Burroughs v Australian Prudential Regulatory Authority

the Jurisdiction of the court under section 26 39 The Applicant originally sought a declaration that he was not a disqualified person pursuant to s 26(1)(b) of the Act. By an amended application, however, the Applicant applied for an order either under s 26(1)(a) or s 26(1)(b). 40 As this application is the first of its kind before the Court, it is necessary to clarify the jurisdiction of the Court to revoke or vary a disqualification order. 41 Section 26(1) of the Act provides: A disqualified person, or APRA, may apply to the Federal Court of Australia for: (a) if the person is a disqualified person only because he or she was disqualified under section 25A - a variation or a revocation of the order made under that section; or (b) otherwise - an order that the person is not a disqualified person. 42 The first kind of order made under s 26(1)(a) operates to vary or revoke an order made under s 25A. The only circumstance in which it can be sought is if 'the person is a disqualified person only because he or she was disqualified under s 25A' (emphasis added). 43 The transitional provisions attaching to the 2008 Amending Act mean that such an order will apply to a person disqualified under s 25A as it operated prior to 2008: Item 21 of Schedule 1 of the 2008 Amending Act. 44 The second kind of order is an 'order that the person is not a disqualified person'. It should be sought 'otherwise', namely in circumstances where a person's disqualification under s 25A is not the only reason why he or she is a disqualified person for the purposes of the Act. 45 A person is a disqualified person for reasons other than s 25A where any of the matters in s 25(1)(a)-(d) are engaged. This section provides: (1) A person is a disqualified person if, at any time: (a) the person has been convicted of an offence against or arising out of: (i) this Act; or (ii) the Financial Sector (Collection of Data) Act 2001; or (iii) the Corporations Act 2001, the Corporations Law that was previously in force, or any law of a foreign country that corresponds to that Act or to that Corporations Law; or (b) the person has been convicted of an offence against or arising out of a law in force in Australia, or the law of a foreign country, if the offence concerns dishonest conduct or conduct relating to a financial sector company (within the meaning of the Financial Sector (Shareholdings) Act 1998); or (c) in a case where the person is an individual: (i) the individual has been or becomes bankrupt; or (ii) the individual has applied to take the benefit of a law for the relief of bankrupt or insolvent debtors; or (iii) the individual has compounded with his or her creditors; or (d) in a case where the person is a corporate agent: (i) the corporate agent knows, or has reasonable grounds to suspect, that a person who is, or is acting as, a director or senior manager of the corporate agent is a disqualified person; or (ii) a receiver, or a receiver and manager, has been appointed in respect of property owned by the corporate agent; or (iii) an administrator has been appointed in respect of the corporate agent; or (iv) a provisional liquidator has been appointed in respect of the corporate agent; or (v) the corporate agent has begun to be wound up; or 46 When applying to the Court under s 26, the moving party must therefore identify whether an order under s 26(1)(a) or s 26(1)(b) is sought, as both kinds of order are mutually exclusive. Further, the moving party must furnish the Court with evidence to demonstrate why the particular circumstances of the disqualified person make it appropriate that the Court exercise its jurisdiction to make either order. 47 The fourth affidavit of Mr Burroughs, affirmed 23 March 2016, contains a statement that none of the circumstances attaching to disqualification set out in s 25(1)(a)-(c) apply to him. I am satisfied from the evidence, therefore, that Mr Burroughs is only a disqualified person because of his disqualification under s 25A of the Act in its then form. 48 It follows that in these circumstances, Mr Burroughs can only seek an order, and the Court only has jurisdiction to make an order, pursuant to s 26(1)(a) of the Act.

the statutory scheme 49 It is now appropriate to set out the way in which the court-based disqualification regime operates within the broader architecture of the Act, before moving to consider the Court's power to vary or revoke a disqualification order under s 26 and the criteria which determine the exercise of that power.

