In The Know

May, 2012

Mills Oakley’s Sydney Commercial Litigation and Dispute Resolution is excited to bring you the first edition of In the Know – the team’s quarterly update. In the Know will bring you the latest developments in each of the regulatory, legislative and judicial space relevant to your business.

Addition to the team
Last month, our Sydney team, led by Jeremy Mackenzie, welcomed new partner Lisa-Marie McKechnie.
Lisa-Marie joined us from Minter Ellison where she developed a reputation for her commercial and strategic approach to the management and defence of disputed superannuation and life insurance matters. Lisa-Marie advises trustees on all aspects of their fund operations and has defended actions against both trustees and life insurers in the Superannuation Complaints Tribunal (SCT), Financial Ombudsman Service (FOS), the District, County, Supreme and Federal Courts. Lisa-Marie also sits on the Association of Superannuation Funds of Australia (ASFA) Best Practice Committee which is committed to providing support and guidance to its members by developing Best Practice Papers which represent current practice and expert thinking drawn from a range of experienced industry participants.

Federal Court upholds ASIC broker ban
ASIC’s decision to ban former Osborne Park broker Roberto Catena from providing financial services for 5 years has been upheld by the Federal Court of Australia following Mr Catena’s unsuccessful appeal from a decision of the Administrative Appeals Tribunal (AAT) ([2010] FCA 865, 13 August 2010). ASIC banned Mr Catena on 4 February 2009 for breaches of section 1043A of the Corporations Act 2001 (Cth) (Act) (which prohibits insider trading and communication of inside information) following a 2 year investigation. Mr Catena appealed to the AAT in respect of ASIC’s decision. Senior AAT member Penglis affirmed ASIC’s decision.

In affirming the AAT’s decision that Mr Catena contravened section 1043A of the Act and the banning order, his Honour Barker J noted that while the AAT could have provided a more elaborate set of reasons including citing the relevant statutory provisions and identifying each of the necessary elements to establish such a contravention, he found that the AAT correctly performed its task on review. His Honour rejected Mr Catena’s submission that the AAT had failed to address the central issue as to whether or not ASIC had discharged its obligation to show to the AAT that there was evidentiary material of sufficiently persuasive weight to establish each of the necessary elements. In His Honour’s view, the AAT did not lose sight of the task it had to decide – whether it was satisfied that ASIC had made out its case on the evidence that the information utilised by Mr Catena was inside information as defined in that section of the Act.

Supreme Court dismisses police officer’s appeal against SAS Trustee
In the decision of their Honours Allsop P, Basten JA and Young JA ([2010] NSWCA 182 3 August 2010), the NSW Court of Appeal has dismissed an Appeal brought against SAS Trustee Corporation (SAS Trustee) by former police officer Terry Swift. Mr Swift appealed a decision of District Court Judge Armitage DCJ in relation to the payment period for his superannuation allowance under the Police Regulation (Superannuation) Act 1906 (NSW) (Police Act). Mr Swift brought proceedings in the District Court against the SAS Trustee in 2008 seeking to have his superannuation allowance back-dated to the date of his resignation in 1981. The SAS Trustee had determined to apply a provision of the Superannuation Legislation Amendment Act 2006 (NSW), resulting in a decision to pay his allowance from the date of his application, 1 March 2004. Mr Swift did not apply for a superannuation allowance when he resigned as a police officer in 1981, later citing the culture of the police force at the time which frowned upon such applicants as his primary reason.

The trial judge determined that the SAS Trustee had applied the later legislation rather than the former legislation (which was in error) but that in exercising its jurisdiction, the SAS Trustee would have arrived at the same result – that Mr Swift’s allowance was payable from 1 March 2004 had it applied the later legislation. Accordingly, His Honour confirmed the SAS Trustee’s decision and in view of Mr Swift’s success on only one of the major points argued, made no order as to costs.
Mr Swift’s Appeal was on three major grounds:

(a) failure to consider matters relevant to the exercise of the SAS Trustee’s discretion;
(b) consideration of irrelevant matters; and
(c) failing to exercise the statutory discretion upon a real and genuine consideration or in accordance with purposes for which the discretion was conferred.

Their Honours accepted that the trial judge would have been in no doubt that Mr Swift was seeking an exercise of discretion beneficial to him but that if Mr Swift’s submission was intended to imply that the duty of a trustee was to exercise the discretion favourably to him, this would impose a fetter on the statutory power which was inconsistent with the language of the Police Act. In dismissing the other grounds of appeal, their Honours found that there was no suggestion that the trial judge had failed to identify the power correctly in terms of statute or that he had failed to give bona fide consideration as to whether or not to exercise it. Their Honours also rejected outright as without substance Mr Swift’s submission that the SAS Trustee’s failure to characterise his application as “extraordinary” penalised Mr Swift for his delay in making his superannuation allowance application.

