Glass v Australian Prudential Regulation Authority

REASONS FOR JUDGMENT ON CLAIM FOR INTERLOCUTORY RELIEF The Background to these Proceedings 1 Anthony Glass, Terrence Keith Lawson and Michael John van Rens are former directors of Strategic Capital Superannuation Services Pty Ltd which was formerly the trustee of the Strategic Capital Superannuation Fund. It was removed as trustee of the fund by the Australian Prudential Regulation Authority ('APRA') on 3 April 2003 pursuant to the provisions of the Superannuation Industry (Supervision) Act 1993 ('SIS Act'). 2 In July 2003, APRA began what has been described as a process of proposing disqualification against each of the former directors under s 120A of the SIS Act. This process was initiated by a letter to each of the former directors calling upon them to show cause why APRA should not make a decision to disqualify each of them pursuant to subss 120A(2) and (3) of the SIS Act. 3 The pre-disqualification process involved ongoing exchanges between APRA and solicitors acting for Messrs Glass, Lawson and van Rens. It also involved the issue of supplementary show cause letters and a further show cause letter dated 29 August 2003. On 10 September 2003, the solicitors for the three former directors, Messrs Fairweather & Lemonis, wrote to APRA stating in their letter that its purpose was to enable their clients 'to openly offer to enter into an enforceable undertaking under section 262A of the SIS Act as an alternative to APRA proceeding with its present application' to disqualify them under s 120A of the SIS Act. The terms of the proposed undertaking were set out in Schedule A to the letter and were as follows: '1. Michael van Rens, Anthony Glass and Terrence Lawson will voluntarily enter into an enforceable undertaking not to be a trustee, investment manager or custodian of a superannuation entity or a responsible officer of a trustee, investment manager or custodian of a superannuation entity. (2) Michael van Rens, Anthony Glass and Terrence Lawson will acknowledge APRA's concerns in respect of certain alleged breaches of the SIS Act (without any findings of dishonesty). (3) The undertaking is to be for a period agreed to be appropriate between the parties. (4) Any reapplication to be a trustee, investment manager or custodian of a superannuation entity or a responsible officer of a trustee, investment manager or custodian of a superannuation entity will need to be proceeded by the successful completion of appropriate training. (5) APRA may issue a media release and otherwise publicly refer to this undertaking.' It is not in dispute that none of the former directors holds any position as a trustee investment manager or custodian of any superannuation entity or as a responsible officer of a trustee investment manager or custodian of a superannuation entity. 4 By a letter dated 11 September 2003 to the solicitors for the former directors Mr Gotlieb, a solicitor with APRA, wrote saying, inter alia: 'APRA will consider any proposals from your clients under section 262A of the SIS Act that it accept written enforceable undertakings given by each of them "… in connection with a matter in relation to which the Regulator has a function or power under this Act" and will make a decision as to whether it is prepared to accept such written undertakings. It remains my client's view that consideration of proposals from your clients of enforceable undertakings under section 262A of the SIS Act and the consideration of whether any or all of them should be disqualified under section 120A of the SIS Act are appropriately to be addressed at the same time by the delegate of APRA. I am instructed that my client intends that the Delegate be provided simultaneously with your clients' proposals of enforceable undertakings under section 262A, your clients' responses to the Show Cause Letters, the Show Cause Letters and all documents specified in the Show Cause Letters as having been relied on in forming the preliminary view that each of your clients should be disqualified pursuant to section 120A of the SIS Act.' The letter further stated that APRA could not entertain any offer made on the basis that it effectively undertook not to carry out its functions or powers under the SIS Act. Such an undertaking, it was said, would displace the statutory functions conferred on APRA by Parliament. The acceptance by APRA of a written undertaking given by a person under s 262A did not, and could not, involve an undertaking from APRA in return that it would not carry out its functions or powers under the SIS Act. The letter went on: 'Each enforceable undertaking accepted by APRA under section 262A specifically provides that the Promisor acknowledges that the undertaking in no way derogates from the rights and remedies available to APRA or any other person or entity arising from any conduct described in the undertaking. It also provides that the Promisor acknowledges that APRA's acceptance of an enforceable undertaking does not affect APRA's power to investigate a contravention arising from other conduct, pursue a criminal prosecution in respect of any conduct, or its power to lay charges or seek appropriate orders.' The letter advised that APRA had not published any guidelines in respect of enforceable undertakings. Finally, it reiterated advice in the Show Cause Letter of 29 August that any information each of the former directors wished to have placed before the delegate to be taken into account in deciding whether he should be disqualified pursuant to s120A should be provided by Friday, 19 September 2003. I am informed from the bar table that that time has now been extended to Friday, 3 October 2003. The Application 5 On 23 September, the three former directors filed an application in this Court for an order of review and for the issue of a writ of prohibition against APRA. The decisions identified as decisions for which review was sought were as follows: '1.1 Australian Prudential Regulation Authority ("APRA") will not at this stage consider whether or not to accept a written undertaking from each Applicant pursuant to Section 262A of the Superannuation Industry (Supervision) Act 1993 (Cth) ("SIS Act") instead of proceeding under Section 120A of the SIS Act in relation to the same subject matter as that governed by the proposed undertaking. 