History and objects of the Act 50 General insurance in Australia is regulated under the Act which, since its inception, has been underpinned by its protective purpose. The provisions of the Act are directed to safeguarding the interests of policyholders of insurance policies to the greatest extent possible as well as ensuring the competiveness and sustainability of the Australian insurance industry more generally. The main object of the Act, which was inserted in 2001 by the General Insurance Reform Act 2001 (Cth) reinforces this purpose. It reads: The main object of this Act is to protect the interests of policyholders and prospective policyholders under insurance policies (issued by general insurers and Lloyd's underwriters) in ways that are consistent with the continued development of a viable, competitive and innovative insurance industry. 51 Since 1973, all insurers carrying on an insurance business in Australia have been required to hold an authorisation under the Act. Over time, the way in which the Act is administered has developed in order to respond more nimbly to a faster-paced market place and to take account of improvements in techniques of prudential supervision and oversight: Explanatory memorandum to the General Insurance Reform Bill 2001 (Cth) at [1.4]. The establishment of APRA in 1998, for example, meant that a dedicated oversight body assumed responsibility for the administration of the Act, including the granting of authorisations to insurers. Importantly, many of the requirements of writing insurance are now set out in subordinate prudential standards determined by APRA under s 32 of the Act. The prudential standards apply to all general insurers, authorised NOHCs, their subsidiaries and specified classes of the above. The standards deal, amongst other things, with capital adequacy requirements, risk management, reinsurance, the transfer and amalgamation of insurance businesses, outsourcing arrangements, governance issues and the fitness and proprietary of individuals holding positions of senior responsibility in those institutions regulated by APRA. 52 Section 2A(2) states that the Act and the prudential standards determined by APRA achieve the main object of the Act mainly by: (a) restricting who can carry on insurance business in Australia by requiring general insurers, and the directors and senior management of general insurers, to meet certain suitability requirements; and (b) imposing primary responsibility for protecting the interests of policyholders on the directors and senior management of general insurers; and (c) imposing on general insurers requirements to promote prudent management of their insurance business (including requirements concerning capital adequacy, the valuation of liabilities, reinsurance arrangements and the effectiveness of risk management strategies and techniques); and (d) providing for the prudential supervision of general insurers by APRA; and (e) providing for judicial management of general insurers whose continuance may be threatened by unsatisfactory management or an unsatisfactory financial position, so as to protect the interests of policyholders and financial system stability in Australia; and (f) providing for policyholders, who have valid claims connected with certain policies issued by certain general insurers that are under judicial management and that APRA believes are insolvent, to be paid by APRA the amounts to which the policyholders are entitled before they would receive payment in winding up of the general insurers. 53 Of particular relevance to this application is subsection (2)(b), which refers to the primary responsibility accorded to the directors and senior management of general insurers to ensure prudent management with a view to protecting policyholders. 54 The definition of 'prudential matters' in s 3(1) also reinforces the objects of the Act. It provides: prudential matters, concerning a general insurer, authorised NOHC or a subsidiary of a general insurer or authorised NOHC, means matters relating to: (a) the conduct by the insurer, NOHC or subsidiary of any of its affairs in such a way as: (i) to keep itself in a sound financial position; or (ii) not to cause or promote instability in the Australian financial system; or (b) the conduct by the insurer, NOHC or subsidiary of any of its affairs with integrity, prudence and professional skill.

The introduction of a court-based disqualification regime 55 Prior to the changes brought in by the 2008 Amending Act, APRA had the power to disqualify a director or senior manager under s 25A in its then form. 56 The Court-based process of disqualification was introduced in response to the report of a government taskforce concerned with regulatory compliance entitled 'Rethinking Regulation: Report of the Taskforce on Reducing Regulatory Burdens on Business' (31 January 2006) and a proposals paper of the Minister for Revenue and Assistant Treasurer entitled 'Streamlining Prudential Regulation: Response to 'Rethinking Regulation' (4 December 2006): Explanatory Memorandum to the Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2008 (Cth) at Ch 1 [4]. The idea was to ensure greater consistency between the disqualification regime administered by APRA under the Act and the disqualification regime administered by the courts in the area of corporations law. For this reason, a Court-based disqualification regime was enacted in respect of numerous statutes, including the Act, the Banking Act 1959 (Cth), Life Insurance Act 1995 (Cth), Superannuation Industry (Supervision) Act 1993 (Cth) and Retirement Savings Accounts Act 1997 (Cth).

The Court's powers of disqualification 57 It is necessary to set out the Court's powers of disqualification under the current regime in order that the revocation or variation of a disqualification under s 26(1)(a) can be considered within its statutory context. 58 Section 25A(1) of the Act provides that on application by APRA, the Court may disqualify a person from being or acting as a director or in other senior managerial roles set out in subsection (2), if the Court is satisfied: (a) the person is not a fit and proper person to be or act as such a person; and (b) the disqualification is justified. 59 Section 25A(3) of the Act sets out those matters that the Court may take into account when determining its satisfaction as to a person's fitness and propriety. These are: (a) any matters specified in the regulations for the purposes of this paragraph; and (b) any criteria for fitness and propriety set out in the prudential standards; and (c) any other matters the Court considers relevant. 60 Section 25(4) of the Act sets out those matters that the Court may take into consideration when determining its satisfaction as to whether a disqualification is justified, namely: (a) the person's conduct in relation to the management, business or property of any corporation; and (b) any other matters the Court considers relevant. 61 The length of disqualification under s 25A is for a period that the Court considers to be 'appropriate'. An 'appropriate' length of time will be one that best serves the protective purposes of the Act. The Court must make a value judgment on the length of time that must pass before a person is no longer a prudential risk to the insurance industry. The regime is not essentially punitive. However, in setting an 'appropriate' disqualification period, the Court will consider the seriousness of a person's wrongdoing as part of its inquiry and in so doing send a clear message of deterrence to others in the insurance industry.

