Australian Regulatory Compliance Review

Component pricing

The Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP, has announced that the Government will proceed with amendments to the Trade Practices Act 1974 (TPA) relating to component pricing in advertising to consumers to ensure consumers know a single total price they will have to pay for goods and services that they buy.

Component pricing is the practice of advertising prices as the sum of separate components, for example, advertising an airfare as $100 plus $48 tax, fees and charges.

Business will not be prevented from using component pricing, provided that the total price is also displayed prominently as a single figure.

The ASIC Act will not be amended: the new rules will not apply to  financial service providers.

The provision will apply only to business-to-consumer advertisements to the extent that a single figure price is quantifiable at the time of making a representation in an advertisement.The provisions will not apply to representations made between businesses or between business and government.

Schedule 1 of the draft Bill contains the component pricing amendments. In particular, the draft Bill contains the following changes since the previous consultation rounds:

• The definition of 'single price' excludes charges relating to postage and handling.
• The Government will not proceed with mirror amendments to the Australian Securities and Investments Commission Act 2001. This will allow the current legislative arrangements to continue to apply to financial services.

Stakeholders are invited to submit comments the draft Bill by 17 April 2008

Australia-USA securities and financial services mutual recognition

U.S. Securities and Exchange Commission Chairman Christopher Cox and Australian Prime Minister Kevin Rudd have announced that the SEC, the Australian Securities and Investment Commission (ASIC) and the Australian Treasury Department have begun formal discussions to consider a mutual recognition arrangement for the two nations' securities markets. The discussions are intended to enhance cross-border law enforcement cooperation, facilitate regulatory coordination, and increase investor access to well-regulated capital markets.

The SEC and ASIC have agreed to undertake a formal assessment of each other’s regulatory systems to determine the extent to which each jurisdiction produces a comparable level of investor protection. The results of the comparability assessment would be published for public comment before being made final. Once the comparability assessment is completed, this would provide the basis for further discussions between the SEC and ASIC regarding a formal mutual recognition arrangement, which would include specific discussion of the extent to which, and under what circumstances, U.S. and Australian securities exchanges and market participants could operate in each other’s markets and would articulate the additional cooperation arrangements that would be necessary and appropriate to ensure the integrity of financial markets and the protection of investors.

Reserve Bank Financial Stability Review: Crisis Management Arrangements

The Reserve Bank's March 2008 Financial Stability Review gives an overview of the global financial environment and Australia's financial system concluding with a discussion of crisis management arrangements, ADIs’ liquidity management policies and proposed regulation of mortgage brokers.

The Review discloses that the Council of Financial Regulators has been reviewing aspects of Australia’s arrangements for the management of a financial crisis in the light of UK's Northern Rock experience. It discusses 2 particular areas:

arrangements in Australia would be enhanced by the establishment of a scheme to repay depositors in a failed authorised deposit-taking institution (ADI) in a timely fashion. Under the existing legislation, depositors rank ahead of other creditors in a failed ADI, although they are likely to have to wait some time before they could be repaid. Given this, the Council is working on an Early Access Facility, which would provide early repayment of up to $20 000 per depositor in a failed institution; it is estimated that this cap is sufficient to cover the entire deposits of around 80 per cent of depositors...

reviewing APRA’s powers for dealing with a distressed financial institution. While these powers are more extensive than those available to the Financial Services Authority in the United Kingdom, the Council has recommended legislative changes that would give a statutory manager appointed by APRA additional powers, and provide APRA with greater flexibility in arranging a takeover by, or a transfer of assets and liabilities to, another ADI in a timely fashion.

Standing Committee of Attorneys‑General Decisions - March 2008

The Standing Committee of Attorneys‑General has agreed to give priority to nationally consistent regulation and co-operation in the following areas:

• Interstate Enforcement of Fines
• Workplace Privacy
• Personal Property Securities Law Reform
• Tort Law – Proportionate Liability
• Accession to Hague Convention on Service Abroad
• Sterilisation of Intellectually Disabled Minors
• Surrogacy
• Harmonisation
• National Electronic Conveyancing System
• Trustee Companies
• Jury Selection
• Indigenous Justice
• Model Criminal Code
• Uniform Spent Convictions
• Litigation FundingVictims of Crime
• Harmonisation of anti-discrimination laws
• National Directory of Alcohol and Drug Treatment Services
• Legal aid funding
• Suppression orders
• Trans-Tasman court proceedings and regulatory enforcement
• Disabilities Convention
• National Legal Profession Model Laws
• Missing Persons

The next next SCAG meeting will be in July 2008.

APRA's view on securitisation of assets for contingent liquidity purposes

APRA has written to ADI's giving its view on ADIs seeking to securitise a portion of their loan portfolio specifically to create mortgage-backed securities that are eligible for repurchase agreement (repo) transactions with the Reserve Bank of Australia (RBA).

APRA’s understanding is that ADIs intend to hold all of the securities issued by the securitisation vehicle until needed in obtaining liquidity from the RBA.

APRA has agreed that the proposed structures can be designed to meet APRA’s prudential requirements, subject to the provisions outlined in its letter and the conditions under which the RBA will accept these securities.

The ADI is expected to treat the entire pool of securitised loans as on-balance sheet assets for capital adequacy purposes under APRA’s Prudential Standard APS 120 Securitisation, Attachment B paragraph 23.

At this point however, APRA does not consider the securities issued under such structures to constitute part of the ADI’s liquid assets.

High Court decides in favour of internet and interstate trade

In Betfair Pty Limited v Western Australia [2008] HCA 11 the High Court decided that Western Australian legislation outlawing the operation of betting exchanges was unconstitutional because it imposed protectionist burdens on interstate trade and therefore contravened section 92 of the Constitution.

Befair held a licence under Tasmanian law to operate a betting exchange, by which bets may be laid on a horse or a team losing as well as winning. Customers from all over Australia can place bets by telephone or internet.

But provisions of WA’s Betting and Racing Legislation Amendment Act, which came into effect on 29 January 2007, made betting with a betting exchange an offence.

The High Court held that section 24(1aa) was invalid to the extent that it applied to a person who made or accepted offers to bet through the use of Betfair’s betting exchange by telephone or internet between WA and Betfair’s Hobart premises. Section 27D(1) was invalid to the extent that it would apply to Betfair’s publishing or making available WA race fields by telephone or internet between Tasmania and another State.

AFS licensees: compensation requirements

ASIC has issued a reminder to Australian financial services licensees that the compensation requirements in s912B of the Corporations Act 2001 commence, for most licensees, on 1 July 2008. 

Many licensees will comply with these requirements by obtaining professional indemnity (PI) insurance. Those licensees who are seeking ASIC’s approval of alternative arrangements are reminded that they will need to apply to ASIC for approval soon.

Regulatory Guide 126 Compensation and insurance arrangements for AFS licensees  

AML/CTF compliance reporting

The first compliance reports (for the period from 13 December 2006 to 31 December 2007) are due by Monday 31 March.

These reports are mandatory and will be important guidance for Austrac on the success of its education program and to identify compliance difficulties.

In his address to the Australian Bankers' Association Anti-Money Laundering Forum (text) (pdf) (slides) (pdf) on 14 March the Acting Austrac CEO discussed the issue of backcapture of customer identification:

Some entities have indicated that they were not fully compliant with the 'know your customer' (KYC) provisions as at 12 December 2007, but advise that they will be fully compliant at some future date prior to expiry of the 15-month period – i.e. prior to 12 March 2009.

So an important issue that has arisen in this context, is to clarify a reporting entity’s obligation, in respect of the capture of know your customer (KYC) information for new customers who are provided with a designated service after 12 December 2007, but before the reporting entity has reached full compliance.

Our response has been to remind reporting entities that the Minister’s Policy Principles do not alter the commencement dates that were within the AML/CTF Act itself. The Act sets down the legal requirements, which include that all new customers were to be identified in accordance with the AML/CTF Act provisions from 12 December 2007. To avoid the possibility of enforcement action – including civil penalty orders, a reporting entity must by 12 March 2009, at the very latest, have undertaken KYC procedures on all customers for which there is a legal requirement from 12 December 2007. This applies regardless of the date during the 15-month period at which the reporting entity reaches full compliance. This means that the reporting entity which is delayed in achieving compliance, will need to backdate its data capture for these new customers to cover the period from 12 December 2007 to the date that full compliance is achieved.

However, he  observed that:

AUSTRAC has advised reporting entities that are concerned with our approach to backcapture, that it is open for them to make confidential and case-by-case submissions on alternative approaches, that the entity may consider are practical and cognisant of their commercial circumstances, and which would be acceptable to AUSTRAC in terms of reasonable steps to meet compliance...

should an entity elect to continue customer identification that is based on systems and processes applicable prior to the AML/CTF Act coming into effect, then we would generally take the view that reasonable steps had been taken. Though the previous system for customer identification under the Financial Transaction Reports Act 1988 is limited to 'account-based customers', if these processes were also applied to customers seeking other designated services under the AML/CTF Act, then we would also generally take the view that in those circumstances, reasonable steps had been taken.

Complying businesses will already be looking ahead to 12 December 2008 when the final obligations covering ongoing customer due diligence and the new reporting requirements on suspicious matters, international funds transfer instructions and threshold transactions come into force.

Winding up statutory demand dates are critical

In times of uncertainty, more company winding-up notices (statutory demands) are issued. Failure to comply results in a presumption of insolvency.

So the High Court's decision in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Limited [2008] HCA 9 is timely.

The High Court decided that a court could not extend the time for compliance with a statutory demand under the Corporations Act if the time fixed by the Act had already expired.

A statutory demand is a demand served on a company under section 459E of the Corporations Act to pay a debt or debts within 21 days. Section 459F(2) provides that if the company applies pursuant to section 459G for an order to set aside the demand, a court may extend the period for compliance, and if no extension is ordered the period ends seven days after the application under section 459G is finally determined.

Aussie Vic applied to the Victorian Supreme Court for an order setting the demand from Esanda aside. On 20 June 2006, Master John Efthim dismissed the application to set aside the demand but ordered that the time for compliance be extended to 4 July 2006. Aussie Vic was entitled to appeal to a single judge of the trial division of the Supreme Court. After the extension fixed by Master Efthim had expired but before the appeal to a single judge had come on for hearing, Aussie Vic applied for another extension of time for compliance.

The issue went all the way to the High Court: no extensions could be given.

Liquidity in the Australian mortgage-backed securities market: is it time for AussieMac?

Joshua Gans and Christopher Joye from the Melbourne Business School argue that the markets for primary residential mortgage-backed securities in Australia are not operating efficiently.

"Under our proposal, the Commonwealth would guarantee the credit worthiness of an Australian government agency, which we loosely call ‘AussieMac,’ thereby lending it Australia’s AAA credit rating. This would allow AussieMac to issue substantial volumes of very low cost bonds into the domestic and international capital markets. The funds raised through issuing these bonds could be used to acquire high-quality AAA-rated Australian home loans off the balance-sheets and warehouse facilities of lenders (including the majors). AussieMac would, therefore, serve to guarantee liquidity in the Australia home loan market in the event that other private sources of capital were to supply insufficient funding, such as is currently the case."

Australian Financial Review article

Full paper: Aussie Mac: A Policy Proposal for Australia

AWB Class Action update

AWB Ltd has announced that the class action filed on behalf of US wheat growers against the company has been dismissed by the US District Court for the Southern District of New York.

ABC News reports that the Judge dismissed the action because ""Plaintiffs ... cannot show that AWB's conduct in Iraq was a 'proximate cause' of their injury, a required element of antitrust standing..".

AWB Index

COAG Regulatory Reform Agenda

The Council of Australian Governments (COAG) meeting in Adelaide on 26 March 2008 focussed on health, water, regulatory reform and the broader productivity agenda.

COAG has agreed to an accelerated business regulation reform agenda across 27 areas of regulatory reform, to enhance productivity and workforce mobility by cutting the costs of regulation.

The 27 areas are listed in the COAG Communique and include:

· national harmonisation of occupational health and safety (OH&S) laws with model legislation to be developed and submitted to the Workplace Relations Ministers’ Council by September 2009;

· early action and progress in 2008 on a further 12 areas, including existing hotspots and new areas of reform, covering: environmental assessment and approvals bilaterals; payroll tax administration; trade licences; the Health Workforce Intergovernmental Agreement; national trade measurement; rail safety regulation reform; the consumer policy framework; product safety; trustee companies; mortgage credit and advice; margin lending; and, non-deposit taking institutions;

· significant progress to be made in accelerating the five remaining COAG hotspots - development assessment; building regulation; chemicals and plastics regulatory reform; Australian Business Number and business names registration; and Personal Property Securities reform;

· nine new areas to be added to COAG’s regulation work program, covering standard business reporting; food regulation; a national mine safety framework; electronic conveyancing; upstream petroleum (oil and gas) regulation; maritime safety; wine labelling; directors' liabilities; and financial service delivery; and

· COAG also agreed that the Working Group report back to COAG by the end of 2008 on new areas of competition reform including:

· appropriate models for future regulation of national markets such as for water trading, the energy market, consumer policy and regulation affecting national workforce mobility;

· unfinished National Competition Policy business; and

· other new competition reforms.

The productivity agenda focussed on reform of early childhood development, schooling and vocational education and training and enhancing productivity and workforce mobility in areas of shared Commonwealth and State responsibility.

COAG also agreed to the introduction of a national registration and accreditation system for health professionals.

Financial Action Task Force Report on Terrorist Financing

The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing.

The FATF has released a study (pdf) examining the means used by terrorists to raise funds and the wide variety of methods used to move money within and between organisations. The adaptability and opportunism shown by terrorist organisations suggests that all the methods that exist to move money around the globe are to some extent at risk.

The study identifies four areas which could be the focus of efforts to further strengthen counter-terrorist financing efforts:
(1) action to address jurisdictional issues including safe havens and failed states,
(2) outreach to the private sector to ensure the availability of information to detect terrorist financing,
(3) building a better understanding across public and private sectors and
(4) enhanced financial intelligence to exploit the value of financial investigation as a tool in fighting terrorism.

Copying other people's designs (update)

I previously noted some recent cases on design copyright infringement, including Barrett v Metricon.

In Barrett Property Group Pty Ltd v Carlisle Homes Pty Ltd [2008] FCA 375 the Federal Court has upheld Barrett's claim that Carlisle has infringed their copyright by reproducing in its Provence home a "substantial part" of the copyright works in a home design and building , namely the al fresco dining area, first marketed by Barrett under the name Seattle.

Legal and Economic Issues in Subprime Litigation

Harvard Law School has published an article on Legal and Economic Issues in Subprime Litigation by Jennifer E. Bethel, Allen Ferrell and Gang Hu which explores the economic and legal causes and consequences of recent difficulties in the US subprime mortgage market.

The paper discusses:

• the process by which loans to homeowners are securitized and discusses the role of various participants in the mortgage securitization market,
• the causes and consequences of the current subprime lending difficulties,
• reasons why market participants may have underestimated risks related to subprime lending,
• the legal issues facing market  participants (in USA). 

The paper is based on data rather than anecdotes and concludes that litigation will either:

• identify that there were weak links in the chain of participants that originate, appraise, and service collateral, and underwrite, manage, insure, rate, and sell securities; or
• highlight where the market may have underestimated certain risks or failed to anticipate particular circumstances, rather than the actions of any particular market participant.

Parliament in recess until Budget

Commonwealth Parliament is in recess and will resume on Tuesday 13 May for the Budget.

Clarke and Dawe explain the economy

According to satirists Clarke and Dawe, there's no case for more regulation to deal with the current problems. Watch the video.

PS On a more serious note academics Christine Brown and Kevin Davis analyse the effect of the sub-prime epidemic on Australia in this article in Business Spectator.

Emissions Trading Scheme Discussion Paper

The Garnaut Climate Change Review has released a discussion paper putting forward for community discussion a set of principles and design features for the delivery of an efficient and effective Emissions Trading Scheme (ETS).

An ETS has two types of design features: those that are essential to the operational efficiency of the scheme, referred to as intrinsic features, (for example the scheme’s coverage, permit allocation rules, compliance rules and governance); and those that are defined outside of the scheme’s operation, but still have considerable influence on the scheme’s economic impact, referred to as extrinsic features (for example, defining the emissions limits and principles for compensation).

Submissions on the discussion paper are open until 18 April 2008.

Workplace Relations Amendment (Transition to Forward with Fairness) Act passed

The Workplace Relations Amendment (Transition to Forward with Fairness) Act 2008 was passed by Parliament on 19 March. Date of Assent: 20 March 2008. (consolidated Workplace Relations Act  available here).

The Senate Education, Employment and Workplace Relations Committee delivered its report on the Bill on 17 March.

The Act, once it receives Assent (possibly on 27 March), will prohibit new Australian Workplace Agreements.

Any Workplace Agreements in force as at 1 December 2007 can be replaced by Individual Transitional Employment Agreements which will be effective until 1 January 2010.

Employers can continue to make collective agreements with employees provided they satisfy the "no disadvantage" test.

The process of modernising awards will commence (although there is doubt about the length of time this will take).

Pattern bargaining will be outlawed.

What will the Act not change?

The law dealing with unfair dismissals will not change until 1 January 2010.

The Act will not change anti-strike laws.

The Act will not change the right of employees who earn more than $100,000 to make individual common law agreements.

Pay equity for women will not be covered.

ASIC grants relief for share and interest sale facilities

ASIC has announced class order relief from provisions of the Corporations Act to facilitate the operation of certain share and interest sale facilities. This relief is provided in ASIC Class Order CO 08/10 Share and interest sale facilities and explained here .

ASIC has also released Regulatory Guide 161 Share and interest sale facilities (RG 161), which explains the relief given in CO 08/10, and ASIC’s approach for sale facilities not covered by the class order.

Share and interest sale facilities are facilities that some companies and issuers of interests in managed investment schemes offer to their members from time to time. These sale facilities can provide an easy and cheap way for their members, especially those with small holdings, to dispose of their holdings at or near their current market value.

CO 08/10 provides relief from a range of provisions of the Act. This will allow companies and product issuers to offer certain sale facilities and related facilities for the purchase of shares or interests, and reduce costs for those companies and product issuers by removing the need for them to apply to ASIC for individual relief before offering such facilities to their members.

The relief only applies to facilities where the shares or interests are sold in the ordinary course of trading on a licensed market or approved foreign market. The relief is also subject to other limitations and conditions. The details are set out in RG 161 and the class order.

If an issuer proposes to operate a sale facility that is not covered by the class order relief, it can apply for individual relief.

First Home Saver Accounts update

The time for submissions in response to the First Home Saver Accounts Consultation Paper has closed.

The final administrative and legislative features of First Home Saver Accounts have not yet been decided.

Liquidity, Licensing and Super Funds

Ramani Venkatramani, General Manager Diversified Institutions, Australian Prudential Regulation Authority, jn a speech  Liquidity, Licensing and Super Funds - What's on APRA's agenda'. has warned that Superannuation Fund Trustees need to ensure that they have built sufficient flexibility into their respective funds to ensure they can meet their fiduciary obligations as well as member expectations.

He said that super trustees should not presume that APRA will routinely exercise its power to freeze redemptions unless warranted in the best interests of members.

UK review of risk-based approach to AML

The UK  Financial Services Authority (FSA) has published a review of UK firms' implemention of anti-money laundering risk management procedures (pdf).

The review is useful as it gives examples of both good practice and poor practice and compares the risk assessment of large, medium and small firms.

Risk management systems and controls

The UK Financial Services Authority (FSA) has published Market Watch 25 (pdf), which focuses on firms' reviews of their systems and controls in light of the Société Générale (SG) 'rogue trader' incident.

Market Watch highlights the measures firms should consider when reviewing the systems and controls which protect them against 'rogue trader' risk.

Amongst other areas, Market Watch looks at:

• Front office culture and governance, in particular are traders encouraged to take two-week continuous holidays, and appropriate segregation of front office staff from middle and back office functions;
• The use of suspense accounts;
• The quality of management information, both routine and outside normal parameters; and
• Elementary IT precautions, such as whether access to systems is password dependent.

Developing HR Policies

I gave a presentation on HR policies at a seminar in Sydney last week.

Essentially the talk was a case study on the Full Court of the Federal Court decision In Goldman Sachs JBWere Services Pty Limited v Nikolich [2007] FCAFC 120 which upheld the original decision that Goldman Sachs J B Were Services Pty Ltd pay $515,869 in damages to a former employee, Peter Nikolich, for breach of contract as a result of Goldman Sachs not complying with certain of its policies.

