FEDERAL COURT OF AUSTRALIA
Australian Prudential Regulation Authority v TMeffect Pty Ltd [2018] FCA 508
ORDERS
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY Appellant | ||
AND: | Respondent | |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The appeal on a question of law under section 44 of the Administrative Appeals Tribunal Act 1975 (Cth) is allowed.
2. The matter is remitted to the Administrative Appeals Tribunal differently constituted for reconsideration according to law.
3. In the absence of agreement:
(a) on or before 4 pm on Monday, 30 April 2018, the appellant is to file and serve any submissions in support of any further orders required in order to give effect to these reasons and/or as to costs;
(b) on or before 4 pm on Monday, 7 May 2018 the respondent is to file and serve any submissions in response; and
(c) on or before 4 pm on Thursday, 10 May 2018 the appellant is to file and serve any submissions in reply.
4. Any outstanding issues raised as a consequence of the further submissions referred to in Order 3 above will be determined on the papers.
5. Mr Pinter, the sole director of the respondent, is granted leave to proceed in the Court on behalf of the respondent without a lawyer
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
PERRY J:
1 This is an appeal on a question of law under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) from a decision of the Administrative Appeals Tribunal (Tribunal) given on 22 June 2017. By that decision, the Tribunal on review set aside the decision of a delegate of the appellant, the Australian Prudential Regulation Authority (APRA), given on 21 June 2016 pursuant to s 66 of the Banking Act 1959 (Cth) (Banking Act). By that decision, APRA had confirmed an earlier decision by it refusing to consent to the assumption or use by the respondent, then TMeffect Pty Limited (TMeffect), of the restricted word “bank” in the proposed company name “Bankrolla”. TMeffect proposed to carry on a financial business in Australia providing equity crowdfunding services under that company name. As a consequence of the Tribunal’s decision, the respondent changed its name to “Bankrolla Pty Ltd” and began operating complementary social media pages using the name “Bankrolla”.
2 The notice of appeal identifies three questions of law. APRA explained the issues reflected in those questions of law as follows:
First, whether the Tribunal misconstrued s 66 of the Banking Act, in effect inverting the statutory test, by holding that consent is to be granted if the public would be protected, rather than respecting Parliament’s assessment that the public is to be protected by prohibiting the use of the restricted words, subject to the exceptional granting of consent.
Secondly, whether the Tribunal erred in law by failing to apply policy guidelines for the implementation of s 66, where it neither found the policy to be invalid, nor found anything in the particular circumstances of the case to justify not applying the policy.
Thirdly, whether the Tribunal erroneously ignored as an irrelevant consideration the inherent riskiness of equity crowdfunding as an aspect of the protection of the public.
3 The policy guidelines referred to in the second question of law are the APRA Guidelines: Implementation of section 66 of the Banking Act 1959 (Guidelines).
4 APRA also asked the Court to make various findings of fact which are not in issue.
5 For the reasons set out below, the Tribunal erred in each respect alleged by APRA. The appeal should therefore be allowed.
2. OVERVIEW OF THE LEGISLATIVE REGIME
6 APRA is a body corporate established by the Australian Prudential Regulation Authority Act 1998 (Cth) (APRA Act) (ss 7 and 13 of the APRA Act). Section 8(1) of the APRA Act provides that the main purposes for which APRA exists are:
(a) regulating bodies in the financial sector in accordance with the other laws of the Commonwealth that provide for prudential regulation or for retirement income standard;
…
(c) developing the administrative practices and procedures to be applied in performing that regulatory role and administration.
7 In performing and exercising its functions and powers, among other things, APRA is to promote financial system stability in Australia (s 8(2) of the APRA Act). APRA’s functions include those conferred under other laws of the Commonwealth (s 9(a) of the APRA Act).
8 Subject to exceptions not presently relevant, the carrying on of a banking business is restricted to authorised deposit-taking institutions (ADIs) which are authorised by APRA under s 9(3) of the Banking Act. An individual commits an offence under s 7 if she or he carries on a banking business and no determination under s 11 applies. Subject to limited exceptions, a body corporate also commits an offence under s 8 if it carries on a banking business absent authorisation under s 9. Section 11 also confers power on APRA to determine in writing that certain provisions of the Act, including s 66, do not apply to a person or to a class of persons and to impose conditions on that determination. It is an offence to contravene a condition of a determination under s 11 of the Banking Act.
9 The Banking Act also provides for the setting and monitoring of prudential standards by APRA (Div 1A, Part II, Banking Act) and for the protection of depositors (Divs 2 and 2AA, Part II, Banking Act), thereby directly engaging with the first of APRA’s main statutory purposes.
10 As stated in Note 1 to s 9(3) of the Banking Act, the grant of authority to carry on a banking business does not of itself entitle a body corporate to call itself a “bank”. This is because s 66(1) prohibits the use or assumption of restricted words and expressions in relation to a financial business. These restricted words include “the word bank, banker or banking” by virtue of s 66(4)(a)(i) (emphasis in the original). Furthermore, under s 66(4)(b)(i), a restricted word or expression is “assumed or used” even if it is assumed or used as part of another word or expression, i.e. in a compound word or expression, such as the use of the word “bank” in “Bankrolla”. Other restricted words and expressions include “building society”, “credit union” and “credit society” under s 66(4)(a)(ii), and “authorised deposit-taking institution or “ADI” under s 66A (when used by persons other than authorised deposit-taking institutions).
11 Section 66(1) provides that:
(1) A person commits an offence if:
(a) the person carries on a financial business, whether or not in Australia; and
(b) the person assumes or uses, in Australia, a restricted word or expression in relation to that financial business; and
(c) neither subsection (1AB) nor subsection (1AC) allows that assumption or use of that word or expression; and
(d) APRA did not consent to that assumption or use of that word or expression; and
(e) there is no determination in force under section 11 that this subsection does not apply to the person.
12 As I later explain, the purpose underlying s 66 is protection of the public against confusion: see also Siminton v Australian Prudential Regulation Authority (No 2) [2008] FCAFC 88; (2008) 168 FCR 122 (Siminton) at [26] (the Court). That notwithstanding, s 66(1)(c) permits certain uses of the restricted words without consent under subs 66(1AB) and (1AC) which provide that:
(1AB) It is not an offence against subsection (1) for the Reserve Bank to assume or use the words bank, banker or banking in relation to its financial business.
(1AC) It is not an offence against subsection (1) for an ADI to assume or use the word banking in referring to the fact that it has been granted an authority under this Act.
Note: For example, an ADI may, in its letterhead, refer to itself as being authorised under the Banking Act 1959 to carry on banking business.
(emphasis original)
13 It can be inferred from these exemptions that the Parliament did not consider that there was a risk that the use or assumption of the restricted words in relation to the carrying on of a financial business in these limited categories of cases would confuse or mislead customers.
14 It is apparent from the general terms in which the prohibition in s 66 is expressed and the exceptions created by subs (1AB) and (1AC), that the prohibition upon the use of the word “bank” or derivations thereof without consent under s 66(1) applies to both ADI’s and other entities carrying on a financial business which are not ADIs. Furthermore, while no express power to grant consent is conferred upon APRA, it was rightly not in issue that APRA has an implied power to grant consent, including on conditions, under s 66. Moreover, once granted, consent remains subject to a power vested in APRA under s 66(2) to impose, vary or revoke conditions, or to revoke consent, at any time. APRA is required to give notice to the Australian Securities and Investments Commission of the granting of consent or of any action under s 66(2): s 66(2B) of the Banking Act.
15 An offence under s 66(1) carries a maximum of 50 penalty units for each offence in the case of an individual (i.e. $10,500) and, by virtue of s 4B(3) of the Crimes Act 1914 (Cth), up to 5 times that penalty in the case of a body corporate. The seriousness with which the Parliament views the potential risks where a restricted word is used or assumed without consent or contrary to conditions, is apparent from the fact that a person commits an offence on each day that such conduct is undertaken (see s 66 (1AA) and (3A) respectively).
3.1 APRA’s decisions refusing the application under s 66 of the Banking Act and confirming the initial decision on review
16 On 19 February 2016, the respondent applied for consent from APRA under s 66 of the Banking Act to assume the name “Bankrolla” in relation to its crowd sourced investment business. In its application, the respondent explained that it intended “to use the Bankrolla brand to represent our crowd backed angel investment business to help bankroll Australian innovation… The nature of the service is to match investors (both wholesale & retail) and company issuers via our intermediation service, in accordance with the regulations and licence conditions provided under the [Corporations Law Amendment Crowd Sourced Funding] Bill (to be finalised later this year).” That Bill was later enacted into law as the Corporations Amendment (Crowd-sourced Funding) Act 2017 (Cth) and amended the Corporations Act 2001 (Cth) with certain provisions taking effect on 28 March 2017 and the remainder on 28 September 2017.
17 On 13 May 2016, a delegate of APRA refused consent (the original APRA decision). Relying upon the Guidelines published by APRA, the delegate concluded that exceptional circumstances had not been shown so as to justify the grant of consent under s 66 of the Banking Act. At the risk of oversimplification, the Guidelines establish a bifurcated regime that distinguishes between ADIs and non-ADIs. The grant of consent to ADIs is guided by the category in which the ADI falls (i.e bank, credit union, building societies etc). Certain criteria apply to each category. For example, an ADI operating as a bank (which must by virtue of APRA requirements hold at least $50 million in Tier 1 capital) will generally be granted consent to use the words “bank”, “banker” and “banking” on an unrestricted basis (Guidelines at [21]-[22]). At the other end of the spectrum, in general an applicant who is not an ADI or like-regulated institution (non-ADI) must establish exceptional circumstances to justify the grant of consent to use a restricted word. The Guidelines provide that in such cases, consent will be granted only if APRA is satisfied that it would not defeat the purpose of the restriction, being to protect the public: see further at [42] below.
18 On 21 June 2016, a delegate of APRA confirmed the original APRA decision on review under s 51B(1) and (3) of the Banking Act (the second APRA decision).
19 On 13 July 2016, the respondent applied to the Tribunal for review of the second APRA decision pursuant to s 51C(1) of the Banking Act. On 22 June 2017, the Tribunal set aside APRA’s decision to refuse consent and granted consent to the use of the word “bank” in the name “Bankrolla”. The Tribunal adopted a different approach from that adopted in the original and second APRA decisions, declining to follow the approach in the Guidelines. Its reasons may be summarised as follows.
(1) The purpose of the restriction under s 66 “is obviously the protection of the public. If an entity calls itself a bank then customers are likely to think it is a bank. And so the assumption or use of the specified words and expressions is generally confined to those entities where those words or expressions are not likely to confuse” (Tribunal’s decision at [8]).
(2) It was not in issue that the respondent is not an ADI, that its proposed activity of operating as a crowd-sourced funding intermediary involves carrying on a financial business, and that APRA’s consent to the name change was therefore required (Tribunal’s decision at [9]).
(3) Both delegates referred to the Guidelines in their reasons. However, the Guidelines provided “an unsafe guide to the proper exercise of the discretion” in stating that the assumption or use of restricted words by non-ADI’s was “inherently confusing” and that “exceptional circumstances” were required to negate that confusion (Tribunal’s reasons at [14]).
(4) The word “‘bankroll’, as a verb, has an accepted common meaning [being]… ‘to provide funds for; act as backer for’. That meaning has a particular resonance in the industry sector the [respondent] wants to operate in, which is the crowd-sourced funding sector.” (Tribunal reasons at [17]).
(5) Even “the most ill-informed” people who wish to engage with the respondent to take advantage of the “newly created, well-defined, and heavily controlled crowd-sourced funding (CSF) regime in the new Part 6D.3A of the Corporations Act 2001… are likely to see the applicant as a CSF intermediary (as it will hold itself out in the marketplace) rather than as a bank” (Tribunal reasons at [19]).
(6) Irrespective of the respondent’s name when operating as a crowdfunding intermediary, APRA’s submission that equity crowdfunding is inherently risky should be accepted. However, that risk was an irrelevant consideration because it continued to exist regardless of the respondent’s name. The “essential question” was “whether the objective of protecting the public would be undermined by the granting of consent to the assumption and use of the name ‘Bankrolla’” (Tribunal reasons at [23]).
(7) While allowing for the wide range of people who may be within the “likely audience” including the uneducated and unsophisticated but not the “quite unusually stupid” (quoting from Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 40 FLR 165 at 176 (Franki J)), the Tribunal concluded that it was:
26. …comfortably satisfied that there is little risk that the public will be confused into thinking the applicant is a bank if it is permitted to use the name ‘Bankrolla’. The word ‘bankroller’ is not suggestive of banking activity, its somewhat playful adaptation ‘bankrolla’ even less so. Only the quite unusually stupid would think a business with that name satisfies the same level of capital adequacy, depositor-priority and other prudential requirements that apply to ADIs.
3.3 Factual matters not in dispute
20 Pursuant to s 44(7) of the AAT Act, APRA asked the Court to make six findings of fact on the appeal which are consistent with certain findings of fact made by the Tribunal. These findings were not in dispute and it is convenient pursuant to s 44(7) of the AAT Act for those finding to be made. I therefore find as follows.
(1) TMeffect operates, or intends to operate, a financial business within Australia, within the meaning of s 66(1)(a) of the Banking Act.
(2) TMeffect proposes to assume the restricted word “bank” in relation to that financial business, within the meaning of s 66(1)(b) of the Banking Act.
(3) Neither s 66(1AB) nor s 66(1AC) of the Banking Act allows the assumption of that word, for the purposes of s 66(1)(c) of the Banking Act.
(4) There is no determination in force under s 11 of the Banking Act that s 66 does not apply to TMeffect, within the meaning of s 66(1)(e) of the Banking Act.
(5) TMeffect is not regulated in Australia or overseas as an authorised deposit-taking institution, and is not a “like-regulated” institution.
(6) Equity crowdfunding is an inherently risky financial activity.
4. Question 1: Alleged misconstruction of s 66 of the Banking Act
21 It was not in issue that the Tribunal correctly held that the purpose underlying s 66 is protection of the public against confusion (see also Siminton at [26]). As explained in the Explanatory Memorandum to the Banking Legislation Amendment Bill 1989 (HR) (Explanatory Memorandum) at page 9, while the Bill would repeal ss 66 and 67 and replace them with a more comprehensive provision, “[t]he essential purpose of the section will remain the avoidance of confusion regarding the status of banks authorised under the Banking Act and other financial institutions.” In this respect, s 66 is consistent with Principle 4, Essential Criterion 3, of the Core Principles for Effective Banking Supervision (Basel Core Principles) providing that the use of the word “bank” and any derivations is controlled and limited to licensed and supervised institutions in all circumstances where the general public might otherwise be misled. While APRA did not suggest that the Basel Core Principles were binding, they were issued by the Basel Committee on Banking Supervision consisting of senior representatives of bank supervisory authorities and central banks from, among other countries, Australia.
22 Notwithstanding that general purpose, APRA submitted that the Tribunal asked the wrong question in exercising the implied power under s 66, namely, “[w]ould the public be protected if the assumption or use of the restricted word were permitted”, and “whether the objective of protecting the public would be undermined by the granting of consent to the assumption and use of the name ‘Bankrolla’” (Tribunal reasons at [14] and [23] respectively). Rather, in APRA’s submission the starting point was that the legislative rule in s 66(1) prohibited the assumption or use of the word “bank” in relation to a financial business precisely in order to protect the public against confusion. In this regard, APRA submitted that the seriousness with which the Parliament viewed the use or assumption of restricted words was apparent from the fact that the rule was afforded such a high degree of protection by reason of being enforceable as a criminal offence.
23 Taking that prohibition as the starting point, APRA therefore submitted that, in exercising the implied power to consent, the decision-maker’s task was not to ask whether the public would be protected if use of the name were permitted. To so approach the issue was, in APRA’s submission, effectively to ignore the legislative premise that in general the use of the word “bank” in relation to a financial business by a non-ADI was liable to confuse or mislead the public. Instead, in its submission the decision-maker should identify those factors warranting departure from the general rule having regard to the purpose of statutory protection, thereby giving pre-emptive force to the general rule laid down by the Parliament. For these reasons, Ms Higgins SC for APRA submitted that the Tribunal’s approach “…reverses the mechanism selected by the legislature to pursue the protective purpose. … Consent is an exceptional derogation from a default prohibition, properly granted only in exceptional circumstances.”
24 On the other hand, the respondent focused upon the width of the language in s 66 and the absence of any statutory indications as to the weight to be given to various considerations which may bear upon the exercise of discretion. In the respondent’s submission, the Parliament has seen fit to confer a wide and unfettered discretion, and not to impose any requirement to demonstrate exceptional circumstances before a departure from the general rule is warranted. In those circumstances, in the respondent’s submission the construction advanced by APRA would impermissibly read words into the statutory provision contrary to the Parliament’s intent.
4.2 The Tribunal misconstrued s 66 of the Banking Act
25 In my view, APRA’s submissions as to the proper construction of s 66 should be accepted, even though, as the respondent submits, s 66 does not expressly impose any general requirement that consent be granted only in exceptional cases for non-ADIs.
26 First, there was no dispute between the parties that APRA’s implicit power to grant consent is subject to such limits as are implied from the subject-matter, scope, and purpose of the Banking Act: Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 (Peko-Wallsend) at 39-40 (Mason J).
27 In ascertaining the implied limits upon the power, ordinary principles of statutory construction apply. As McHugh, Gummow, Kirby and Hayne JJ explained in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355:
69. The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined “by reference to the language of the instrument viewed as a whole”. In Commissioner for Railways (NSW) v Agalianos [(1955) 92 CLR 390 at 397], Dixon CJ pointed out that “the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed”. Thus the process of construction must always begin by examining the context of the provision that is being construed.
70. A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions….
28 Furthermore, as French CJ and Hayne J explained in Certain Lloyd’s Underwriters v Cross [2012] HCA 56; (2012) 248 CLR 378 (Certain Lloyd’s Underwriters) at [25], the determination of the purpose of a provision may be based upon “inference from its text and structure and, where appropriate, reference to extrinsic materials.”