Criteria for the application of section 26 62 Section 26 is the type of provision that confers upon this Court 'a discretionary authority to make orders which create rights or impose liabilities': Precision Data Holdings Ltd v Willis [1991] HCA 58; 173 CLR 167 at 191. Specifically, s 26(1)(a) performs the 'double function' of creating the relevant rights, namely the variation or revocation of a disqualification order, and the enlivening of the Court's jurisdiction with respect to those rights: See R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett [1945] HCA 50; 70 CLR 141 at 165. 63 The power to disqualify and, as a corollary, to revoke or vary a disqualification is not a power that necessarily must be exercised as part of the judicial power of a judicial officer. Instead, it is a power that can be conferred on either the executive or judicial branches and will take its character as executive or judicial power accordingly: R v Quinn; Ex parte Consolidated Food Corporation [1977] HCA 62; 138 CLR 1; R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd [1970] HCA 8; 123 CLR 361 at 371. 64 The Act in its current form creates a Court-based disqualification regime. This, coupled with the constitutional status of this Court under Chapter III of the Constitution, means any order made under s 26 is an exercise of the judicial power of the Commonwealth and, as a result, only exercisable 'according to legal principle or by reference to an objective standard or test prescribed by the legislature and not by reference to policy considerations or other matters not specified by the legislature': Precision Data 173 CLR at 191. This is the case despite the fact that the Federal Court, under s 26(1)(a) in its transitional operation, is required to determine whether a disqualification order made in the exercise of APRA's executive power be varied or revoked. The task for the Court is analogous to those schemes whereby a court has considered the exercise of power by an executive body according to similar criteria used by that executive body: Aston v Irvine [1955] HCA 53; 92 CLR 353; Pasini v United Mexican States [2002] HCA 3; 209 CLR 246 at 253-254 [10]-[13]. 65 In its submissions, APRA suggested that the proper inquiry of the Court under s 26(1)(a) is whether the Court is not satisfied on the material before it that that applicant is (i) not fit and proper and (ii) that the disqualification is justified. APRA submitted that this construction of s 26 allows for the criteria that guide the Court in disqualifying a person under s 25A to sit precisely with the criteria for revocation or variance of a disqualification. 66 While s 25A should be read together with s 26, the test proposed by APRA, where the Court is required to be 'not satisfied' of a negative i.e. that a person is not fit and proper, is to my mind unnecessarily cumbersome. 67 The inquiry of the Court under s 26(1)(a) is whether to vary or revoke a disqualification order. The question to be asked by the Court, therefore, is whether a disqualification continues to be justified or whether it should be revoked or varied. The Court's analysis will have regard to previous conclusions pertaining to an applicant's fitness and propriety (be they made by APRA prior to 2008 or by this Court after 2008) and whether these continue to be sufficiently justified to warrant the revocation or variance of the disqualification. This formulation avoids the Court's having to make a positive finding of a person's fitness and propriety in the nature of a jurisdictional fact and yet continues to be guided in its content by the considerations found in the current s 25A of the Act.

Meaning of 'fit and proper person' 68 It necessary to understand a term such as 'fit and proper' in the context of the Act. As noted by Gaudron and Toohey JJ in Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 380, such an expression always derives its meaning from the its statutory context: The expression fit and proper person, standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of 'fit and proper" cannot be entirely divorced from the conduct of the person who is or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur. 69 To better understand the meaning of this expression in this context of the Act, s 25(A)(3) directs the Court to consider any relevant criteria set out in the prudential standards. Prudential Standard GPS 520 at [24] sets out the minimum standards expected of individuals holding positions of responsibility within APRA-regulated institutions and specifies the following aspects of fitness and propriety including whether: (a) it would be prudent for an APRA-regulated institution to conclude that the person possesses the competence, character, diligence, honesty, integrity and judgement to perform properly the duties of the responsible person position; (b) the person is not disqualified under an applicable Prudential Act from holding the position; (c) the person either: (i) has no conflict of interest in performing the duties of the responsible person position; or (ii) if the person has a conflict of interest, it would be prudent for an institution to conclude that the conflict will not create a material risk that the person will fail to perform properly the duties of the position; and (d) for a senior manager of a corporate agent of a general insurer, the person is ordinarily resident in Australia. 70 The list of personal qualities found at (a) are directed both to the ethics of a person's conduct ('character' 'honesty' and 'integrity') as well the level of skill that a person must be expected bring to a responsible role ('competence' and 'diligence'). 71 The requirement of judgment encompasses considerations of both ethics and competency. In the context of the Act, judgment demands decision-making that is prudent, technically sound, approached with an independence of thought and that is cognisant of the protection that must be afforded to policyholders. 'Judgment' could likewise be defined by what it is not: It does not involve reckless or ill-considered choices that fail to consider the relevant business and financial implications, nor is it dishonest. 72 What constitutes good judgement will depend on the particular office held by a person and the particular responsibilities that attach to that office. Considering that the Act imposes primary responsibility for protecting the interests of policyholders on the directors and senior management of general insurers, a person with judgment in this statutory context would be a person who is not only aware of the obligations of an insurer under the Act and under the prudential standards that attach to it but who is duly attentive to those obligations in the course of his or her day-to-day decision-making. 73 In the case of the insurance industry, a senior manager's or director's level of diligence and competency must be very high. While corporate failure is sometimes inevitable and could even be seen as part and parcel of entrepreneurial venture and of the taking of commercial risk in a capitalist country, the very purpose of prudential supervision is to prevent failure as far as is possible by ensuring that risk is well-managed. As set out in the APRA Supervision Blueprint, annexed to the affidavit of Ms Jennifer Anne Balding, affirmed 21 March 2016, APRA's mission is: …to establish and enforce prudential standards and practices designed to ensure that, under all reasonable circumstances, financial promises made by institutions we supervise are met within a stable, efficient and competitive financial system (JAB1, annexed to the affidavit of Ms Jennifer Anne Balding, p 10) 74 Ultimately, it is the board and senior managers who carry the primary responsibility of ensuring the financial viability of the industry through the diligent and honest participation in the industry and, for this reason, directors and senior managers must be held to high standards. 75 When the Court disqualifies a person from being or acting in a senior insurance role pursuant to s 25A, it is concerned with whether that person, at the point in time of forming its state of satisfaction, is not a fit and proper person. Under s 26(1)(a), the Court is required to evaluate past conclusions made with regard to an applicant's lack of fitness and propriety (be they made by APRA prior to 2008 or by this Court after 2008) and assess whether those conclusions, at the time at which the application for variance or revocation is before the Court, continue to be sufficiently justified to warrant the revocation or variance of the disqualification. 76 This does not mean that a person's past conduct that led to the disqualification and its objective seriousness is irrelevant or even peripheral to the Court's enquiry. It may well be central. However, the Court will consider the passage of time since a person's disqualification and, importantly, whether a person can demonstrate clear insight into the nature of his or her past wrongdoings, and a consciousness for the need for change and the human capacity to change. If a person does not apprehend fully why their past conduct led to disqualification, the Court may consider that a disqualification continues to be justified.