1.2 APRA will refer the question whether or not to accept a written undertaking from each Applicant under Section 262A of the SIS Act to its delegate appointed for the purposes of considering whether or not the Applicants should be disqualified pursuant to Section 120A of the SIS Act.' Alternatively, the application seeks review of what is described as conduct in which APRA proposes to engage whereby it proposes to consider whether or not to accept a written undertaking from each applicant at the same time as considering whether to disqualify each applicant under s 120A of the SIS Act. 6 Further, alternatively to those matters, the application for the issue of a writ of prohibition against APRA is said to relate to its proposed exercise of a function or power to disqualify an individual under s 120A of the SIS Act. The grounds of the application set out at length the history of the matter which I have already outlined by reference inter alia to exchanges of correspondence between APRA and the applicants. 7 It is then said in par 20 of the application that the decisions are an improper exercise of the power conferred on APRA to accept undertakings under s 262A of the SIS Act. APRA, it is said, took into account an irrelevant consideration in declining to entertain the offer of an enforceable undertaking on the basis that it required APRA effectively to undertake not to carry out its functions or powers under the SIS Act. Secondly, it was said that APRA failed to take into account relevant considerations in the exercise of the power. These considerations included the fact that each of the applicants is no longer a trustee, investment manager or custodian of a superannuation entity, that there is no immediate or apparent risk that APRA needs to protect by proceeding under s 120A, and that the acceptance of an undertaking is consistent with the rationale and purpose behind the power to disqualify, which is to protect the public rather than to punish individuals. Moreover, it is also said to be a relevant consideration that the acceptance of an enforceable undertaking prior to a determination under s 120A of the SIS Act provides an expeditious and certain resolution of the issues raised by disqualification for the applicants, APRA and for the members of the Strategic Fund. A further relevant consideration allegedly not taken into account is the fact that the interests of the members of the Strategic Fund would be best served by the acceptance of the enforceable undertaking as opposed to a disqualification of the applicants. The acceptance of the enforceable undertaking proposed was consistent with and analogous to the treatment by APRA of responsible officers of Lifetrack Management Ltd. 8 Then it is contended that the decisions constituted the exercise of a discretionary power in accordance with a rule or policy of APRA that the consideration of an enforceable undertaking would occur at the same time as the consideration of possible disqualification without regard to the merits of accepting an enforceable undertaking prior to considering the possibility of disqualification. 9 Error of law is asserted in connection with the proposition that an enforceable undertaking under s 262A could not be made if it displaced the power of disqualification under s 120A and that on the proper interpretation of the SIS Act the issue whether or not to accept an enforceable undertaking should be determined by APRA prior to determination by a delegate of APRA under s 120A. 10 Similar grounds are raised in relation to the proposed conduct. It is also contended that a breach of the rules of natural justice is likely to occur as the conduct and proposed conduct would result in the applicants not being apprised of the procedure to be followed by APRA's delegate and the circumstances to be taken into account by the delegate in determining whether or not to accept an enforceable undertaking and being deprived of the opportunity to confer with APRA as to the terms of an enforceable undertaking that may be acceptable to it. 11 In relation to a proposed writ of prohibition, it is said that APRA has a duty under s 262A to consider whether it should accept an enforceable undertaking in connection with a proposed exercise of a function or power to disqualify an individual under s 120A of the SIS Act in circumstances where such an undertaking has been offered. 12 The applicants claim interlocutory relief that until further order or determination of these proceedings at first instance, APRA be restrained by its officers, employees, agents, delegates or otherwise from making any decision under s 120A of the SIS Act in respect of any of the applicants. The relevant statutory provisions are to be found in the SIS Act 1993 and for present purposes it is sufficient that I focus upon ss 120A and 262A. Statutory Framework 13 Section 120A is contained in Part 15 entitled 'Standards for trustees, custodians and investment managers of superannuation entities'. The object of that part is set out in s 119 thus: 'The object of this Part is to set out rules about the eligibility of trustees, custodians and investment managers of superannuation entities.' Section 120A then provides: '120A(1) The Regulator may disqualify an individual if satisfied that: (a) the person has contravened this Act on one or more occasions (whether before or after the commencement of this section); and (b) the nature or seriousness of the contravention or contraventions, or the number of contraventions, provides grounds for