1P2 of 19 CATCHWORDS Trade Practices Tribunal - review of determination of Trade Practices Commission - authorization aranted by Commission in respect of Nee proposed conduct pursuant to sub-s.88(8) Trade Practices Act - Tribunal's role in reviewing a determination of the Commision - the role of "onus" in proceedings. Trade Practices Act 1974 MORTGAGE GUARANTY INSURANCE CORPORATION OF AUSTRALIA LIMITED and AUSTRALIAN MORTGAGE INSURANCE CORPORATION LIMITED Ne NSW 3 of 1984 Lockhart J. President, Professor M. Brunt, Mr. R.L. Wilson 28 September 1984 Sydney IN THE TRADE PRACTICES TRIBUNAL COMMONWEALTH OF AUSTRALTA TRADE PRACTICES ACT 1974 ORDERS MORTGAGE GUARANTY INSURANCE CORPORATION OF AUSTRALIA LIMITED AND AUSTRALIAN MORTGAGE INSURANCE CORPORATION LIMITED Applicant File No. NSW 3 of 1984 RE: An application by Mortgage Guaranty Insurance Corporation of Australia Limited and Australian Mortgage Insurance Corporation Limited for a review of a determination made by the Trade Practices Commission dated 29 June 1984 (Commission File No. A 81/4) Lockhart Jd. President, Professor M. Brunt. Mr. R.L. Wilson 17 August 1984 THE TRIBUNAL DETERMINES THAT the determination of the Trade Practices Commission dated 29 June aside. 1984 (Commission File No. A84/4) be set COMMONWEALTH OF AUSTRALIA TRADE PRACTICES ACT 1974 IN THE TRADE PRACTICES TRIBUNAL MORTGAGE. GUARANTY INSURANCE CORPORATION OF AUSTRALIA LIMITED AND AUSTRALIAN MORTGAGE INSURANCE CORPORATION LIMITED New' Applicant File No. NSW 3 of 1984 RE: An application by Mortgage Guaranty Insurance Corporation of Australia Limited and Australian Mortgage Insurance Corporation Limited for a review of a determination made by the Trade Practices Commission dated 29 June 1984 (Commission File No. A 81/4) Trade Practices Tribunal Lockhart J. President, Professor M. Brunt, Mr. R.L. Wilson _ 28 September 1984 Nw REASONS FOR DECISION THE TRIBUNAL On 20 July 1984 Mortgage Guaranty Insurance Corporation of Australia Limited and Australian Mortaage Insurance Corporation Limited ("the applicants") applied, pursuant to sub-s. 1lOL(1) of the Trade Practices Act 1974 ("the Act"), for a review of a determination by the Trade Practices Commission of 29 June 1984. By that 2. determination the Commission granted authorization to J. Henry Schroder Wagg & Co. Limited, The Bank of Nova Scotia Asia Limited, Standard Chartered Australia Limited and Credit Lyonnais ("the banks") and Bank of New South Wales Nominees Pty. Limited ("the trustee") in respect of an arrangement between them which formed the basis of a scheme designed to make housing loan funds available to the public. That scheme is described by the Commission in its final determination in these terms: 3. The scheme is that Forward Mortgages Ltd. ("FML") a mortgage lending group will raise funds by the issue of Certified Mortgage Promisory Notes; the funds being used in lending upon the security of first mortgages over residential property. The holders of the Promissory Notes are partiaily secured by the promise of FML to honour the Promissory Notes on maturity, but to increase the security of the holders' funds the following additional security is thought crucial by the parties if funds are to be raised at competitive rates: (a) The Trustee is to have charge over all mortgages given by borrowers of funds from FML. This charge is to be held for the benefit of holders of Promissory Notes, and the banks which will provide and in the case of Standard Chartered Australia Ltd. procure, Letters of Credit in favour of the Trustee pursuant to Letters of Credit Agreements. (b) If FML defaults in payment of any Promissory Note on its due date, the Trustee is to be able to draw down under Letters of Credit issued in favour of the Trustee and held by the Trustee upon trust for the holders of Promissory Notes. {c) Payment of principal and interest and the timely payment of all other moneys payable under mortgages given by borrowers is to be insured in a manner specified in a Deed relating to Mortgage Promissory Notes (PN Deed). 4, All Promissory Notes which are issued would be certified by the Trustee and under a clause of the PN Deed the Trustee is not required to certify a Mortgage Promissory Note unless both the aggregate amount available to the Trustee under Letters of Credit issued by the Banks and the aggregate of principal amounts then secured by Deposited Mortgages and Certified Insured Mortgages (plus interest receivables and investments held by the Trustee) exceed the face value of Mortgage Promissory Notes outstanding. A mortgage cannot be included in this calculation unless it is a mortgage in respect of which HLIC Insurance is subsisting. "HLIC Insurance" is defined in the PN Deed and it stipulates that the obligations of such mortgage insurer must be guaranteed by the Commonwealth of Australia and that such mortaage insurer must be owned by the Commonwealth of Australia. The only mortgage insurer which currently fulfils these requirements is the Housing Loans Insurance Corporation (HLIC). 