Meaning of justified 77 As the inquiry under s 26 requires the Court to ask whether the disqualification continues to be justified, it is necessary to explore the meaning of the term 'justified' within the statutory context. 78 Section 25(A)(4) sets out what the Court may have regard to in deciding whether a disqualification is justified, namely: (a) the person's conduct in relation to the management, business or property of any corporation; and (b) any other matters the Court considers relevant. 79 APRA submitted that the likelihood of a person being a prudential risk would form a relevant consideration under subsection (b), despite the fact that the term 'likely' or the proper degree of likelihood required is not set out explicitly in the statute. 80 In light of the fact that the Act imposes the primary responsibility for protecting the interests of policyholders on the directors and senior management of general insurers, the likelihood of a person being a prudential risk certainly constitutes a relevant consideration in addressing the 'justified' criterion. The protective underpinnings of the legislative scheme mean that disqualification will continue to be justified if there is any real or remote chance that a person will pose a prudential risk.

disposition of this case 81 To assist the Court's inquiry, the applicant and APRA have provided a range of relevant evidence in the form of affidavits to the Court. At the hearing before me on 9 June 2016, I also asked Mr Burroughs a range of questions arising from his affidavits and the AAT decision.

Work history 82 Mr Burroughs has provided a detailed chronology of his work history to illustrate his continued participation in the insurance industry. 83 He has worked at the Munich Reinsurance Company (Munich Re) since July 1999. 84 Before his disqualification in late 2004, he held a variety of managerial positions at Munich Re. He commenced his employment as a 'Special Projects Manager' responsible for a GST project and later was promoted to Manager and made responsible for Munich Re's New Zealand Workers Compensation business. In 2001, he assumed the role of 'Strategic Development Manager' where he scouted new client and product opportunities for Munich Re. In 2003, Mr Burroughs also became the Manager of the Business Performance and Planning division where he managed a team of seven actuaries working on the reserving of the non-life and life liabilities of the company. He was also a member of Munich Re's Reserving Committee. 85 As a result of APRA's disqualification of him in November 2004, Mr Burroughs relinquished the roles of Strategic Development Manager, Manager of Business Performance and Planning and his membership of the Reserving Committee. 86 Since that time, he has worked in non-managerial roles at Munich Re. These include as a Research Manager reporting to the Chief Financial Officer (November 2004 to October 2006); as a Senior Analyst in the non-life department of Munich Re Japan Services in Tokyo reporting to the President (November 2006 to July 2009); as a Project Member in the Integrated Risk Management division of Munich Re reporting to the programme leader of an internal control system project (August 2009 to April 2012); as a member of a project team responsible for the implementation of the internal control system for Munich Re's reinsurance and insurance entities in Australia and New Zealand reporting to the Enterprise Risk Manager (May 2012 to December 2013). In none of these roles did any officer or employee report to Mr Burroughs. 87 Since January 2014, Mr Burroughs has been employed by Munich Re Australasia as a Financial Analyst. He analyses Australasian non-life insurers to identify reinsurance opportunities for management and underwriters of Munich Re. He also moderates and takes minutes for fortnightly conference calls between a network of financial analysts across part of Munich Re, thereby assisting with the skill development of less experienced analysts. No officers or employees report to him. 88 These details of Mr Burroughs' work history are relevant to considering whether the disqualification continues to be justified or whether it should be revoked. As noted above, the fact that Mr Burroughs has held a variety of roles within Munich Re suggests that he is well-acquainted with various aspects of the insurance business and that he has garnered a significant base of technical skill. Indeed, the evidence discloses that he is a well-qualified and skilled reinsurance manager. 89 At the hearing of 9 June 2016, Mr Burroughs stated that in making any decision in his line of work, he has become aware that 'you need to consider what the virtues of any actions you might take (are) and how they may impact various…stakeholders'. The fact that Mr Burroughs has not only honed his technical skills, but now appears aware of proper decision-making practices involving the exercise of such skills is a factor to be taken into account by this Court in considering whether to revoke the disqualification.

