Senator ABETZ (Special Minister of State) (7:13 PM) —On 27 November 2003 I made a statement to the Senate that the Department of Finance and Administration, through its administrative unit, Comcover, was investigating various contractual compliance matters associated with its reinsurance broker, the Heath Lambert Group. I would like to advise the Senate of the outcome of those investigations now that all issues associated with this matter have finally been resolved.

As previously advised in my 27 November 2003 statement, Comcover engaged the services of Ernst and Young on 15 September 2003 to conduct a thorough review of Heath Lambert’s contractual compliance relating to commissions received by Heath Lambert in respect of reinsurance placements made on behalf of Comcover. The Ernst and Young investigation was conducted in both the Sydney and London offices of Heath Lambert with Heath Lambert’s full cooperation. The investigation revealed that the Heath Lambert group received various commissions in respect of its placement of reinsurance for Comcover in noncompliance with both its 1999 and 2003 contracts with Comcover. Specifically, since 1999, Heath Lambert received commissions from various underwriters amounting to $2,903,307.51. Heath Lambert in its statement of 28 November 2003 stated that the practice of receiving commissions for placing reinsurance is widespread in the insurance industry. However, Health Lambert noted that it had contractually removed its ability to retain such commissions in its contracts with Comcover.

Heath Lambert stated that the matter had arisen because of the misunderstanding between Heath Lambert and its United Kingdom parent company and affiliates over whether commissions were allowed under the contract with Comcover. The receipt of commissions by Heath Lambert was a breach of its contract. A negotiated settlement was finalised in May 2004 by way of a deed of release executed by the parties. However, this matter was then considered by the Australian Securities and Investments Commission in relation to possible breaches of relevant regulatory legislation. The commission advised on 10 December last year that it had finalised its investigation and that it would be taking no further action in relation to Comcover’s allegations.

Under the settlement, Heath Lambert agreed to pay to the Commonwealth damages of an amount equal to all the commissions identified as having been received by Heath Lambert in breach of its contract with the Commonwealth. This amount of approximately $2.9 million will be distributed to Comcover fund members. In addition, Heath Lambert agreed to pay costs, including interest, of $365,526.03 that Comcover incurred associated with investigating the contractual compliance issue. This brought the total amount of damages and costs recovered through the investigation to $3,268,833.54. I consider this outcome to be sound and defensible. A negotiated settlement with Heath Lambert has maximised the Commonwealth’s return.

The Australian Government Solicitor provided legal advice and assistance to Comcover in resolving this matter. It has advised that the settlement was in accordance with the legal services directions. These directions—which are to be adhered to when the Commonwealth is or may be involved in a legal dispute—set required standards of behaviour which must be met in the settlement of any dispute. Additionally, independent advice from Ernst and Young confirms the outcome to be fair and in the Commonwealth’s best interests.

Heath Lambert’s contract with Comcover expired on 30 June 2004, following an open competitive tender in late April 2004. Jardine Lloyd Thompson Pty Ltd was awarded the contract to conduct these services for Comcover for 2004-05, with two one-year renewal options at the discretion of the Commonwealth. The government took strong and decisive action to resolve this matter, with significant damages having been paid by Heath Lambert and the public money spent on the investigation recovered in the settlement. I commend Comcover and Finance for their vital role in achieving this appropriate outcome.

The investigation also identified ways in which reporting and control mechanisms in the contract and in Comcover’s oversight practices can be strengthened. Comcover has since implemented improvements for future contractual arrangements. For the record, I indicate that I have provided a copy of this statement to Senator Carr and Senator Murray, who shadow me in this area. I note that neither of those senators have had the opportunity to respond to this statement tonight, but I have no doubt that Senator Carr will respond on some future occasion and possibly follow-up during Senate estimates.