FOS issues guidance on TOR stop powers
The Financial Ombudsman Service (FOS) which operates an external dispute resolution scheme in accordance with ASIC’s Regulatory Guide 139 issues Terms of Reference (TOR) which set out amongst other matters, who is eligible to lodge a Dispute, the types of Disputes that FOS can consider, how these Disputes are resolved and the types of remedies that FOS can provide. In addition to the TOR, FOS issues operational guidelines intended to assist the understanding of the TOR and provide further details as to how FOS will resolve Disputes.

In August 2010, FOS issued Circular edition 3 update 1 (Circular) which provides guidance in relation to the application of paragraph 13.1 of the TOR. Paragraph 13.1 prevents Financial Services Providers (FSPs) from taking legal proceedings or any other action against FOS applicants while FOS is dealing with a Dispute lodged with it by that applicant. In summary, paragraph 13.1 of the TOR means that an FSP must not:

(a) instigate proceedings against a FOS applicant which relates to the subject of the Dispute;
(b) pursue legal proceedings relating to debt recovery instituted before lodgement of the Dispute (subject to some exclusions); or
(c) take action to recover a debt that is the subject of the Dispute, to protect assets securing that debt or to assign any right to recover that debt.

If an FSP contravenes paragraph 13.1 by obtaining judgment after a Dispute is lodged with FOS, the FSP must apply to set aside the judgment at no cost to the applicant. Similarly, if an FSP commences legal proceedings against a FOS applicant and FOS has jurisdiction to hear the Dispute, the FSP must either stay the proceedings (or adjourn any hearing as appropriate) until FOS closes its file.

While paragraph 13.1(a)(ii) requires that an FSP must stop the legal proceedings from the time the Dispute is lodged, the Circular states that from a practical viewpoint, FOS regards the obligation on a FSP to refrain from taking any further steps in the legal proceedings as commencing from when an FSP is notified by FOS that a Dispute has been lodged. It is, therefore, possible that an FSP could contravene this provision innocently because it is unaware that a Dispute has been lodged with FOS.

Under paragraph 11.3 of the TOR, FOS must report all serious misconduct on the part of an FSP to ASIC. Serious misconduct is defined to mean conduct which is fraudulent, grossly negligent or involves wilful breaches of applicable laws or obligations under the TOR. The Circular notes that a breach of the TOR in the circumstances above, will not of itself constitute “serious misconduct” under paragraph 11.3 of the TOR. It will, however, still oblige the FSP to apply to set aside the judgment (or take such other steps as are necessary) at its own cost.

There is an exception to paragraph 13.1 which enables an FSP to take 2 forms of action provided that they seek FOS’s prior agreement. If the proceedings are only issued due to the forthcoming expiry of the limitation period or are necessary to preserve the assets which are the subject of the Dispute, the FSP should write to FOS requesting that it agree to the action and provide the relevant supporting information.

The Circular highlights the importance of an FSP making a determination early as to whether or not to apply for relief from the paragraph 13.1 stop powers to issue limited recovery proceedings and in doing so, to ensure that FOS is contacted as soon as possible and provided with necessary information.

SCT refuses interest despite 2 year delay
The SCT has refused a complainant’s request to overturn the decision of an insurer and a trustee not to make payment of interest on his Total and Permanent Disablement (TPD) benefit despite a two year period between the date that the complainant lodged the TPD claim and the date the TPD benefit was paid. The complainant claimed interest under section 57 of the Insurance Contracts Act 1984 (Cth) (which provides for the payment of interest by an insurer from the day on which it was unreasonable for the insurer to have withheld payment) at the rate of 5.25% on the basis that the processing of his claim took an unreasonably long period due to “delay tactics and internal mess-ups”.

Each of the insurer and the trustee maintained that the complainant’s claim was conducted in a timely manner and that the insurer acted in good faith and refused the claim for interest on the basis that it had no merit. Under section 37(6) of the Superannuation (Resolution of Complaints) Act 1993 (Cth), the SCT must affirm a decision under review if it is satisfied that its operation in relation to the complainant was fair and reasonable in the circumstances. In determination D10-11/009, the SCT affirmed the decision of each of the insurer and the trustee, finding that the trustee was in the hands of the insurer in relation to the time taken to admit the claim and that for its part, the insurer had acted reasonably promptly at all times. In the SCT’s opinion, there was no delay of such a nature as to justify payment of interest under the Insurance Contracts Act.

Contact Mills Oakley

Jeremy-mackenzie-mills-oakleyJeremy Mackenzie | Partner
T: +61 2 8289 5807



Damian Ward | Partner
T: +61 2 8289 5862



Lisa-Marie McKechnie | Partner

T: +61 2 8289 5857

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