Opinion of senior practitioners in the insurance industry 90 Mr Burroughs has provided the Court with references from a number of senior leaders in the insurance industry, some of whom have been Mr Burroughs' supervisors at Munich Re, in support of his application. Three of the references include letters written in support of Mr Burroughs in 2009 and 2010, together with updated statements and letters from the latter half of 2015. 91 First, a letter of Dr Christina Großer, the former Head of Department Risk Identification and Control Münchener Rückversicherung, dated 9 May 2010, together with an updated statement, dated 2 November 2015, states that in his role working for the Internal Control System Munich Health Project in 2010, Mr Burroughs proved himself to be 'a person of integrity' and one 'who can be trusted to hold a senior position within an insurance company'. Dr Großer further states Mr Burroughs performed work that was 'run on time and in budget'. 92 Second, a letter dated 22 April 2009 together with an updated statement dated 28 October 2015 is provided from Ms Claudia Buholzer-Rosenkranz, who was President of the Munich Re Japan Services and to whom Mr Burroughs reported directly in his role as a senior analyst while working in Japan. Ms Buholzer-Rosenkranz attests not only to the diligence of Mr Burroughs but also states that he has demonstrated the 'highest moral standards' in the course of his employment in Japan. She also notes his technical ability, in particular his 'outstanding financial analysis skills'. 93 Third, the letters dated 23 March 2009 and 26 November 2015 of Mr Heinrich Eder, Managing Director of the Munich Reinsurance Group in Australasia and Member of the boards of the Insurance Council of Australia and the Australian and New Zealand Institute of Insurance and Finance (ANZIIF), refer to the fact that Mr Burroughs has applied himself diligently to maintaining a high standard of expertise and has proved willing to share his knowledge more broadly among colleagues, business partners and the industry. Mr Eder states in his most recent letter that Mr Burroughs' 'integrity is beyond doubt'. 94 I place considerable weight on these updated statements as they inform the Court as to Mr Burroughs' conduct in his various roles at Munich Re up until very recently. They demonstrate that in the opinion of three industry leaders, Mr Burroughs has applied himself diligently to his work at Munich Re since the time of his disqualification, devoted considerable energy to building his technical skills and that, to the knowledge of his supervisors, he has not engaged in dishonest conduct nor conduct that could be said to represent a prudential risk. In combination with other evidence, such references assist an applicant to demonstrate to the Court that previous conclusions pertaining to his or her fitness and propriety are no longer sufficiently justified. In light of this, I place significant weight on the fact that the referees speak of the honesty with which Mr Burroughs has performed various roles at Munich Re up until the present time. 95 In five other statements attached to this application, work and personal associates of Mr Burroughs speak highly of his character and professionalism. It should be noted, however, that while the makers of some of these statements from 2009 take to pronouncing on what, in the referees' eyes, is the perceived 'unfairness' of Mr Burroughs' disqualification, such opinions are not particularly helpful to the Court. References are not submissions. Rather, their purpose in the context of an application for revocation of a disqualification under the Act is to provide the Court with a clear picture of the way in which, to the best of the referee's knowledge, an applicant conducts himself or herself. In that way, the Court can be satisfied that the work habits and decision-making practices of the applicant have been rehabilitated to the level where the disqualification is no longer justified.

Professional development since leaving FAI 96 Mr Burroughs has provided the Court with evidence of various courses undertaken by him since leaving FAI in the fields of finance and leadership. 97 In 2000, he completed the Munich Re Reinsurance Management Program at the Macquarie Graduate School of Management which focused on leadership skills for employees in supervisory and management positions. 98 In 2004, he obtained a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia, which since has been renamed the Financial Services Institute of Australia (FINSIA). On 29 June 2005, he became a Fellow of FINSA. 99 In 2005, he completed the Munich Re Staff Development Program at the Australian Graduate School of Management, a leadership and development program for employees in supervisory and management positions 100 Between 2003 and 2008, Mr Burroughs was recognised as a Certified Insurance Professional by the ANZIIF. When advised by his supervisor, Mr Heinrich Eder, a member of the ANZIIF board, that ANZIIF had a policy of barring disqualified persons from membership, Mr Burroughs offered his resignation. This resulted in the loss of his Fellowship and Certified Insurance Professional status which, I understand, are very important for employment and career progression in the Australian insurance industry. Nevertheless, Mr Burroughs states that he voluntarily continues to comply with ANZIIF's requirement of 25 hours per year of continuing education in order to hone his knowledge and skill. 101 To this end, Mr Burroughs also completed a Masters of Applied Finance and Investment, a course which followed on from his Graduate Diploma in Applied Finance and Investment awarded by FINSIA in 2004. Mr Burroughs states that the Masters program was directed to developing advanced finance skills, improving practical and analytical problem-solving and understanding the ethical standards demanded of practitioners operating in finance and investment in Australia and internationally. 102 Mr Burroughs' formal development in the areas of applied finance and investment speaks to a commitment in him to hone his technical skills. Considering that an ethics component was built into the curriculum of his Masters' program, it is to be assumed that Mr Burroughs was exposed to relevant teachings on required standards of behaviour and conduct in various corporate contexts. 103 Mr Burroughs states that he sought out concrete ways in which to inform himself of the ethical standards demanded by professional practice in the insurance industry and, as a consequence, to increase his sensitivity to, and awareness of, ethical issues in the types of environments in which he works. In particular, in March 2008, he made contact with the St. James Ethics Centre. At the centre, he undertook what is referred to as an Ethical Diagnostic, namely a personalised program with an accredited educator and counsellor. Consultations canvassed issues including the St. James model of ethics, values and principles, human behaviour, governance and risk management and ethical leadership. 104 Mr Burroughs completed various readings between sessions as well as watching videocasts and listing to podcasts. He states that he 'learnt a great deal' from discussions with his counsellor on ethical issues within his line of work. The practical aspect of the Diagnostic was the keeping of a journal based around three projects with which Mr Burroughs was involved at Munich Re. Mr Burroughs was required to reflect on those projects within the ethical model to which he had been exposed. 105 Mr Burroughs speaks highly of the experience in shaping his decision-making approach, stating: I have worked to ensure that the processes and considerations that need to be taken into account for ethical decision making are now sub-consciously embedded within my thinking. I also keep a copy of the SJE's Ethical Decision Making Model close at hand in my office as a constant reminder and resource. (Mr Burroughs' first affidavit, affirmed 8 December 2015 at [39]) 106 The fact of undertaking an Ethical Diagnostic at the St James Ethics Centre suggests that Mr Burroughs has approached his rehabilitation since his disqualification in a serious fashion and has been exposed to a respected model of ethical thinking. 107 Mr Burroughs also attests to monitoring himself actively against the Munich Re Group Code of Conduct and, as part of his work, attends Munich Re compliance training courses and reads quarterly publications from the Munich Re Compliance Officer. The stated purpose of the Code is: …to provide clear information and guidance for employees on the basic legal and ethical requirements they must comply with in the course of their work' ('Munich Re Code of Conduct' annexed to Mr Burroughs' first affidavit, affirmed 8 December 2015, at p 129). 108 Mr Burroughs states in his first affidavit that he adheres to the Code. He cites the recent example of when he was presenting a training session for a Malaysian client and was provided with a crystal and pewter decanter, which he passed to Munich Re as not to be in breach of the Code of Conduct. 109 At the hearing on 9 June 2016, Mr Burroughs also spoke of the different corporate culture that exists at many insurers today as compared to that which was prevalent in the 1990s. In Mr Burroughs eyes, the regulation of the industry by APRA means that employees of general insurers are now 'trained to be full and frank with external parties such as auditors and regulators'. In this context, he cited codes of conduct as one of the concrete ways in which employees are informed of their responsibilities. 110 While the undertaking of any number of educational and development programs and the exposure to models of ethical thinking and codes of conduct can offer no guarantee of how a person will act in practice, the material before me does demonstrate Mr Burroughs' continuing engagement with the technical and ethical aspects of decision-making within his chosen field of work. It also speaks to whether a disqualification continues to be justified or whether it should be revoked by suggesting that in light of the AAT decision, Mr Burroughs achieved some recognition into his wrongdoing to the point that he felt it necessary and beneficial to undertake an Ethics Diagnostic.