5. Mortgage insurers, of which HLIC is one, guarantee repayment of loans made by lenders under mortgages. Basically a claim is made against the mortgage insurer where there has been default by the borrower, the lender has entered into possession and sold, and there is a shortfall from such sales. Under mortgage insurance a mortgage only protects his own interest and there is no protection for the borrower. It is distinct from property insurance where a mortgagee and a mortgagor may both have an interest in the property insured ~ the mortgagee to the amount of the debt secured on it and the mortqagor for the difference between the insurable value and the amount of the debt outstanding." The applicants for review of the Commission's determination were not the applicants for authorization. The application to the Tribunal for review is onthe basis that the applicants have "a sufficient interest" for the purposes of sub-s. 101(1) of the Act. The Tribunal is satisfied that each of the applicants clearly has such an interest. Indeed, no submission to the contrary was made on behalf of the other parties represented before the Tribunal. Newer' On 1 August 1984 the Tribunal held a preliminary conference to consider appropriate directions for the future conduct of the proceedings. The applicants were represented bv counsel. The Commission was also represented by counsel. The banks were represented by a solicitor. Housing Loans Insurance Corporation ("HLIC") was also represented by a solicitor. The solicitor for the banks told the Tribunal: "My instructions are tentatively to appear. Those instructions however were given on the basis that my clients really did not appreciate the full consequences of being a party to these proceedings. My client's position is this, under the original arrangement because they are effectively the lenders of moneys to Forward Mortgages, Forward Mortgages were bearing the leqal costs of the original authorization. ... Forward Mortgages have indicated they do not wish to fund the banks in running these proceedings. The banks have taken the view that given the course of conduct of the authorization application before the Commission and what has now occurred, they no longer take the view that they will lend money to FML only on condition that HLIC is the insurer. In other words, they have effectively abandoned the third line forcing conduct and are willing to proceed now on a lesser basis. In view of that they have taken the view that they would propose to do no more than say to the Tribunal, "We believe the Commission's decision was correct and was soundly based. We would like to have authority to engage in this conduct but we do not wish to take any active role in supporting the argument for that proposition, (a) because we do not wish to fund it ourselves and, (b) because the borrower has indicated they do not wish to pay our legal fees for doing so." I can only say that is the position I am in and that is my client's view. I am not 100 per cent sure on whether that would affect what position, for instance, the Commission may choose to take in these proceedings. Perhaps formally I should say to your Honour the best thing I could think of to do from my client's point of view is to foreshadow that I may soon seek leave to formally appear as a party but at the present time it may be better if I did not. ... The conduct for which authorization was sought plainly had never been engaged in but the banks wanted to engage in it. The relevant documentation that has since been drafted in substitution for what was before the Commission simply has a provision to the effect that until such time as the authorization is effective and has reached the point, as it were, of being beyond a challenge, the banks do not purport to engage in such conduct." The solicitor for HLIC said: Nee' "It CHLIC] was not a party to the original scheme. It was not actively involved in the start. It was consulted but did nothing to bring about this scheme. It was not, of course, involved in the application for authorization. In light of the fact that the applicants for authorization seemed not to be taking an active part in upholding the decision, I am not entirely sure that my client would want to be front runner. as it were. They would also like to have the benefit of the authorization remaining in place and what flows from that. They do not see themselves as being the moving force or the contender for the authorization in any very strong sense." There was discussion between the Tribunal and counsel and solicitors present about the course the proceedings should take before Ne' the Tribunal, especially if the banks and HLIC took no active role. The Tribunal decided to give no directions that day and adjourned the proceedings to 17 Auqust 1984. On 17 August 1984 the solicitor for the banks informed the Tribunal that the banks did not propose to appear in the proceedings. The solicitor for HLIC appeared as a matter of courtesy to the Tribunal and sought leave to be excused from further attendance. Counsel appeared, as before, for the applicants and