disqualifying the indvidual. (2) The Regulator may disqualify an individual who is, or was (including before the commencement of this section) a responsible officer of a trustee, investment manager or custodian (the body corporate) if satisfied that: (a) the body corporate has contravened this Act on one or more occasions (whether before or after the commencement of this section); and (b) at the time of one or more of the contraventions, the individual was a responsible officer of the body corporate; and (c) in respect of the contravention or contraventions that occurred while the individual was a responsible officer of the body corporate - the nature or seriousness of it or them, or the number of them, provides grounds for the disqualification of the individual. (3) The Regulator may disqualify an individual if satisfied that the individual is otherwise not a fit and proper person to be a trustee, investment manager or custodian, or a responsible officer of a body corporate that is a trustee, investment manager or custodian. (4) A disqualification takes effect on the day on which it is made. … (6) The Regulator must give the individual written notice of a disqualification, revocation of a disqualification or a refusal to revoke a disqualification. (7) The Regulator must cause particulars of a notice given under subsection 120A(6) or 344(6) (result of internal review) to be published in the Gazette as soon as practicable.' Section 262A appears in Div 3A of Part 25 entitled 'Monitoring and investigating superannuation entities'. Division 3A comprises the one section only and is entitled 'Regulator may accept and enforce undertakings'. Section 262A provides: '262A(1) The Regulator may accept a written undertaking given by a person in connection with a matter in relation to which the Regulator has a function or power under this Act. (2) The person may withdraw or vary the undertaking at any time, but only with the Regulator's consent. (3) If the Regulator considers that the person who gave the undertaking has breached any of its terms, the Regulator may apply to the Court for an order under subsection (4). (4) If the Court is satisfied that the person has breached a term of the undertaking, the Court may make all or any of the following orders: (a) an order directing the person to comply with that term of the undertaking; (b) an order directing the person to pay to the Commonwealth an amount up to the amount of any financial benefit that the person has obtained directly or indirectly and that is reasonably attributable to the breach; (c) any order that the Court considers appropriate directing the person to compensate any other person who has suffered loss or damage as a result of the breach; (d) any other order that the Court considers appropriate.' It will be seen immediately that the provisions of s 262A are capable of application to a wide variety of circumstances which might arise under the act in connection with functions or powers of the regulator. It is not in any sense limited to the function or power of disqualification of individuals under s 120A. The Submissions on the Claim for Interlocutory Relief 14 The applicants' submissions in support of the claim for interlocutory relief observe that the power given by s 262A can be exercised in connection with any matter in relation to which APRA has a function or power under the SIS Act. They observe correctly that APRA has such a power in respect of the disqualification of individuals under s 120A and observe, as a matter of fact, that APRA has utilised the power to accept enforceable undertakings in other cases where disqualification proceedings were contemplated. I accept for present purposes that the power to accept enforceable undertakings would be applicable in a circumstance in which the regulator might otherwise proceed to disqualify under s120A of the Act. It is then said in the submissions: 'An enforceable undertaking represents an option for a Regulator to conclude a matter in an expeditious and certain way. It is intended to provide the regulator with a practical alternative to what might otherwise be costly and lengthy proceedings….' It is said that a decision to refuse to vary an enforceable undertaking is reviewable, although that is not the situation with which we are concerned today, but reference is made in that context to Australian Petroleum Pty Ltd v Australian Competition and Consumer Commission (1997) 73 FCR 75. No doubt, by analogy and extension from that proposition, it is contended that refusal to accept an enforceable undertaking would be reviewable. So it is said in these submissions: 'The power given by section 262A is discretionary but that does not mean that it can be exercised (or not exercised) in a way that is capricious.' There could be little disagreement with that proposition. The submissions continue: 'APRA has the power to consider the offered undertaking now but has decided that it is not appropriate to do so. The justification advanced in this regard is that an undertaking cannot be a substitute for enforcement action. This misunderstand the options available to APRA and imposes a false limitation on the ambit of the power contained in 262A.' Then follows the nub of the case advanced by the applicants. It is said: 'APRA has effectively truncated the wide discretion contained in the provision that grants the power and thereby has made an error of law.' Reference is made to Elias v Commissioner of Taxation [2002] FCA 845 and the contentions advanced: 'On the evidence available it is at least seriously arguable that APRA has decided that it will not consider an enforceable undertaking other than by referring it to the delegate and that this has nothing to do with the merits of the undertaking offered but rather because of a view that an undertaking cannot be considered as an alternative to disqualification proceedings. This misapprehends the wide discretion conferred