The gravity of past conduct and the applicant's insight 111 Both the submissions of Mr Burroughs and of APRA note that Mr Burroughs was not the 'architect' of the plan to deceive the FAI auditors. 112 As noted above, the seriousness of Mr Burroughs' past conduct will not determine entirely the question of whether the Court will revoke or vary a disqualification order. It nevertheless is relevant to the Court's inquiry, particularly as the gravity of certain conduct will influence the Court's view as to whether a person can be expected to pose a prudential risk to the insurance industry into the future. Equally, an applicant's insight into the nature and consequences of his or her conduct will be significant factors in the Court's inquiry. 113 The AAT accepted that as Mr Burroughs was carrying out the instructions of Mr Wilkie, and therefore was not the architect of the plan to deprive the transaction of genuine reinsurance status in order to deceive the auditors of FAI. But all architects rely on engineers and builders to bring their plans to fruition. It is a matter of considerable seriousness that Mr Burroughs knew of Mr Wilkie's plan to ensure risk transfer was not apparent on the face of either the AXOL contract or the six slips and worked to facilitate this purpose. When Mr Burroughs had the opportunity to reveal the true character of the transaction to the auditors, he failed to do so. 114 The AAT accepted the evidence that it '"went against the grain"' for Mr Burroughs to have prepared the side-letter. At the time he was 'under considerable work pressure associated with the renewal of reinsurance treaties (at [39]). In 'a moment of cowardice', he accepted the instructions of Mr Wilkie, a man described as having a 'demanding and overbearing personality'. It further noted that Mr Burroughs was a comparatively young man (at [39], [37]). 115 The AAT nevertheless expressed considerable misgiving as to Mr Burroughs' level of insight into his conduct at the time of that hearing, noting [46]: It is clear from his evidence that although he now concedes error and impropriety in his conduct he has only reluctantly approached an acknowledgement that he was aware that his conduct would probably facilitate misrepresentation of FAI's financial position. 116 The AAT found that Mr Burroughs 'sought to mislead the Tribunal' and attempted to 'minimize the nature of his culpability by refusing to own up to and acknowledge the real extent of his understanding of the deceptions being orchestrated by (Mr) Wilkie and others' (at [56]). 117 In its submissions to this Court, APRA has quoted at some length from the transcript of the proceedings before the AAT and concurs with the AAT finding that, at the time of the AAT hearing, Mr Burroughs did not show insight into the dishonesty of his conduct both in relation to the drafting of the side letter, and the failure to mention the six slips or side letter to Mr Vanderkemp. 118 In his affidavit, affirmed 8 December 2015, Mr Burroughs stated under a heading 'Insight' that he has 'freely and without reservation acknowledged my past mistakes and errors of judgment'. He continues: I sincerely regret that my immaturity, lack of professionalism, inappropriate conduct and lack of moral courage have brought about this situation. I have learned many hard lessons throughout this experience and I have had considerable time to reflect upon the poor choices that I made. I am determined to never make the same mistakes again and know I would proactively do all in my power to uphold and fulfil APRA's requirements for a fit and proper person (Mr Burrough's affidavit, affirmed 8 December 2015, at [14]) 119 The submissions of APRA take issue with the fact that Mr Burroughs' discussion of his insight into his past deploys the language of 'mistake' and 'error' rather than 'dishonesty' or 'impropriety'. APRA submits that it follows that Mr Burroughs 'has never confronted the true nature and seriousness of his involvement in the scheme to deceive the auditors of FAI'. 120 APRA also expressed further doubts in relation to Mr Burroughs' insight because of the form of his second affidavit, affirmed 26 February 2016. On 22 January 2016, APRA wrote to Mr Burroughs' solicitor stating that APRA was likely to 'not object' to Mr Burroughs' application subject to four conditions, namely that: (1) your client accepts that he was not 'fit and proper' at the time of the original disqualification; (2) your client accepts that the original disqualification was justified; (3) any application to the Court is made on the basis indicated; and (4) APRA reserves its final position subject to reviewing the final application and any accompanying evidence in support. 121 The letter requested that if these conditions were acceptable to Mr Burroughs, APRA asks the following: …express acknowledgements set out in items 1 and 2 above be made by return letter and included in your client's affidavit in support of the application. 122 In his second affidavit, Mr Burroughs complied with APRA's request by way of the following two statements: (a) I now accept that the original disqualification was justified. (b) I now accept that I was not 'fit and proper' at the time of the original disqualification 123 In its submissions, APRA submitted this affidavit was executed in a 'highly technical and perfunctory manner' and states that Mr Burroughs fails to 'confront the findings of dishonesty that were made against him in the original disqualification decision (affirmed by the AAT), to fulsomely acknowledge his wrongdoing, and to explain what, if any, degree of insight he now has into his dishonesty'. 124 Mr Burroughs submitted that the letter of 22 January 2016 sent by APRA requested 'express acknowledgment' of two conditions and his second affidavit sought to give effect to that request. I accept that submissions of Mr Burroughs that in the context of this second affidavit, he sought to meet APRA's request and did not think it required of him to expound further on his insight, an area he had addressed at some length in his first affidavit.