for the Commission. Counsel for the applicants asked the Tribunal to determine that the determination of the Commission dated 29 June 1984 (Commission file No. A84/4) be set aside. Counsel for the Commission supported this application. The Tribunal then determined that the determination of the Commission dated 29 June 1984 (Commission file No. A84/4) be set aside. The Tribunal said that the reasons for its decision would be published later. These are those reasons; as they wWeconcern questions of law they are those of the President. The Tribunal's charter is to "review" the determination of the Commission. The "review" is a re-hearing of the whole matter. It is the determination of the Commission, not the reasons for that determination, which the Tribunal is required to "review". It is useful to consider how previous decisions of the Tribunal have approached the question of the Tribunal's role in reviewing a determination of the Commission. In Re Herald & Weekly Times Limited (the Media Council Case) (1978) TPRS 204.137 the Tribunal (Deane J.,. Mr. Shipton and Mr. Walker) said at 203.149 and 203.150: "The determination of the Commission is an essential part of "the record" of the Tribunal since the making of a determination of the Commission is part of the Tribunal's jurisdictional basis: without such a determination, there is nothing for the Tribunal "to review". In one sense, however, the use of the word "review" in relation to the function performed by the Tribunal in a matter such as the present is somewhat inappropriate. It is no part of the function of 7. the Tribunal to "review" what the Commission had determined in the sense of considering whether the Commission was right or wrong on the material before the Commission. The Tribunal must make its own findings of fact and reach its own conclusions on the questions which arise before it and give effect to those conclusions. It must make its own assessment of both benefit and detriment. It must ultimately decide for itself whether authorization should be aranted either at all or subject to conditions. It is only after, and in the light of, the Tribunal's ultimate decision on that essential question that it will come to perform its statutory function of deciding whether the determination of the Commission should be affirmed, varied or set aside. The Tribunal is an administrative body. It is, however, under a duty to act judicially, that is toa say, with judicial fairness and detachment. It has no investigative staff. Indeed, apart from those who constitute it and the personal staff of the presidential member who happens to be sitting, it has no staff at all which it can properly call its own. Fairness, detachment and necessity combine to require that it determines an application for review upon the material placed before it during the hearing, Fairness and common sense combine to require that it determines such an application within the context of matters which can properly be seen to be in issue between the parties or which the Tribunal itself raises in the course of the hearing as matters which it considers should be dealt with, on the material placed before it, to enable it properly to perform its function. The findings or conclusions which the Commission has made or expressed in its published reasons for determination are not, in themselves, ordinarily of probative value on the hearing by the Tribunal of an application for review. As has been said, however, fairness and common sense combine to require that the Tribunal determine an application for review within the context of matters which can properly be seen to be in issue between the parties or which the Tribunal itself raises or indicates it reaqards as being at large. The published reasons for determination of the Commission may, in an appropriate case, prove a convenient reference point for defining the matters which are truly in dispute between all or any of the Commission, the applicant, and other parties represented, or interested. in the proceedings. In a case where there is a consensus amona the Commission and all parties participating in the proceedings that some of the findings and factual matters set out in the Commission's published reasons for determination should be treated by the Tribunal as common ground, the Tribunal might well be persuaded to treat such findings or factual matters as siqnificantly limiting the area of primary fact which the Tribunal is itself required to examine in detail." In Re Queensland Co-Operative Milling Association Limited (1976) TRPS 204.1 the Tribunal (Woodward J., Mr. Shipton and Professor Brunt) said at 204.6 and 204.7 (this part of the decision constituted wthe President's reasons for a ruling which he gave on a question of law): "There is, in my opinion, no presumption that any particular finding by the Commission is correct. There is no onus on an applicant to show that the Commission is in error. Form 8 requires an applicant to state in which respect it is dissatisfied with the determination by the Commission and this again serves to alert the Tribunal to the main issues likely to be raised in the hearing before it. The particulars given at that point are not in the nature of allegations which an appellant (sic.) must prove. It is not necessary for the applicant to allege any noe' particular error on the part of the Commission or to criticize the Commission's proceedings in any way. Indeed the Tribunal could have no interest in investigating anv alleged procedural defect in the Commission's proceedings. It is concerned only to determine the right answer to the question posed by the applicant's request for authorization, and to do so by a fresh hearina. The essential purpose of the requirement in Form 8 to state in what respects the applicant for review is dissatisfied is, in my view, to draw attention to any situation in which the applicant accepts part of the Commission's finding but disagrees with another part. Thus a company which has a4 number of different agreements under consideration may wish to review a decision relating to some of them but not others. Another applicant may object to some, but not all. of the conditions which have been attached to the grant of an authorization pursuant to 3.91(3). A person objecting to an authorization which the Commission has seen fit to grant may wish to argue that some condition should have been attached to it. However, in the typical case all that need be said is that the Commission refused to grant an authorization which, in all the circumstances, should have been granted. See also Re The Master Locksmiths' Association of Australia (1980) TPRS 203.281 at 203.290 and 203.291; and Re Rural Traders Co-Operative (W.A.) Limited (1979) A.T.P.R. 40-110 at 18, 122. New These observations made in previous decisions of the Tribunal do not answer the questions which arise in the present matter; but they do provide a useful basis for considering the proper approach to be taken here. Sub-s.101(2) of the Act provides. so far as relevant for present purposes, that a review hv the Tribunal is a re-hearing of the matter and that sub-s.90(8) applies in relation to the Tribunal in like manner as it applies in relation to the Commission. ~ Sub~-s.90(8) provides, sa far as presently relevant, that the Commission shall not make a determination granting an authorization under sub-s.88(8) in respect of proposed conduct to which sub-s.47(6) or (7) applies unless it is satisfied in all the circumstances that the proposed conduct would result. or be likely to result, in sucha benefit to the public that the proposed conduct should be allowed to take place. 10. The application to the Commission in the present matter was made under sub-s.88(8) of the Act for authorization to engage in conduct that constitutes or may constitute the practice of exclusive dealing and thus contravene sub-s.47(6) or (7) unless authorized by the Commission. Thus the Tribunal is prohibited by the Act from making a determination affirming the determination of the Commission unless it we is satisfied in all the circumstances that the proposed conduct would result, or be likely to result. in such a benefit to the public that it should be allowed to take place. In the present matter the applicants objected, unsuccessfully, before the Commission to the granting of authorization to the proposed conduct. A perusal of the reasons for the Commission's determination shows that the principal issue before the Commission was whether the conduct for which the banks and the Trustee sought authorization from the Commission namely, the selection of HLIC ~ as the sole approved mortgage insurer, would result, or be likely to result, in such a benefit to the public that it should he allowed to take place. The Commission said in its determination: "23. The statutory test for authorization of conduct described above, (sub-section 90(8) of the Act), is expressed in terms of public benefit, and there is no express requirement for the Commission to weigh anticompetitive effect against the public benefit. as is the case with the statutory test in the applicants, states il. some other authorization procedures. Nevertheless the Commission takes any anticompetitive detriment into account as part of "all the circumstances" in which public benefit is assessed." The form of application to the Tribunal for review. dissatisfied with the determination of the Commission terms: (a) The Commission erred in failing to identify with any precision a public benefit arising from the conduct authorized over and above that which flows from the mortgage insurance which would be available if the conduct authorized did not take place. In particular there was no identification of any benefit flowing from the element of tying to HLIC. (b) The Commission erred in concluding that the conduct authorized will promote a secondary mortaqage market in such a way as to create a public benefit. (c) The Commission erred in concluding that the "government support" provided by HLIC is vital to the success of the scheme. (d) The Commission erred in regarding as irrelevant or immaterial on