29 On the other hand, as their Honours cautioned, a danger to be avoided in identifying the purpose of a statute “is the making of some a priori assumption about its purpose. The purpose of legislation must be derived from what the legislation says, and not from any assumption about the desired or desirable reach or operation of the relevant provisions.”: Certain Lloyd’s Underwriters at [26]; see also e.g. Deal v Father Pius Kodakkathanath [2016] HCA 31; (2016) 258 CLR 281 at [37] (French CJ, Kiefel, Bell and Nettle JJ).
30 Furthermore the general principle that the construction that best promotes the legislative purpose or object is to be preferred may be of little assistance in resolving the issue of construction where the statutory provision strikes a balance between competing interests, and the issue of interpretation is one of uncertainty as to how far the provision goes in seeking to achieve the underlying purpose. In such cases the question is, therefore, not what was the purpose or object underlying the legislation, but how far does it go in pursuit of that purpose or object: Carr v Western Australia (2007) 232 CLR 138 (Carr) at [5]-[7] (Gleeson CJ) (in a passage quoted with approval by the High Court in Construction Forestry Mining and Energy Union v Mammoet Australia Pty Ltd [2013] HCA 36; (2013) 248 CLR 619 at [40]).
31 Secondly, the implied power to grant consent under s 66 is a case of the kind referred to by Gleeson CJ in Carr. Specifically, uncertainty exists as to the limits of the s 66 power which seeks to strike a balance between protecting the public against confusion, on the one hand, and promoting such interests as competition in the market place, on the other hand. The imperative to balance such interests is recognised more generally in the requirement under s 8(2) of the APRA Act that, in the exercise of its functions, APRA is to balance the objectives of financial safety and efficiency, competition, contestability, and competitive neutrality so as to promote financial system stability. It follows that it is not sufficient, as the Tribunal did, to define the metes and bounds of the implied power to grant consent simply by restating s 66’s broad purpose to protect the public from confusion. Rather, the question identified by Gleeson CJ in Carr must be addressed, namely, how far does the legislation go in pursuit of that underlying purpose? Resolving this issue requires that close attention be paid to the text of the Banking Act and its context, including the means by which the Parliament has sought to give effect to that broader statutory purpose.
32 Thirdly, it is significant in answering the question in Carr that, when APRA grants consent, the effect under subs 66(1)(d) is to render lawful that which Parliament has otherwise provided is a criminal offence. As such, as APRA submits, the Parliament has expressly departed from the “general constitutional principle” that there is no general executive dispensation from statute law, let alone from criminal law: Port of Portland Pty Ltd v Victoria (2010) 242 CLR 348 at [13] (the Court) (adopting the language of Dixon CJ in Cam & Sons Pty Ltd v Ramsay (1960) 104 CLR 247 at 258). As an aspect of the rule of law, any such statutory departure from the “general constitutional principle” which delineates the hierarchy of legislative and executive power, should be strictly construed. That context, in other words, is a telling consideration against the respondent’s submission that the discretion implicitly conferred on APRA by s 66 is “unconfined”.
33 By contrast, in Kumar v Minister for Immigration and Border Protection [2015] FCA 446; (2015) 231 FCR 308 (on which the respondent relied in support of the unconfined nature of the discretion), a discretion to allow an exception to the general residence requirement for the grant of Australian citizenship was broadly construed so as to permit the Minister to consider any matters, provided that they were not “definitely extraneous to any objects the legislature could have had in view” (at [20] and [23]). However, as APRA submits, the purpose of that discretion was remedial and beneficial (being to ameliorate the strictness of the general residence requirement), rather than prohibitive or protective. As such, it does not follow that a like construction should be adopted with respect to the scope of the discretion implicitly conferred by s 66 of the Banking Act which serves a very different purpose.
34 Fourthly, as APRA submits, the limited exceptions to the prohibition in s 66(1) for which the Parliament has expressly provided in subs (1AB) (use by the Reserve Bank), subs (1AC) (use of the word “banking” by an ADI in referring to the fact that it holds an authority under the Banking Act), and s 11 (a determination by APRA that s 66 does not apply), are further indications of the Parliament’s concern as to the risks that use of the restricted words may confuse and mislead, and its intention to strictly limit the use and assumption of those words as a result.
35 In the fifth place, the Tribunal’s broader construction would potentially lead to the making of ad hoc assessments by different decision-makers within APRA and the Tribunal as to whether the public is adequately protected from confusion in individual cases. As APRA submits:
Although any one individual consent may not raise significant concerns about protection of the public, a series of such individual consents may be apt to create a confusing ecology of non-bank financial businesses using restricted words. That is the very mischief sought to be avoided by s 66. No one decision-maker directing [herself or himself] merely to the question as framed by the Tribunal, would be well-placed to consider these broader and systemic concerns.
36 The respondent’s submission that this is merely a “floodgates” argument, with respect, misses the point and should be rejected. Rather, to ask afresh whether the use of “bank” in the individual case may confuse the public ignores the fact that, by imposing a general prohibition with criminal sanctions, s 66 itself provides a bulwark against the broader, systemic consequences of using (or, perhaps more accurately, overusing) the restricted words. The choice by the Parliament to confer the power to grant consent upon APRA as opposed to some other entity therefore provides a second layer of protection which is consistent with a concern to address the broader, long term impacts of granting consents, as well as the circumstances of the individual case. This is because, as earlier explained, APRA is specifically required, in exercising its functions and powers, to balance various objectives in order “…to promote financial system stability in Australia” (s 8(2) of the APRA Act).
37 It follows that the Tribunal’s construction could create disharmony within the statutory scheme and would not best further the protective purpose served by the prohibition in s 66 by focusing upon whether the particular use of the restricted word has the potential to confuse the public, rather than taking into account the potentially corrosive effect of granting multiple consents. As such, an interpretation that would avoid such results is to be preferred: see s 15AA, Acts Interpretation Act 1901 (Cth).
38 The respondent also submitted that its wide construction is confirmed by the Explanatory Memorandum. Specific reliance was placed upon the following passage in the Explanatory Memorandum stating that:
Subsection 66(2) will allow the Treasurer a greater degree of flexibility in the administration of the section by allowing him to give conditional approval, vary conditions revoke or a consent.