The hearing of 9 June 2016 125 On 9 June 2016, I required Mr Burroughs to give sworn evidence and answer some questions. I took the view that the history of this matter and the public interest involved demanded that any revocation order not be made on the papers, even through Mr Burroughs had affirmed affidavits. The events in question took place many years ago. To a degree, there was that difficulty involved. I was anxious not to be unfair on Mr Burroughs because of that length of time. Nevertheless, it was important in a matter of this kind to hear from the person and his reflections upon what he had done from the present day's perspective. The importance of this was for me to assess, as best I could, not merely from the disembodied words of the affidavits, but from the human in person speaking of what he himself called his 'rehabilitation'. 126 In inquiring into an applicant's insight, the issue of what language is adopted by the applicant in an affidavit is not as important as the applicant describing in a clear way the behaviour that constituted his or her past misconduct and why this misconduct was not the fit and proper conduct required of a person under the Act. It will influence the Court's inquiry into whether a disqualification should be revoked if that person continues to fail to draw a clear link between the content of the wrongdoing and its impropriety. 127 At the hearing of 9 June 2016, in answer to a question of mine, Mr Burroughs gave evidence as to an instruction from superiors not to volunteer information to the auditors. Mr Braham SC on behalf of APRA strongly cross-examined Mr Burroughs about this, asserting that this was a recent invention and a false one. Further cross-examination took place at a level of quite subtle moral philosophy about distinctions between deception, dishonesty and impropriety. Mr Burroughs in evidence had accepted that his behaviour had been improper and deceitful, but he debated the question of dishonesty, in particular in the light of what he had been instructed by his superiors. 128 This led not only to spirited cross-examination, but also to a change in position by APRA and a further hearing. APRA, which had not opposed the order, now submitted that Mr Burroughs' refusal to accept his dishonesty and a dishonest recent invention in the witness-box before me meant that he was unfit to hold a senior position in the insurance industry and his disqualification should not be revoked. 129 APRA's position is, of course, important to note. Its view will always be central in applications such as this. However, I am not prepared to accept the foundation of the submission. At the further hearing, evidence was led as to what Mr Burroughs had said at the Royal Commission and at the AAT hearing. It is unnecessary to burden these reasons with the full detail of that evidence or the argument on it. I am prepared to accept - and I do accept - that the question of direction by a superior not to volunteer information to the auditor was not a recent invention, and was certainly not a dishonest recent invention. I observed Mr Burroughs closely in the witness box. I accept his honesty in the evidence he gave to me, and I accept that he recognises he had been deceitful to a degree by non-disclosure and his conduct was improper. I also accept from him that he not only has attempted to rehabilitate himself over the years, but that he has done so, and that, as an older and wiser man, he would not succumb to the kind of institutional culture to which he succumbed in 1998 at FAI. 130 Mr Burroughs has a lot to offer the insurance industry from his technical competence. It is to be hoped that such technical competence can be displayed in a way that reinstates his own confidence in himself, and the confidence of others in him. Thus, I am not prepared to accept APRA's changed submission that the disqualification should not be revoked.