public benefit questions the criticisms made by MGICA and AMIC or particular factual assertions made in support of the scheme. (e) The Commission erred in failing to discount the public benefit it found to exist by reference to the anti-competitive and other detriments created by the conduct authorized. (f) The Commission erred (inter alia, in law) relying on the view that because FML was not forced or directed to do business with HLIC in that it chose to deal solely with HLIC before the banks became parties to the scheme. there was no detriment to competition. lodged bv the principal respects in which the applicants in these 12. The particulars of the facts and contentions upon which the applicants intended to rely before the Tribunal in support of their application for review were attached to the application and related to questions of public benefit and detriment. It is unnecessary for present purposes to refer to them in detail. The principal question before the Tribunal in the present matter is whether the conduct which the banks and the Trustee sought ~ be engage in would result. or be likely to result, in such a benefit to the public that it should be allowed to take place. In considering that question the Tribunal is required to consider anv detriment to the public constituted by any lessening of competition that would result, or be likely to result, if the conduct was allowed to take place. Tt does not matter whether this requirement arises from the words "in all circumstances" in sub-s.90(8) or as part of the very notion of "a benefit to the public". The fact is that the question of public benefit cannot be determined in isolation from the related \we/ question of public detriment. The applicants for review have no interest in proving that the requisite public benefit has been established; but thev have an interest in rebutting any material placed before the Tribunal for the purpose of establishing public benefit and in adducing material designed to establish public detriment. The banks and the trustee and, perhaps, HLIC may be concerned to satisfy the Tribunal that the requisite tests of public benefit have been established. But thev declined to play any role in the matter. Hence the Tribunal is left 13. in a position where it has no material before it which could positively satisfy it that inall the circumstances the proposed conduct would result. or be likely to result, in such a benefit to the public that the proposed conduct should be allowed to take place. In these circumstances the Tribunal is bound to determine that the Commission's determination granting authorization to the proposed conduct be set aside. Nemo? The question that has arisen for determination in the present case does not appear to have arisen in any previous matter before the Tribunal. In most cases the applicant for review was the unsuccessful applicant for authorization before the Commission. The applicant would obviously assume in those cases the burden of adducinag material before the Tribunal to establish that the requisite tests of public benefit have been satisfied. It is generally inappropriate in proceedings before administrative tribunals to talk in terms of applicants or persons entitled to participate in the proceedings as bearing an onus in any sense, whether ultimate or evidentiary. ~ onus" is an expression which arose in adversarial litigation between parties in courts and does not lend itself readilv to proceedings before administrative tribunals. This Tribunal, for example, is required by the Act to conduct its proceedings with as little formality and technicality as possible; is not bound by the rules of evidence; and its procedure is essentially within the discretion of the Tribunal itself (s.103). 14. The conclusion of the Tribunal in the present matter that the Commission's authorization be set aside arises not from the failure of any person before the Tribunal to satisfy any "onus"; but from the fact that there is no probitive material before the Tribunal which would justify it in concluding that the requisite elements of public benefit have been established. This proceeding before the Tribunal was somewhat unusual. 'The banks and the trustee, which had the benefit of the authorization granted by the Commission, although asserting that they wished to retain that benefit, did not seek to adduce any material in support of their assertion. The Commission supported the applicants' submission that this Tribunal should determine that the Commission's own determination be set aside, doubtless because the very conduct) which was the subject of the application for authorization before the Commission, and before this Tribunal, has become, it seems. no jlonaer a necessary element in the proposed insurance scheme. | | | These are the reasons which led the Tribunal on 17 August 1984 to determine that the Commission's determination of 29 June 1984 be set aside. I certify that this and the 13 preceding pages are a true copy of the reasons for decision herein of the Tri Cw Associate pated: <7 Seyreuber, FFF,