39 In the alternative, the respondent submitted that if s 66 is ambiguous, the Explanatory Memorandum resolves that ambiguity by making plain the intention to confer greater flexibility on APRA and therefore a broad discretion, which ought not be narrowed by the Guidelines. In my view, the intended flexibility in this provision does not detract from the other contextual considerations which make plain the intention to limit the grant of consent to exceptional cases. Rather, it ensures that where an exceptional case might exist justifying the grant of consent, conditions may be imposed to ensure that the person granted consent cannot thereafter use the restricted word in a way that may mislead or confuse. In other words, it provides a means by which the consent may be limited so as to ensure the continued integrity of the basis on which it was granted.
40 For these reasons, the first question of law posed by the notice of appeal must be answered “yes”: the Tribunal did misconstrue s 66 of the Banking Act in determining to consent to the assumption or use of the word “bank” in the proposed company name “Bankrolla”. While it follows that the appeal must be allowed, it is helpful to consider the remaining grounds as the matter must now be remitted to the Tribunal for determination according to law and it is desirable, if possible, to avoid the Tribunal potentially falling into error again.
5. Question 2: whether error of law in failing to apply the Guidelines for the implementation of s 66 of the Banking Act
41 The second question of law concerns whether the Tribunal erred in law in failing to apply the totality of the Guidelines.
42 The Guidelines state that they “set out the factors that APRA will take into account when exercising its discretion to grant a consent or exemption to permit the use of restricted words and expressions” (Guidelines at [2]).
43 Relevantly, the Guidelines explain first at [3] (paragraph [3(a)]) with respect to s 66 of the Banking Act that:
The purpose of the restriction on the assumption or use of the restricted words by entities that are not authorised deposit taking institutions (ADIs) is to ensure potential customers are not misled into believing that such institutions have the same level of capital adequacy, depositor-priority and other prudential requirements that apply to ADIs.
44 Secondly, the Guidelines continue at [3] (paragraph [3(b)]) as follows:
APRA is of the view that the assumption or use of restricted words by non-ADIs is inherently confusing and likely to mislead potential customers. Therefore, in accordance with the purpose of the restriction, APRA is unlikely to grant consent to financial businesses that are not regulated in Australia or overseas as ADIs except in exceptional circumstances.
(emphasis added)
45 Similarly, at [16] the Guidelines explain that “[i]n determining whether to grant consent or exemption, APRA will have regard to ensuring that the purpose of restricting the use of particular words and expressions is achieved.”
46 While s 66 therefore creates a general prohibition applicable to ADIs and non-ADIs, it is only in relation to non-ADIs that the Guidelines state at [3] that the assumption or use of the restricted words is “inherently confusing and likely to mislead potential customers”. In this regard, I note that the Tribunal oversimplified the purpose of the provision in suggesting that the confusion to be avoided was simply whether the public might be misled into thinking that the non-ADI “is a bank” (e.g. Tribunal reasons at [15]), and not the more nuanced impression identified in the Guidelines that might be conveyed by the word “bank” in that context, namely: that potential customers might be misled into believing that such institutions have the same level of capital adequacy, depositor-priority and prudential requirements as ADIs. In effect, the concern is not merely to avoid confusion that a non-ADI is a bank, but also that a non-ADI may be associated with, or “as safe as”, a bank.
47 Thirdly, the Guidelines make it clear that a decision on whether consent will be granted will be made on the facts of the particular case having regard to the “policy approach” outlined in the Guidelines (at [46]). Consistently with this, the Guidelines specify that information in support of an application for consent should clearly address such matters as the nature of the financial business, whether the transactions may involve members of the general public or only persons with specialist knowledge and expertise in financial matters, and the context in which the restricted words would be used (Guidelines at [44]). Plainly information of this kind will be relevant to determining the risk that persons may be misled or confused and the consequences if that risk is realised.
48 Finally, the Guidelines explain that:
48. Applications made by financial businesses that are not regulated as ADIs in Australia or overseas may be made and will be considered on their merits. However, APRA considers that the use of a restricted word (or words) in relation to a financial business should be limited to ADIs and like regulated institutions, unless there are exceptional circumstances. The onus is on the applicant to demonstrate that there are exceptional circumstances. Consent would only be granted if APRA is satisfied that to grant consent would not defeat the purpose of the restriction, namely the protection of the public.
(emphasis added)
49 The Tribunal declined to apply the approach set out in at paragraph [3(b)] and [48] of the Guidelines. In the critical passages of its reasons, the Tribunal found that:
12. One commonly sees guidelines of this nature in government agencies. They are particularly useful where decision-making has been delegated by, say, an agency head to other officers within the agency hierarchy. Generally the purpose is to guide delegates to exercise their powers in a reasonably consistent way, to minimise the risk of capricious or idiosyncratic outcomes.
13. But guidelines of this kind must be drafted carefully, so as not to deflect the delegate from the proper exercise of the delegated power. They must not have the effect of restating the question for determination, in a way that is inconsistent with the statutory provision. And they should not try to mandate, rather than suggest, the considerations to be taken into account when the statutory provision itself, including any relevant context, leaves the decision maker’s discretion at large. Instead, they must leave the delegate to exercise the discretion, by reference to the particular considerations identified by the individual decision-maker as part of the decision-making function.
14. Here the Guideline may effectively prevent the delegate from exercising the discretion in a proper way. That is because of the statement in paragraph 3 that the assumption or use of restricted words by non-ADIs is “inherently confusing and likely to mislead potential customers”. In other words, confusion is a given. It is not left to delegate to decide whether the assumption or use of restricted words in the particular case is confusing; the Guideline has already explicitly decided that question. Then, according to the Guideline, the confusion – which has already been found to exist [italics original] – can only be negated if exceptional circumstances exist. In this way the Guideline has recast the statutory question from (implicitly) ‘Would the public be protected if the assumption or use of the restricted word were permitted?’ to ‘Since the assumption or use of the restricted word will give rise to confusion, are there are exceptional circumstances to warrant consent?’ The Guideline, in my view, provides an unsafe guide to the proper exercise of the discretion.
(emphasis added)
50 The respondent submitted that the Tribunal was entitled to disregard the relevant parts of the Guidelines on the ground that they were inconsistent with the terms of the Banking Act (Green v Daniels (1977) 51 ALJR 463(Green v Daniels) at 465-470). In the alternative, the respondent submitted that the Tribunal gave cogent reasons for deciding not to apply the policy (citing Rozario v Minister for Immigration and Border Protection [2017] AATA 2288 at [14]).
5.4 Are the Guidelines inconsistent with the Banking Act?
51 Turning to the respondent’s first ground, it was not in issue that the Guidelines would be invalid if they were inconsistent with the Banking Act. As Brennan J (as President of the Administrative Appeals Tribunal) observed in Re Drake and the Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 (Re Drake (No. 2)) at 640:
Of course, a policy must be consistent with the statute. It must allow the Minister to take into account the relevant circumstances, it must not require him to take into account irrelevant circumstances, and it must not serve a purpose foreign to the purpose for which the discretionary power was created. A policy which contravenes these criteria would be inconsistent with the statute.
See also e.g. Green v Daniels at 465-470; and NEAT Domestic Trading Pty Ltd v AWB Ltd [2003] HCA 35; (2003) 216 CLR 277 at [24] (Gleeson CJ).
52 The Guidelines would also be inconsistent with the Banking Act if they so fettered the exercise of discretion under s 66 of the Banking Act as to preclude consideration of the particular circumstances of each case: Re Drake (No. 2) at 640-641 (Brennan J). The Tribunal’s duty is to make the correct and preferable decision in each case on the material before it, having regard (as I explain below) to lawful, applicable policies.
53 It is unclear from the Tribunal’s reasons whether it was of the view that the Guidelines were inconsistent with the Banking Act in finding that they were “unsafe” at [12]-[14] of its reasons. However, the respondent submitted that, in any event, the Guidelines were inconsistent with s 66 of the Banking Act for the same reasons as those advanced by the Tribunal at [12]-[14] and therefore the Tribunal did not err in disregarding them.
54 That submission should be rejected. In my view, having regard to my earlier findings as to the construction of s 66 of the Banking Act, there is no inconsistency between the Banking Act and the Guidelines.
55 First, the Tribunal at [13] expressed the view that guidelines should not “mandate” relevant considerations when the statutory provision leaves the discretion “at large”. In so finding, the Tribunal fell into error. The absence of express limitations upon the discretion to grant consent under s 66 does not itself render inconsistent policies or guidelines requiring a decision-maker to take into account relevant considerations. In this regard, it is long established that, even absent a provision such as s 8(1)(c) of the APRA Act, “… the consistent exercise of discretionary administrative power in the absence of legislative guidelines will, in itself, almost inevitably lead to the formulation of some general policy or rules relating to the exercise of the relevant power”: Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409 (Drake) at 420 (Bowen CJ and Deane J) and Plaintiff M64/2015 v Minister for Immigration and Border Protection [2015] HCA 50; (2015) 258 CLR 173 at [54] (French CJ, Bell, Keane and Gordon JJ).
56 The decision in Government Employees’ Health Fund Ltd v Private Health Insurance Administration [2001] FCA 322 (Government Employees’ Health Fund) is a case in point. In that case, the Full Court upheld the validity of subordinate legislation (rule 5) made by the Private Health Insurance Administration Council limiting the exercise of discretion to award adjustment payments under the National Health Act 1953 (Cth) to “exceptional circumstances”. In holding that rule 5 was not invalid and did not conflict with the National Health Act 1953 (Cth), the Court held:
40… The Act does not specify the criteria to be applied by the Council in determining whether to make an adjustment outside the period contemplated by the principles. If nothing more appeared, it would be open to the Council to apply such criteria as it saw fit, provided they were not inconsistent with the scope and purpose the Act. However, s 82G(1)(r) of the [National Health Act 1953 (Cth)] authorises the Council to make rules, not inconsistent with the Act, “for the performance of its functions and the exercise of its powers”. …
41. In enacting a statute, it is common for Parliament to authorise the making of delegated legislation. The purpose is to enable the delegate to make more specific provision for the operation of the statute than is thought appropriate to be made in the statute itself; in other words, to close gaps that are otherwise left open. The delegated legislation must not conflict with the statute or be inconsistent with its scope or purpose, but it is not a legitimate objection that it makes a specific provision in respect of a matter that Parliament has left open; that is the very idea.
57 The present case is analogous. The main purposes for which APRA exists under subs 8(1)(a) and (c) of the APRA Act and the requirement that APRA acts to promote financial stability in Australia under s 8(2) imply the need for APRA to set policy guidelines for the exercise of its functions and powers. That such an implication should be drawn is reinforced by the fact that APRA is established as an expert regulatory body, subject only to limited direction by the Minister: see s 12 of the APRA Act as to the limits upon the Minister’s capacity to give directions and the restrictions imposed by s 17 on who may be appointed as an APRA member under s 16. In those circumstances, APRA has done no more than lawfully “close gaps” in the legislative scheme by adopting the administrative practices embodied relevantly in the Guidelines: Government Employees’ Health Fund at [41].
58 Secondly, the Tribunal found that the statement in the Guidelines at [3] that the assumption or use of restricted words by non-ADIs is “inherently confusing” prevented the delegate from properly exercising her or his discretion on the ground that this meant that “confusion is a given” (Tribunal reasons at [14]).
59 In considering this issue, it is important to bear in mind that the Guidelines are not a statute and should not be construed as if they were. They are, in line with their description, guidelines only. They should be read in their statutory context, in the context of the Guidelines as a whole, and in a common sense manner. While APRA Guidelines may be expressed with greater precision than Ministerial policy, nonetheless in general terms the observations of French and Drummond JJ in Minister for Immigration, Local Government and Ethnic Affairs v Gray (1994) 50 FCR 189 (Gray) at 208 are apposite:
It must be accepted… that Ministerial policy is not to be construed and applied with the nicety of the statute. Policies are not statutory instruments. They prescribe guidelines in general, and not always very precise, language. To apply them with statutory nicety is to misunderstand their function.