Time since the initial disqualification 131 The submissions of both Mr Burroughs and APRA note that the conduct for which Mr Burroughs was disqualified initially took place over seventeen years ago and that Mr Burroughs has been disqualified for over eleven years. 132 Having regard to the overriding protective purposes of the Act, the fact that Mr Burroughs has been disqualified for a substantial period of time does not in and of itself lead to the conclusion that a disqualification should be revoked. As noted at [61], the disqualification regime under the Act is not primarily a punitive one, although the seriousness of wrongdoing will have bearing on whether the disqualification continues to be justified. The Court's inquiry will look at the time having passed since an applicant's initial disqualification along with an applicant's conduct over the period of his or her disqualification and the level of insight into past misconduct. 133 In considering whether the disqualification continues to be justified, I give weight to Mr Burroughs' continued participation in the industry and the fact his conduct at Munich Re has not attracted negative attention from APRA or his employer. This is far more telling than the simple fact that time has passed since his disqualification.

The opinion of APRA 134 Notwithstanding my rejection of APRA's submission, I should say something of the place of APRA's opinion in proceedings of this kind. 135 APRA's role in determining the prudential standards for insurance in Australia coupled with the close working relationships that exist between APRA and the directors and senior managers of insurers in Australia mean that the views of APRA as industry regulator will be accorded significant weight by the Court when deciding on an application under s 26. 136 APRA's view assists the Court's inquiry on the question of fitness and proprietary given that a 'fit and proper' person is one that maintains the confidence of APRA. The affidavit of Ms Jennifer Anne Balding, affirmed 21 March 2016, includes as an annexure the APRA Supervision Blueprint to explain APRA's supervisory role in greater detail. It states: APRA's approach to supervision is built on the premise that the board and management of an APRA-regulated entity is primarily responsible for the entity's financial soundness and prudent risk management. Regulated entities conduct their affairs as they see fit, provided they can demonstrate sound governance arrangements, robust risk management capabilities and adequate financial strength. APRA's Framework for Prudential Supervision encourages interactions with regulated entities at various levels and with varying frequencies to gain assurance in these key areas. APRA expects productive and cooperative relationships with regulated entities, built on mutual respect. APRA expects the Board, senior executives and other representatives of regulated entities to be open and transparent in their dealings with APRA… APRA also expects to be provided with timely and accurate information to be able to make informed judgements and be satisfied that appropriate processes are in place to respond to issues raised by APRA and remedial action is undertaken in a timely manner where required (JAB1, annexed to the affidavit of Ms Jennifer Anne Balding, p 14) 137 APRA supervisory approach is one therefore that relies on a high level of cooperation with industry in order that risk is managed in the best possible way. 138 Also annexed to the affidavit of Ms Balding is a document produced by APRA entitled 'An Aid for Directors of ADIs and Insurers', which is intended to make directors aware of the additional responsibility shouldered by them under APRA's prudential framework. APRA seeks to ensure good governance by having 'an open and constructive relationship with the board' so that 'information of prudential concern is promptly communicated'. Further, it 'seeks the board's assistance in ensuring management maintain an open and candid relationship with APRA' (JAB2, annexed to the affidavit of Ms Jennifer Anne Balding, p 28). 139 If APRA is of the view that an individual is or is not fit and proper, this will necessarily influence whether the relationship between APRA and the individual can be one of mutual trust so as to give effect to APRA's supervisory approach which relies on close collaboration with directions and senior management. This, in turn, will influence the Court's views whether a disqualification should be revoked. Here, however, I have rejected the factual premises of APRA's opposition- that Mr Burrough's gave false evidence before me and that he had not squarely confronted his wrongdoing. He did not; and he has.

CONCLUSION 140 Mr Burroughs' conduct in relation to the FAI/ Cologne Re transaction was improper. Its character of impropriety and the degree to which it revealed deceitfulness has been dealt with in the Royal Commission Report and the AAT decision. It was misconduct that would ultimately be found by the Royal Commissioner to be a contributing factor to the failure of HIH and the grave ramifications that flowed from that corporate collapse. Against the objective seriousness of this, however, stands evidence of Mr Burroughs' continuous participation in the insurance industry in what, by all accounts, has been a diligent career in non-managerial roles at Munich Re over the seventeen years since leaving FAI; the way in which Mr Burroughs has sought to refine his technical skill and inform himself of the ethical standards required of persons operating in the insurance industry and the fact that Mr Burroughs now accepts the AAT decision and is able to articulate those aspects of his wrongdoing under scrutiny. 141 As I have said, I accept Mr Burroughs as an honest witness on 9 June 2016. In my view, and in my assessment of him and his evidence, he was attempting to answer questions, both requiring recall of events many years ago and also expression of important and difficult moral characterisations. Taking into account all of the evidence, I am satisfied that it is not justified to maintain his disqualification, and that the disqualification should be revoked. 142 I have a significant degree of confidence that Mr Burroughs will hereafter contribute in a real and effective way to the insurance industry in Australia. 143 For these reasons I made the following order on 24 June 2016: Pursuant to s 26(1)(a) of the Insurance Act 1973 (Cth) ("the Act"), the decision made by the Australian Prudential Regulation Authority (APRA) on 18 November 2004 that Mr Stephen Burroughs is a disqualified person pursuant to s 25A of the Act in its then form be revoked. I certify that the preceding one hundred and forty-three (143) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop.