limited to persons who had made decisions affecting the Australian operation of the insurer and there was at least a remote chance that they would take up a senior insurance role in the future. The court held that the applicants had not discharged the onus of establishing that APRA would not be entitled to be satisfied that Y was not a fit and proper person to hold a senior insurance role.

The final orders of the court were that the appeal be dismissed and that the appellants pay the respondents’ costs. The court held that the applicants had not established that APRA would not be entitled to be satisfied that Y was not a fit and proper person to hold a senior insurance role, and therefore the disqualification was justified. The court also held that the appellants should pay the respondents’ costs as they had not succeeded in their appeal.

Orders

Orders of the court

1.

The appeal be dismissed.

2.

The appellants pay the respondents’ costs.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

The list of documents referred to in Attachment B includes references to pages of the transcript of examinations before the P Royal Commission and documents tendered to the P Royal Commission. Under the heading ‘Preliminary Findings on Material Questions of Fact’, Attachment B relevantly said as follows:‘3. You have been a member of the executive board of [Z]…4. You are also chairman of [a committee for related companies of Z]5.Evidence provided to [the P Royal Commission] (‘the Royal Commission’) demonstrates the following:(a)… [Z] entered into [certain arrangements] with [P]…(b)A critical aspect of the arrangements between Z and P was [the relevant agreement].(c)In general terms the [Relevant Agreement had a particular effect].(d)…(e)[Y] was an [officer] of [Z] when the arrangements were entered with P.(f)You told the Royal Commission that you principally dealt with [Y] in relation to the transaction…(g)You also stated that… you had dealings with [other persons]…(h)You gave oral evidence to the Royal Commission [as to your role] in relation to the transactions…(i)You agreed with counsel assisting [as to certain matters].(j)You stated [certain things].(k)…(l)You gave evidence [to a particular effect].(m)You stated [certain things].(n)…(o)In your witness statement you stated [certain things].(p)You also stated [certain things].(q)In oral evidence to the Royal Commission, you agreed with counsel assisting [as to certain matters]… You also stated [certain matters].(r)You told the Royal Commission [certain things].(s)In your witness statement, you stated [certain things].(t)You gave oral evidence to the Royal Commission [as to certain matters].(u)However, you later gave evidence [as to certain other matters].(v)You agreed with counsel assisting [as to certain matters].(w)You gave [certain] evidence…(x)You told the Royal Commission [certain things].(y)You also stated [certain things].… 6.On the basis of the matters outlined above, I have reached the preliminary view that:(a)you were the person with ultimate responsibility for [a certain arrangement] with [Z];(b)…(c)you knew, or should have known, that [certain instruments] were drafted in a manner which meant they could be used by [P] to mislead auditors and/or regulators into [certain beliefs];(d)your authorisation of the [arrangements] in circumstances where you knew, or should have known, that the form of the [instruments] could be used by [P] to mislead its auditors and APRA… demonstrates that you are not a fit and proper person to be or act as the holder of a senior insurance role.7.I am satisfied that APRA’s powers of disqualification, if exercised by a delegate, would be properly applied in the circumstances given the global nature of the insurance industry, the fact that [Z] has an Australian presence, and the protective purpose which APRA is pursuing in the exercise of its powers disqualification under the Act.8.In forming my preliminary conclusion, I have had regard to the relevant submissions of counsel assisting the Royal Commission and the findings of the Royal Commission. I have also had regard to your submissions in reply to your submissions in reply to counsel assisting’s proposed adverse findings. This material has not caused me to alter my preliminary view.9.Your conduct as set out above is evidence that you are not a fit and proper person to be or to act as the holder of a senior insurance role.10.As a consequence, I propose to recommend to the appropriate delegate of APRA that you be disqualified pursuant to subsection 25A(1) of the Insurance Act.…’[Emphasis added]

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

The submissions put by APRA to the primary judge were recorded in [57] of his Honour’s reasons, as follows:‘The respondents submit:3.9... The respondents accept that a limitation must be placed upon the power under s 25A(1) to disqualify a person from being or acting as someone referred to in s 24(1)(b). That limitation is drawn from the “nexus” which must exist in order for the power to be exercised consistently with the protective objects of the Act, as developed in the Act ... Consistently with the requirement of a “nexus” with respect to the power to disqualify under s 25A(1), the meaning of “senior manager” of a “foreign general insurer” in s 24(1)(b) and defined in paragraph 21 of GPS 220 must be confined by reference to the protective object of the Act. ... That object would not be served by disqualification of a person from taking up a s 24(1) position when that person has not made decisions affecting the insurer’s Australian operations and there is not a remote chance that he or she will do so. The meaning of “senior manager” of a “foreign general insurer” is confined to this extent.3.23The respondents accept that the power in s 25A(1), through the reference to s 24(1) is limited by a requirement that there exist a nexus between the disqualification and the Australian operation of the foreign general insurer. The required nexus is not, however, of the kind advanced by the applicants. ...3.24The respondents submit that a “senior manager” of a “foreign general insurer” in s 24(1)(b) of the Act, as defined in paragraph 21 of GPS 220, is confined to persons who have made decisions affecting the insurer’s Australian operations and there is at least a remote chance that he or she will take up a s 24(1) position.’ [Emphasis given by the primary judge] It is perhaps not surprising, in the light of those submissions by both parties, that the primary judge approached the matter as he did. His Honour said that, as a precondition to the engagement of the power to consider the application of the disqualification power in s 25A, it was necessary for there to be demonstrated some factual nexus between the person postulated as the subject of the possible application of the power and the Australian insurance industry. At [76] to [80] the primary judge said the following:‘I do not accept that the intended limitation is that advanced in the applicants’ submission set out at [56] above. The limitation there suggested would prevent APRA from disqualifying persons who posed a risk of the kind described, just because they had not been or acted as senior manger [sic] in Australia or in relation to the Australian operation. The fact that a person is not a fit and proper person to have or to exercise senior management responsibilities might be shown by other evidence, and it is not to be supposed that the legislature intended to omit all such cases from the scope of APRA’s power of disqualification.Without attempting to define in an exhaustive and therefore exclusionary way the required Australian nexus, I am content to adopt as a sufficient nexus, one akin to that suggested by the respondents in para 3.24 of their submissions (set out at [57] above). Accordingly, I think it will suffice that:1. the person has at some time made a decision or decisions or exercised some influence in relation to the carrying on of the Australian general insurance business of the foreign general insurer; and2. there is at least some risk, even a remote one, that he or she will:(a)do so; and(b)be or act as someone referred to in s 24(1)(a), (b) or (c) in the future.The second criterion is necessary. It conforms to the protective purpose of ss 24(1) and 25A(1). Without it, disqualification could be used simply to punish. Indeed, as a matter of APRA’s jurisdiction or power, the second criterion alone is probably all that is necessary. I have set out the evidence in relation to Applicant [X] and Applicant [Y] under the heading ‘The Evidence Relating to Applicant [X] and Applicant [Y]’ ([36]–[55]) above, and will not repeat it here. In my opinion, each satisfies both limbs of the low jurisdictional threshold. Each is, and has at material times been, a senior manager of [Z]; each has exercised some influence in relation to its Australian operation; and there is at least some risk that each will do so in the future. In relation to this last matter, it is noteworthy that neither Applicant [X] nor Applicant [Y] has proffered to APRA any form of undertaking with respect to the future, and the affidavit of each goes only to his present intention and circumstances of life.The applicants have not discharged the onus of establishing, as a matter of jurisdiction or power, that APRA will not be entitled to be satisfied that each first applicant is not a fit and proper person to be or to act as someone referred to in para 24(1)(a), (b) or (b) of the Act.’ [Original emphasis]