60 In my view, the Tribunal has read the relevant passage in the Guidelines too literally contrary to these principles, and in so doing has taken the phrase “inherently confusing” at [3] of the Guidelines out of context. Rather, it is apparent from the fact-specific approach required by the Guidelines (see above at [47]) that the phrase “inherently confusing and likely to mislead potential customers” at [3] in relation to the use of restricted words by non-ADIs, does not mean inevitably confusing, irrespective of the circumstances of the particular case. Consistently with this, the reference to potential customers being misled is expressly qualified by the reference to “likely”. Contrary therefore to the Tribunal’s reasons, sensibly read the description of the use or assumption of the restricted word “bank” by a non-ADI in the Guidelines as “inherently confusing” does not deny the possibility that the use may not be confusing or misleading in the individual case, and that as a consequence the grant of consent may not undermine the purposes of s 66. It follows that the Guidelines do not impermissibly seek to exclude a consideration of whether particular circumstances may constitute exceptional circumstances or otherwise to mandate particular outcomes: cf Government Employees’ Health Fund at [43].
61 In this regard, the proposed context in which the restricted word is sought to be used or assumed is important (as the Tribunal acknowledged at [16]) and the Guidelines expressly contemplate such matters being taken into account. Taking one of the examples considered by the Tribunal at [16] of its reasons, the Guidelines do leave open the possibility that a non-ADI carrying on a financial business with offices located on the Southbank precinct in Melbourne might satisfy APRA that exceptional circumstances exist for departing from the general prohibition so as to grant consent for the use of the name “Southbank Financial Services”, at least when accompanied by appropriate conditions. The grant of this consent would not require, as the Tribunal found at [16], that the question of consent be approached in an “entirely different way” to the more borderline example of “X Banking Corp” given at [15].
62 The Guidelines, therefore, in my view do no more than correctly inform decision-makers that the starting point in the exercise of discretion is the premise underlying the prohibition in s 66 of the Banking Act, namely, that: the use of the restricted words by financial institutions in relation to a financial business is likely to convey an impression that the institution is an ADI or is regulated in a like manner and, therefore, when those words are used or assumed by a non-ADI which is not so regulated, they are likely to confuse and mislead. Consistently with this understanding, [3] of the Guidelines concludes that, in accordance with the purpose of the provision, APRA is “unlikely” to grant consent to non-ADIs “except in exceptional circumstances.”
5.5 Was the Tribunal required to take the Guidelines into account as a mandatory relevant consideration?
63 As the Guidelines are valid and not inconsistent with the Banking Act, the question then arises as to whether the Tribunal erred in failing to take them into account. In this regard, APRA submitted that at the least, the Tribunal was entitled to treat the Guidelines as a relevant factor and therefore erred in treating the Guidelines as, in effect, irrelevant. While the acceptance of this proposition would suffice to establish error, APRA also submitted that the Guidelines constituted a mandatory relevant consideration and therefore that the Tribunal was required to take them into account: see e.g. Craig v South Australia (1995) 184 CLR 163 at 179 (the Court); Peko-Wallsend at 39-40 (Mason J); and Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323 at [82]-[84] (McHugh, Gummow and Hayne JJ).
64 The respondent, on the other hand, submitted that even if (contrary to its primary submission) the Guidelines were not inconsistent with the Act, the Tribunal gave cogent reasons at [12]-[14] for not applying the Guidelines. As such, the respondent submitted that the Tribunal had not failed to have regard to the Guidelines assuming that they were a relevant consideration
65 As to this assumption, in its initial written submissions, the respondent accepted that the Guidelines were a relevant consideration and that the failure to consider a relevant consideration may constitute a reviewable error. In this regard, the respondent relied upon Carr J in BHP Direct Reduced Iron Pty Ltd v Chief Executive Officer, Australian Customs Service (1998) 55 ALD 665 (BHP Direct) at 682 who held that “… although a non-statutory policy is not binding upon a decision-maker, it is always a relevant consideration in the making of a decision”: see also Wilcox J in Nikac v Minister for Immigration, Local Government and Ethnic Affairs (1988) 20 FCR 65 (Nikac) at 81. However, it has been suggested that these decisions may “elide the use of ‘relevant’ in its ordinary sense of permissible to be taken into account, as in Drake, and ‘relevant’ in its technical sense of a mandatory consideration”: Minister for Foreign Affairs v Lee [2014] FCA 927; (2014) 227 FCR 279 at [60] (Robertson J). That being so, the respondent’s position as to the status of the Guidelines (if not inconsistent with the Act) is not entirely clear.
66 In my view, there is considerable force in the proposition that the Guidelines constitute a mandatory relevant consideration. The fact that, as a matter of statutory construction, the Parliament intended that policies formulated by APRA such as the Guidelines, would constitute mandatory relevant considerations is supported by a number of contextual matters including:
(1) the implied conferral of a wide discretion on APRA to grant consent under s 66 of the Banking Act (Gray at 206 and BHP Billiton Direct Reduced Iron Pty Ltd v Duffus [2007] FCA 1528; (2007) 99 ALD 149 (Duffus) at [103] (French J); cf the detailed legislative scheme found to leave no room for an implication that policies were mandatory relevant considerations in Jacob v Save Beeliar Wetlands (Inc) [2016] WASCA 126; (2016) 50 WAR 313 at [54]-[61] (McLure P; Buss and Newnes JJA agreeing);
(2) the heightened importance of consistency in decision making given APRA’s obligation to perform and exercise its functions and powers so as to promote financial system stability in Australia (s 8(2) of the APRA Act) (see by analogy Gray at 206; Duffus at [103]);
(3) APRA’s express purpose of developing administrative practices and procedures (s 8(1)(c) of the APRA Act); and
(4) APRA’s status as an expert regulatory body.
67 As such, while lacking an express basis in the Banking Act, in my view the preparation of guidelines for decisions on whether to grant consent under s 66 of the Banking Act are implicitly contemplated by the statutory scheme, and affording such guidelines the status of mandatory relevant considerations is consistent with the statutory context in which that power is implicitly conferred.
68 Moreover, even though the Guidelines were created by the original decision maker, APRA, as the Tribunal on review is vested with the same power as APRA under s 66 “… it must follow as a matter of principle, that if the decision-maker was bound to take a policy formulated and applied to ensure consistency of decision-making, so too must the Tribunal”: Tax Agents’ Board of New South Wales v Aqabani [2005] FCA 383; (2005) 144 FCR 446 at [24] (Hill J).
