16 December, 2016
In the first decision of its kind, the Federal Court of Australia has revoked a disqualification order made by the Australian Prudential Regulation Authority (APRA) in 2004 under the former legislative regime, which authorised APRA to disqualify personnel of general insurers who were deemed not to be "fit and proper" persons to hold a senior insurance role.
The decision of Burroughs v APRA[1] was handed down earlier this year and contains detailed and practical guidance from the court on the relevant factors and evidence required to justify a revocation of a disqualification order. The success of the application by former FAI General Insurance Company Limited manager, Stephen Burroughs in this landmark judgment is likely to encourage the revisiting of other disqualification orders in the insurance industry made by APRA prior to the legislative changes in 2008.
The guidance from the court highlights the importance of providing comprehensive evidence (including oral evidence from the applicant themselves) to the court to paint a clear and complete picture of the applicant's conduct over the period since their disqualification and their level of insight into their past misconduct.
On a practical front, it is also important that potential applicants keep comprehensive records of any information relevant to their disqualification, particularly any legal proceedings relating to the disqualification, if they are considering an application to the Federal Court to vary or revoke their disqualification order.
Background
The legislative regime for disqualifications was amended in 2008 by the Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 (Cth), which vested the power to disqualify personnel of general insurers in the Federal Court of Australia instead of APRA. The transitional provisions of that act provide the Federal Court with the power to revoke disqualification orders made by APRA prior to 2008.
Application under Section 26 of the Insurance Act 1973 (Cth)
The application in Burroughs v APRA was for a revocation order pursuant to section 26 of the Insurance Act 1973 (Cth) (Insurance Act). There are two orders that can be sought under section 26 of the Insurance Act:
- Section 26(1)(a) order – If the person is a disqualified person only because they were disqualified under section 25A of the Insurance Act, they can seek a variation or a revocation of the order made under that section; or
- Section 26(1)(b) order – An order that the person is not a disqualified person, where the disqualification was not made under section 25A of the Insurance Act.
The mutually exclusive nature of the two orders was noted by Chief Justice Allsop in his judgment, and it follows that an applicant must identify the specific order sought under their application. As Mr Burroughs' disqualification order was made under section 25A of the Insurance Act, Chief Justice Allsop considered that Mr Burroughs was only entitled to seek an order under section 26(1)(a) of the Insurance Act.
The decision is an important test case for the insurance industry, as it highlights the various factors that the Federal Court will consider in deciding whether to revoke or vary a disqualification order and the type of evidence that needs to be put before the Court to demonstrate that the revocation or variation is justified.
Factors
In his judgment, Chief Justice Allsop considered the following factors as relevant to the court's assessment of whether it is appropriate for the disqualification order to be varied or revoked:
- previous conclusions as to the applicant's lack of fitness and propriety by APRA (prior to 2008) or by the
- Federal Court (from 2008 onwards) and whether those conclusions continue to be sufficiently justified;
- the length of time that has elapsed since the disqualification (although a substantial passage of time does not of itself lead to a revocation); and
- whether the applicant can demonstrate clear insight into the nature of their past wrongdoings and a consciousness for the need for change.
Chief Justice Allsop also found that the protective purpose of the legislative scheme means that a disqualification will continue to be justified if there is any real or remote chance that a person will pose a prudential risk.
Evidence
Mr Burroughs presented the following forms of evidence in support of his application, to demonstrate that he had reflected on his misconduct:
- detailed chronology of his work history to illustrate his continued participation in the insurance industry;
- references from a number of senior leaders and co-workers in the insurance industry, particularly in relation to his integrity and honesty in his roles since the disqualification;
- professional development since the disqualification, in the fields of finance and leadership, including development of his awareness of ethical issues through exposure to respected models of ethical thinking in various courses; and
- affidavit and oral evidence, citing recent examples of his ethical behaviour in his current roles, in accordance with his employer's code of conduct and his acknowledgement of his past mistakes and errors of judgment.
Despite APRA's submissions that Mr Burroughs had failed to show insight into the dishonest nature of his conduct through his evidence and APRA's opposition to the revocation of the disqualification order, the combination of the above evidence satisfied Chief Justice Allsop that Mr Burroughs had continued to hone his technical skills and had enhanced his awareness of proper decision-making practices since the disqualification order in 2004.
While Chief Justice Allsop acknowledged in his judgment that APRA's position is important in the court's assessment, his Honour placed significant weight in this decision on Mr Burroughs' oral evidence as to his rehabilitation since his disqualification 11 years ago and his continued participation in the industry, including the fact that his conduct has not attracted negative attention from APRA or his employer
[1] Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775 (Burroughs v APRA)
For further information, please contact:
Dean Carrigan, Partner, Clyde & Co
dean.carrigan@clydeco.com
