While the depth and breadth of the remuneration proposals released by APRA on 23 July 20191 is hardly surprising given the Hayne Royal Commission findings and APRA’s own 2018 report on the issue, there are a few points in them that warrant particularly close attention.
Unlike the limited scope of the remuneration provisions of Prudential Standard CPS 510 Governance, the draft new Prudential Standard CPS 511 Remuneration sets out regulation for an entire remuneration framework. It will require regulated entities to have a Remuneration Policy and associated procedures, systems and processes which cover all of the entity’s remuneration objectives and arrangements.
That, in itself, will require a whole new level of rigour to be employed. Of particular note, however, is the proposal that the framework should extend beyond the entity’s own employees to the remuneration arrangements of two other categories of people.
First, is the requirement that it cover employees of related bodies corporate. While this will make sense in many cases, it could presumably also involve entities which carry on quite separate businesses. That point might need some clarification.
Secondly, APRA is proposing that the remuneration framework also extend to the remuneration arrangements of employees of certain service providers to the entity. These include the providers of risk, compliance, internal audit and financial and actuarial control services; which will involve delving into the remuneration arrangements of such professional advisors. More significantly, though, they will also include the providers of services which “may affect the entity’s long-term soundness or materially affect the management of financial or non-financial risks”, where a material amount of the payment for the services is based on performance. Some regulated entities will have a range of service providers which fall within this category. Consider, for instance, an insurance intermediary with direct responsibility for customer interactions. The intermediary is paid principally by commission and so is paid for performance. Provided the materiality threshold is met, the insurer concerned would need to apply its remuneration framework to the intermediary’s own employees. How that would be done in practice would need some careful consideration.
APRA is not proposing to cap variable remuneration, either in dollar terms or as a proportion of total remuneration. However, it is proposing to limit the extent to which financial performance measures can be used for variable remuneration – specifically that those measures make up no more than 50% of the weighting for variable remuneration overall, and that individual financial performance comprise no more than 25% of the measures used.
Having a greater proportion of remuneration based on non-financial measures will undoubtedly present some challenges. APRA recognises the need for those measures to be objectively based. But what will they look like?
Non-financial measures might relate to compliance breaches, poor customer or risk outcomes and misconduct. They could also include more operational measures, such as operational control effectiveness, reputation issues, employee engagement or alignment with certain aspects of the entity’s strategy or values. Some of these will be easier to track and measure than others. Accountability for outcomes should become clearer as BEAR is progressively implemented, however, it will inevitably be difficult to avoid any element of qualitative assessment in these non-financial measurements.
APRA is proposing to apply additional deferral and clawback requirements to variable remuneration for “significant financial institutions” (SFIs). According to the definition in the Prudential Standard, an SFI is a “large, complex entity as determined by APRA”. In its Discussion Paper, APRA proposes the use of an asset test for ADIs and insurers ($15B and $10B respectively) and a funds under management test for superannuation entities ($30B). In the general insurance world, by way of example, this could be expected to capture IAG, Suncorp, QBE and Allianz.
The additional SFI obligations will be material for their senior managers. In short, a set proportion of all variable remuneration will not vest for 4 years (60% for CEOs and 40% for other senior managers). After that period has passed, the deferred component will vest on a pro-rata basis over the following 3 years (CEO) and 2 years (other senior managers). There would then follow a clawback period which could extend for as long as a further 4 years.
To put that in real terms, if the CEO of an SFI was entitled to $500K in variable remuneration, $200K of that could vest immediately. The remaining $300K would only begin to vest after 4 years, at the rate of $100K per annum. All of this variable remuneration could also be subject to clawback after payment. This would mean that the CEO’s variable remuneration payment may not become absolute for 11 years.
The clawback provisions would also include the interesting requirement that variable remuneration should only be awarded “if an amount corresponding to it can be recovered from the person” where the clawback requirements justify it. This seems to anticipate that some form of security would need to be provided for the payment, for instance in the form of a set-off against future remuneration payments or, for departing employees, some other form.
All of this makes the proposal to designate an entity as an SFI a material one.
Consistent with what we’re seeing in other spheres, APRA is expanding upon the Board’s responsibilities for the remuneration framework.
In addition to approving the entity’s Remuneration Policy, the Board will be required to “actively oversee” the framework, including with respect to its design, operation and monitoring.
APRA anticipates that, in order to meet this requirement, the Board will need to be provided with “comprehensive reporting” of remuneration arrangements and outcomes (an obligation which it places on the Board to obtain). That will undoubtedly be the case.
APRA is also proposing that entities carry out an annual review of compliance with the framework and arrange for an independent review of effectiveness to be carried out every three years (ie. similar to that required for the risk management framework under Prudential Standard CPS 220 Risk Management). Boards will be expected to receive and oversee responses to these reviews. In APRA’s words, they are to “take appropriate and timely action to ensure the findings … are adequately addressed and implemented”.
Boards will also be expected to take a more detailed approach to approving remuneration outcomes. In particular, APRA is proposing that the Board must individually assess and approve remuneration arrangements and variable remuneration outcomes for all senior managers and “highly paid material risk-takers” (a new category of person whose “activities have a material potential impact on the entity’s risk profile” and who have a total remuneration package of $1 million or greater). Given the expectation that there should be an active approach to risk adjustments over a lengthy deferral period, Boards will need to be well briefed in order to carry out this obligation, particularly where adjustments are to be made based on non-financial measures.
Finally, APRA has invited feedback on a proposal that regulated entities publish their Remuneration Policy and the specific performance metrics they are using to set variable remuneration for senior managers. While little is said about the depth of information to be published, APRA appears to envisage that it would be sufficient to show whether individual senior managers had met their performance hurdles.
This part of APRA’s proposals has not been set out in the draft Prudential Standard, presumably recognising that it will raise some concerns. Currently, the structure of senior managers’ variable remuneration is not publicised internally, let alone to the public.
Although APRA has proposed a 1 July 2021 start date for the changes, it has stated that it is expecting regulated entities to move towards the requirements before then. The key steps along the path to that date are:
The link to APRA’s proposals can be found at:
For more information on the remuneration proposals or any aspect of this article, please contact insurance advisory principal, Mathew Kaley. Please also see our previous article, Remuneration and how it drives your culture – takeaways for all organisations from the Royal Commission by employment principal, Nicola Martin.
1 Discussion Paper, “Strengthening prudential requirements for remuneration” dated 23 July 2019
In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph , Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph , Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph : "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.
The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane  NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.
The recent decision in New Aim Pty Ltd v Leung  FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.