VCA and Ors and Australian Prudential Regulation Authority [2008] AATA 580 | Case summary

15AAVCA and Ors and Australian Prudential Regulation Authority [2008] AATA 580 | Case summary | Zoe

[802]

" The limits of the legislative, the executive and the judicial powers of the Commonwealth are nowhere defined. A strict division is, as I have said before, impossible, and we find more and more, as a matter of practical government, a mingling of functions ... 'The authorities ... show,' said the Judicial Committee in Shell Co of Australia Ltd v Federal Commissioner of Taxation ...[[412]], 'that there are tribunals with many of the trappings of a court which, nevertheless, are not courts in the strict sense of exercising judicial power.' Some negative propositions were enumerated. Affirmatively, however, it may be said that the character of the act depends upon substance and not upon form. 'The words "judicial power" as used in s. 71 of the Constitution mean the power which every sovereign authority must of necessity have to decide controversies between its subjects, or between itself and its subjects, whether the rights relate to life, liberty or property. ... 'A judicial inquiry investigates, declares, and enforces liabilities as they stand on present or past facts and under laws supposed already to exist. That is its purpose and end' (Prentis v Atlantic Coast Line Co ...[[413]] per Holmes J). But, nevertheless, administrative authorities have been created for the purpose of ascertaining facts, supplementing the courts, and entrusted with power to make at least initial determinations in matters within, and not outside, ordinary judicial power. The Commissioner of Taxation, Boards of Review under the Income Tax Acts, the Commissioner of Patents, the Registrar of Trade Marks, and so forth, are but a few illustrations of such administrative authorities. Consequently it is not an exclusive attribute of judicial power that all determinations of fact in matters affecting public or private rights shall be made by some court in which judicial power has been vested. No one doubts that the ascertainment or determination of facts is part of the judicial process, but that the function does not belong exclusively to the judicial power ... [I]t is a matter for the consideration of the legislative body how and to what extent facts should be submitted to the administrative tribunals in aid of or to supplement judicial power. The true function of judicial power is, as already indicated, to investigate, declare and enforce rights and obligations on present or past facts, by whatever authority such facts are ascertained or determined, and under laws supposed already to exist (Prentis v Atlantic Coast Line Co...[[414]]"[415]

[959]

377. Whether ATC established a discrete entity to conduct the administration function, or it elected to administer the fund itself, it would nevertheless have incurred substantial outlays by way of establishment costs. It is therefore unremarkable that in late 2001, although AC had by that time been incorporated, ATC engaged the services of consultants to assist in establishing the administration function which was to be carried out by AC. It is also unremarkable that ATC funded a number of initial expenses in the course of establishing of AC. It was, according to the applicants, to be its wholly owned entity set up solely for the purpose of administering the ATC fund. As hardware and software was acquired by AC and the process of migrating data from FCSAS to AC commenced, AC began to incur costs. It was at that point in time that AC raised an invoice to ATC in the sum of $160,000 plus $16,000 GST. That payment was for costs incurred by AC and for work to be completed in the very near future to bring AC up to operational status. In our opinion, payment of an invoice in advance of receiving either goods or services is not an uncommon commercial practice. Clearly, because it was intended that AC be operational by early January 2002, a payment for anticipated expenditure made in December 2001 is entirely consistent with ordinary commercial practice. While it is true that the payment in advance enabled Condition D.1 of ATC's IOA to be met, we are satisfied it was not the sole purpose of the payment. The underlying reality was that AC needed to do substantial work in order to be operational by 1 January 2002. In any event, as was submitted by Mr Santamaria, if the purpose of the payment was to enable AC to meet the requirements of Condition D.1 of ATC's IOA, we would find there was nothing improper about ATC's making a payment for that purpose because the establishment of the fund administrator could be described as an activity undertaken by ATC as trustee of the fund and it was therefore reasonably incidental to its activities as trustee.

[967]

385. From APRA's perspective, the problem in determining whether AC held the requisite eligible assets under the IOA, is that account should have been taken of all liabilities at all times in order to arrive at the eligible assets figure. That is accordance with the IOA and the definition of eligible assets set out in that document. Strict compliance with the requirement to maintain, at all times, eligible assets to the value of $100,000, would require adjusting entries to be made on a daily basis to arrive at the eligible assets figure. That would involve adjusting income entries which reflected prepayments of administration expenses, if there were any, and the prepayments of liabilities, such as insurance, which is generally prepaid 12 months in advance. Quite clearly, such an exercise is impractical. In fact that task was even more complicated by the fact that some establishment costs were borne by ATC and some by AC despite the fact that the Administration Agreement had not been finalised at that time. It was quite clear that further adjusting entries would have to be made at the end of the financial year to take into account that situation. For that reason, according to VCC, the simplest way to ensure AC maintained $100,000 worth of net assets was to simply monitor the bank account and make sure it did not fall below $100,000.[541] Although monitoring the bank account balance should enable the liquid assets requirement to be maintained, it might not be indicative of the eligible asset position on a daily basis. The practical answer to this problem seems to be that the fund administrator should maintain liquid assets in an amount exceeding $100,000. In fact VCC said that in early 2002, he required Mr Austin to inform him if the bank balance dropped below $160,000 so as to be sure it did not drop below $100,000.[542] Mr Austin confirmed that AC had a policy requiring its bank balance to remain above $160,000.[543] That was a reasonably prudent way of overcoming the problem posed by the way in which eligible assets are defined.

VCA and Ors and Australian Prudential Regulation Authority [2008] AATA 580 (4 July 2008)

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Judgment (1710 paragraphs)

VCA and Ors and Australian Prudential Regulation Authority [2008] AATA 580 (4 July 2008)

Legislation Cited (24)

Cases Cited (94)