69 In any event, even earlier authorities holding that the Tribunal is entitled to treat government policy as a relevant factor on an application for review, also held that, if the original decision-maker took into account a governmental policy in reaching her or his decision, “the existence of that policy will plainly be a relevant factor for the Tribunal to take into account in reviewing that decision”: Drake at 420 (Bowen CJ and Deane J). In other words, even if no general duty exists to take policy into account in the exercise of a statutory discretion, the Tribunal on review will be required to do so in circumstances where the primary decision maker has done so.
70 Consequently, while I consider that the better view is that the Guidelines were mandatory relevant considerations, as APRA had regard to the Guidelines in refusing consent it follows on either approach in the authorities that the Guidelines were a mandatory relevant consideration for the Tribunal on review of APRA’s second decision.
5.6 Did the Tribunal take the Guidelines into account?
71 While it is correct to say that the Tribunal did not overlook the existence of the Guidelines (as the respondent submitted), the respondent argues that the Tribunal correctly “showed an active intellectual engagement” with the Guidelines notwithstanding that it “refused to follow the logic set out in the Guidelines”. I do not agree. In my view, the Tribunal did not take the Guidelines into account by engaging with them in the relevant sense. Rather, the Tribunal found that it would not apply the Guidelines on the basis that they “re-cast the statutory question” and provided “an unsafe guide to the proper exercise of the discretion.” As such, in my view this is not a case where the Tribunal decided that there were cogent reasons why the Guidelines should not apply having regard to the particular circumstances of the case. Rather, it considered the relevant parts of the Guidelines only so as to dismiss them as “unsafe”, despite their validity and apparent relevance. As the Full Court held in Minister for Immigration and Citizenship v Khadgi [2010] FCAFC 145; (2010) 190 FCR 248 (Khadgi):
59 … a decision-maker does not take into account a consideration that he or she must take into account if he or she simply dismisses it as irrelevant.… if it is apparent that the particular matter has been given cursory consideration only so that it may simply be cast aside, despite its apparent relevance, then it may be inferred that the matter has not in fact been taken into account in arriving at the relevant decision: Elias v Federal Commissioner of Taxation (2002) 123 FCR 499 at [62] (per Hely J). Whether that inference should be drawn will depend on the circumstances of the particular case.
72 Put another way, a decision-maker fails to engage in an active intellectual manner with relevant considerations if the application of those considerations to the circumstances of the particular case is not considered either because the policy is considered irrelevant or because, as here, its very premise is disputed: Khadgi at [57] (the Court); Tickner v Chapman (1995) 57 FCR 451 at 462 (Black CJ), 472 (Burchett J) and 495 (Kiefel J); see also by analogy Nikac at 625.
73 For these reasons, the Tribunal failed to consider a mandatory relevant consideration in failing to consider paragraphs [3] and [48] of the Guidelines.
5.7 The respondent’s submission as to the significance of any failure to have regard to the Guidelines
74 Finally, the respondent submits that even if exceptional circumstances are required before consent is given under s 66, the respondent would in any event satisfy such a test on the basis that:
a. the words “bankroller” or “bankrolla” are not suggestive of banking activity;
b. the public would not be confused into thinking the applicant is actually a bank, with the same level of capital adequacy, depositor priority and other prudential requirements that apply to ADIs;
c. the Applicant would, if such a test were to apply, satisfy the exceptional circumstances test.
75 The respondent submits therefore that the Tribunal’s failure to consider the Guidelines did not materially affect the decision.
76 This submission should be rejected. It constitutes no more than an impermissible invitation for this Court to embark upon a consideration of merits. Jurisdiction to determine those matters lies with APRA and not with the Court acting properly within the scope of judicial review on a question of law under the AAT Act.
6. Question 3: whether the Tribunal wrongly ignored the inherent riskiness of crowdfunding as irrelevant
77 The final issue raised on the appeal is whether the Tribunal fell into error in ignoring the inherent riskiness of crowdfunding on the basis that it was irrelevant.
78 As earlier explained, the Tribunal found that equity crowdfunding is inherently risky, accepting the accuracy of the observations made by the commentator Catie Moore in “Equity Crowdfunding in Australia: How Far Have We Come and Where to Next?” (2017) 35 Company and Securities Law Journal 102. Thus, the Tribunal found that “it may be that retail investors with little financial acumen will be lured into the crowdfunding space and will lose money. That is a risk created by the removal of the regulatory barriers to crowd-sourced funding.” These findings are not in issue, as I have earlier held.
79 However, in considering the allegedly “essential question” of whether the purpose of protecting the public would be undermined by granting consent to use the name “Bankrolla”, the Tribunal found that:
23. … I must obviously put aside the issue of the inherent riskiness of equity crowdfunding – because that inherent riskiness remains no matter what the applicant chooses to call itself. The inherent riskiness of the activity is plainly an irrelevant consideration for the purposes of the essential question I have identified.
24 Instead the focus must be on whether the public might be confused into thinking the applicant is actually a bank, with the same level of capital adequacy, despositor-priority and other prudential requirements that apply to ADIs: Guideline, at [3].
(emphasis added)
80 There is considerable force in APRA’s primary submission that the inherent risks posed by equity crowdfunding constitute a mandatory relevant consideration. However it is unnecessary to decide that question in this case. The short point is that there is nothing in the subject matter, scope or purpose of the Banking Act to suggest that the magnitude of the consequences likely to be occasioned if the risk of confusion eventuates is an irrelevant consideration which cannot lawfully be taken into account by the Tribunal. Rather, in the context of the protective regime established by the Banking Act and, in particular, the prohibition in s 66, it cannot, with respect, sensibly be suggested that a decision-maker considering the risk in granting consent is limited to considering the likelihood of the risk materialising and must exclude any consideration of the magnitude of the consequences if it does.
81 It follows for the reasons set out above that the appeal against the Tribunal’s decision must be allowed with costs and the matter remitted for determination according to law by the Tribunal constituted by a different member.
I certify that the preceding eighty-one (81) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perry. |
Associate:
