[2002] AATA 1233

B J McCabe, Member

29 November 2002 - Brisbane

B J McCabe, Member.


   The applicant was convicted on 32 counts of paying secret commissions in breach of s 442BA of the Criminal Code Act 1899 (Qld). The convictions were recorded and he was sentenced to a term of imprisonment, although the prison sentence was suspended on condition of good behaviour for 3 years. The applicant is therefore unable to act as a trustee of a superannuation entity: s 120 of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act). The applicant has applied to the respondent under s 126B of the SIS Act to waive the disqualification and permit him to continue as a trustee of his family's superannuation fund. The respondent is the regulator of self-managed superannuation funds under the SIS Act.

  2  The respondent is required to waive the disqualification if the applicant is able to satisfy the test set out in s 126D(1A). The test focuses on prudential risk.

The material before the tribunal

  3  The documents required under s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) were provided to the tribunal. The applicant also tendered a bundle of statements from character witnesses. The applicant gave evidence in person. He was represented by Mr Maynard. Mr Maynard is the applicant's accountant and business adviser. Mr Mihail represented the respondent.

The facts

  4  The applicant was convicted of 32 counts of paying secret commissions to an employee of Arnotts. The applicant was a member of a firm providing engineering services to Arnotts. The relationship was a lengthy and profitable one: the applicant said Arnotts accounted for about half of the firm's work, and the firm was always very busy. After a new manager was employed at Arnotts, the applicant said he came under pressure to start paying secret commissions to that individual in order to retain Arnotts' business. The applicant oversaw the payment of $66,291.34 to the individual in the form of cash and other benefits over several months.

  5  The applicant said he did not think to raise the payments with more senior management at Arnotts or the Police. He said his firm had never done anything like that before, but suggested it was common-place and indistinguishable from any other form of corporate hospitality, like hosting a Christmas party. It was a cost of doing business, he said. He conceded under cross-examination he knew there was something unwholesome about the practice, but he insisted he did not know he was committing an offence. He said he learned his lesson about secret commissions and would never do anything like that again. He added the business of the fund did not give rise to that sort of ethical challenge.

  6  Mr Maynard said the offence was not serious. There was no malice or dishonesty involved. The applicant was merely trying to retain his existing business with Arnotts. He suggested a different judge might have given the applicant a more lenient sentence. He added if the applicant were unable to obtain a waiver, he would suffer great financial hardship as he would be forced out of the superannuation fund. Alternatively, the fund would have to appoint an authorised trustee, which would be very expensive.

  7  The applicant is a boiler-maker by trade. Mr Maynard argued on the applicant's behalf that he was not a sophisticated person, although he is an experienced manager of his own business affairs. He is currently 57 years of age. He and his wife are the principal beneficiaries of a small superannuation fund; his children are also members, although they have offered to withdraw from the fund if doing so assisted their father's case. The applicant has also offered to give an undertaking that he will not involve himself in the management of any other fund.

The statutory framework

  8  The applicant was a disqualified person under s 120 of the SIS Act as a result of his conviction for an offence involving dishonest conduct. That is not in dispute. The applicant is entitled to ask the regulator (the Commissioner of Taxation in this case) under s 126B for a declaration under s 126D waiving his status as a disqualified person under the SIS Act. The test which the Commissioner must apply is set out in s 126D(1A). The subsection says:


If, having regard to any of the following:

 (a)  the offence to which the application relates;
 (b)  the time that has passed since the applicant committed the offence;
 (c)  the applicant's age when the applicant committed the offence;
 (d)  the orders made by the court in relation to the offence;
 (e)  any other relevant matter;


the Commissioner of Taxation is satisfied that the applicant is highly unlikely to:

 (f)  contravene this Act; and
 (g)  do anything that would result in a self managed superannuation fund not complying with this Act;


the Commissioner must, by notice in writing given to the applicant, make a declaration waiving the applicant's status as a disqualified person for the purposes of this Part.

  9  The test focuses on prudential concerns. The subsection requires the Commissioner to determine whether the applicant can be trusted to observe the requirements imposed by the law if he is allowed to remain in a position of responsibility.

  10  In reaching that decision, the decision-maker must have regard to the factors set out in the subsection.

  11  In Re Applicant and Australian Prudential Regulation Authority [2001] AATA 979, the tribunal appeared to take into account (at [112]) the message that would be communicated to the investing public if a disqualification were waived in a particular case. The tribunal presumably regarded the "message" as another "relevant matter" within the meaning of subs 126D(1A)(e). I take a different view. The other criteria listed in the sub-section go to an assessment of whether or not it is safe to allow the applicant to assume fiduciary responsibilities. Given the clear focus of those criteria, the rule of statutory construction embodied in the maxim ejusdem generis (general words are interpreted with reference to the particular) suggests that only matters affecting an assessment of prudential risk may be taken into consideration. While one might legitimately be concerned about the perceptions of the investing public, the legislation does not accommodate those concerns when making a decision under s 126D(1A).