on APRA by the legislation.' In relation to the characterisation of APRA's action as conduct, it is said: 'The conduct has the effect that the Applicants are obliged to make submissions now about an undertaking that will only be considered at a later time and in circumstances that are unknowable.' It is further said: 'It cannot be known whether at that time the delegate will have already made findings on the disqualification submissions that are adverse to the Applicants. It means that the Applicants have no opportunity to confer with APRA as to a form of undertaking that may be acceptable at that point in time.' I interpolate that it does not appear necessarily to be the case that that will be a consequence of the procedure which is proposed by APRA. On the face of it, there is no reason why the delegate considering the undertaking in conjunction with the disqualification consideration might not adjourn his or her consideration of the disqualification option to invite further submissions or variations in terms of proposed undertakings. On the matter of balance of convenience it is said: 'If an injunction is not granted the Applicants will lose the opportunity of having an undertaking considered in the circumstances that presently exist- that is, circumstances where no findings adverse to their fitness under section 120A have been made. The Applicants would lose the possibility that an undertaking, if considered on its merits now, might be accepted and disqualification proceedings be discontinued by APRA. Disqualification involves public ignominy and loss of reputation of an entirely different order than a voluntary undertaking. On the other hand, the granting of an injunction will not prejudice APRA. The purpose of disqualification proceedings is protective - they are intended to protect the public who participate in public subscription superannuation funds by excluding those considered unfit to operate within that sector in positions of trust. The Applicants, however, no longer so act, have not acted in any such capacity since the commencement of the APRA investigation and have indicated an intention to continue not to so act.' 15 It is pointed out correctly that the issue of balance of convenience and that of the strength of the case for relief are interdependent. In that connection reference is made to the well known authority in Bullock v Federated Furnishing Trades Society (1985) 5 FCR 464. It is said that if an injunction is not granted, APRA will proceed with disqualification proceedings without considering the offered undertakings and the outcome of those proceedings may well render nugatory the final relief sought. Then reference is made to Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63, where the Chief Justice said at [12]: 'The justice and convenience of imposing interim restraint pending the hearing of the final action, if it exists, lies in the need to prevent the practical destruction of that right before there has been an opportunity to have its existence finally established.' Whether Interlocutory Relief Should be Granted 16 With respect to Mr Hall's carefully considered and argued submissions, I do not consider that a case has been made out either in terms of a serious question to be tried or in terms of balance of convenience which would warrant the granting of the interlocutory relief claimed. What APRA proposes to do, as indicated by the letter of 11 September 2003, is to consider at the same time, by its delegate, the offers of enforceable undertakings and the question whether a disqualification should be imposed under s 120A of the SIS Act. That is not, as it were, relegation of a decision to some separate entity. Rather it is APRA proposing to act in a particular way, albeit by its delegate. That is a procedure which APRA has adopted and which it regards as appropriate. I cannot glean from APRA's letter that it has in any way impermissibly fettered its discretion to consider an enforceable undertaking under s 262A or to consider disqualification under s 120A. Nor do I accept as a matter of fact that if the injunction is not granted, APRA will proceed with disqualification proceedings without considering the offered undertakings. Indeed, the letter from APRA is to the contrary. It will consider the offered undertakings and consider the question of disqualification at the same time. 17 Nothing in what APRA has said prevents it, by its delegate, from adopting a course of considering the proposed undertakings, determining that the offer of an enforceable undertaking is an appropriate way to proceed in accordance with the public interest but that an enforceable undertaking of a somewhat different content from that offered would be required. There is nothing in the procedure adopted or foreshadowed by APRA which would prevent its delegate from inviting further variations to the proposed enforceable undertaking in order to satisfy its requirements if it decides that an enforceable undertaking is preferable in the public interest to the imposition of disqualification under s 120A. 18 Neither in a practical way nor in any legal sense has the procedure adopted by APRA foreclosed any of its options. Nor is there any basis upon which it can be said that natural justice is compromised. In respect of the disqualification process, the applicants have been invited to show cause. That is an administrative natural justice procedure, not in terms required by the Act but plainly a minimum requirement for the purposes of procedural fairness. Whether or not the circumstances of the case require an oral hearing in order to satisfy natural justice is a matter for the judgment of the delegate. It is not a matter which this Court should endeavour to prejudge. On the basis both of the legal case put forward on behalf of the applicants and the balance of convenience, in my opinion, the claim for interlocutory relief should be dismissed with costs.