  12  Disqualification is not a sanction. It is not intended to be an additional punishment. The applicant has already been sentenced by a court for his crime. Disqualification is a prophylactic. It is designed to protect the investing public against the risk that people with a track record of misconduct will offend again. The use of the words "highly likely" in the sub-section confirms that Parliament intended to place a premium on investor protection. It is not an easy standard to satisfy. The fact the applicant might incidentally suffer hardship as a result of the disqualification is therefore irrelevant.

  13  I think the tribunal's decision in Re VX96A and Insurance and Superannuation Commissioner (1996) 23 AAR 427 illustrates the correct approach. The tribunal explained (at 435) that it:


… must be satisfied on the totality of the evidence before it that the applicant is highly unlikely to pose any risk in the exercise, as an officer of a company which is to be a trustee, of his judgment, wisdom and provident care in the management of the superannuation entities under his control. In the latter context, in the circumstances of this case, it is not so much the significance of the sums involved in the offences committed by the applicant but rather the issue of whether, given the fact that the offences were committed, people entrusting superannuation funds can be assured that it is highly unlikely that in the discretions exercised, the wisdom adopted, the judgment applied and the provident care extended in the management of the funds, the applicant's actions would be highly unlikely to pose any risk.

  14  I will address each of the criteria in turn.

(a) The offence to which the application relates:

  15  The applicant's crime was a serious one, despite his claims to the contrary. It is a crime of dishonesty. Arnotts was the victim insofar as the applicant's conduct contributed to the corruption of one of its employees. I accept the applicant did not initiate the criminal conduct. He says he felt he had no choice. But he did have a choice, and one must have confidence in the applicant's ability to make sound choices if he is to be permitted to manage a superannuation fund.

  16  A crime of this nature is, in the words of the tribunal in [2001] AATA 979, "of a type that would be anathema in the context of the prudential management of a superannuation fund": at [112]. A willingness to pay secret commissions suggests a want of ethical restraint. The management of superannuation funds is no place for the ethically-challenged.

(b) The time that has passed since the applicant committed the offence:

  17  The crime was committed recently. The applicant is still serving out the good behaviour bond, having been sentenced on 20 September 2001. The words of the sub-section make it clear that an offence might be viewed in a more benign light if it occurred a long time ago, and the applicant has had an unblemished track record since. Although the applicant's track record was good before the offence in this case, I cannot ignore the fact the offence occurred recently.

(c) The applicant's age when the applicant committed the offence:

  18  The applicant was old enough (he is now 57 years of age) and experienced enough to know better than to do what he did. His actions were not those of a callow youth. He says he did not know the payment of secret commissions was an offence. He said he was sorry, but he made it clear in his evidence that he thought he had been treated unfairly.

(d) The orders made by the court in relation to the offence:

  19  The sentencing judge chose to record a conviction in light of the serious nature of the offences. He imposed a custodial sentence, although it was suspended. He noted the element of dishonesty involved. The applicant was not merely administered a "slap on the wrist".

(e) Any other relevant matter:

  20  I was grimly fascinated by the applicant's evidence and by the submissions of Mr Maynard on his behalf. The applicant made it clear he was sorry for breaking the law, but he showed no real appreciation of the extent of his bad judgment that led to these problems. He was described as a simple boiler-maker who contravened the law by accident. It was suggested this transgression was out of character. But I formed the view that the applicant thinks the law prohibiting secret commissions is a silly law, or at any rate an unreasonable imposition on business. Everyone does, it, he argued.

  21  I am less concerned by the applicant's lack of genuine remorse than I am by his limited insight into the errors he made. While he is unlikely to make the same mistake (that is, pay secret commissions), there is a real risk that his poor judgment will manifest itself in relation to other choices that he might be required to make. In any event, I am unable to be satisfied it is highly unlikely (as opposed to merely unlikely) that he will contravene the law or cause the fund of which he is a trustee to contravene the law.


  22  After having regard to the criteria set out in s 126D(1A), I am not satisfied the applicant is highly unlikely to contravene the SIS Act or do anything that would cause the fund not to comply with the SIS Act. The decision under review is therefore affirmed.

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