The case prompted interesting debate about the purpose of HR policies, whether they are intended to be contractual, whether they are binding on employers as well as employees and how they are created, monitored and managed.

In Nikolich's case, it appeared that Goldman Sachs' 119 page policy document had developed over many years (and a merger with JBWere) without a clear understanding of its role in the organisation's policy framework.

Self-managed superannuation fund regulation and governance

In a speech to the SMSF Professionals Association of Australia conference, Senator the Hon Nick Sherry, Minister for Superannuation and Corporate Law, discussed the Government's priorities over the coming year for the whole sector and highlighted the Government’s concern that some SMSF trustees are unaware of their legal obligations.

He referred to a recent Australian Taxation Office (ATO) survey which found that 21 per cent of participating SMSF trustees had ‘low’ or ‘low to medium’ knowledge of their obligations and 30 per cent could not explain what the ‘sole purpose test’ was. The survey also found that 15 per cent of trustees did not have an investment strategy, while another 25 per cent were unaware of the restrictions on the type of assets that could be acquired from related parties.

He called on industry for submissions by the end of April on how best to address the issue.

Greenhouse gas emissions in transport, land-use and buildings

The Garnaut Climate Change Review has released Issues Paper 5 - Transport, planning and the built environment .

Submissions in response to Issues Paper 5 are due by 11 April 2008.

The paper focusses on barriers to the adoption of existing low-emission technologies and practices in transport, land-use and buildings.

APRA and ASIC release new online breach reporting system for dual-regulated institutions

The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have released a new online breach reporting system for dual-regulated institutions.

The online system simplifies the process for regulated institutions to report breaches, and prospective breaches, of a legal provision of an APRA-administered or ASIC-administered Act, standard or rule, as well as other matters that are required to be reported. It also reduces duplication faced by institutions regulated by both APRA and ASIC. The superannuation industry is already using an online system to report breaches to APRA.

The new system:

•   enables all APRA-regulated institutions — authorised deposit-taking institutions, general insurers, life insurance companies, friendly societies and superannuation licensees — to report breaches to APRA online; and
  
• enables those institutions regulated by both APRA and ASIC to report breach notifications required to be lodged with both regulators through a single electronic breach report to APRA, thereby eliminating the requirement for dual‑regulated institutions to provide separate breach reports for the same incident to both regulators. 

This initiative follows the passage through Parliament, in late 2007, of the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007. The Act introduces a consistent definition of reportable breaches across all institutions in APRA-regulated industries and all ASIC-regulated Australian Financial Services licensees.

New privacy guidance to assist private health service providers

The Australian Privacy Commissioner, Karen Curtis, has issued new privacy guidance materials for medical practitioners and other health service providers and the public.

The guidance materials consist of five information sheets for healthcare in the Australian private sector, and seven FAQs for members of the public.

The information sheets address the following issues:

• Fees that can be charged for patients to access their records.
• Use and disclosure of health information for managing a health service.
• Sharing health information within a treating team.
• Sharing health information with relatives of an incapacitated patient.
• Denial of access to health information due to a serious threat to life or health.

The FAQs answer questions relating to: patients accessing their medical records, who doctors can disclose patient information to, and whether doctors need to obtain the patient's consent.

Are draft statements 'books' of a company?

In  Areva Nc (Australia) Pty Ltd -V- Summit Resources (Australia) Pty Ltd [No 2]  [2008] WASC 10, the Supreme Court of Western Australia dealt with the issue whether a draft incomplete statement taken from a witness by a former solicitor for a company but which was never signed or provided to the company is part of the "books" of the company.

Whilst it was clear that the draft or drafts of the statements of the evidence to be given are 'books', in this case, the critical question was whether they are the books of the company.

Section 247A of the Corporations Act empowers the court to make an order authorising the inspection of 'books of' a company. The word 'books' is given an expansive definition by s 9  of that Act, and includes:

(a) a register; and

(b) any other record of information; and

(c) financial reports or financial records, however compiled, recorded or stored; and

(d) a document.

The Court concluded that the draft or drafts of the statements of the evidence prepared by the company's solicitor at a time when he was acting for and on behalf of the company in relation to the relevant litigation are the property of and belong to the company, and are therefore 'books of' the company for the purposes of s 247A of the Corporations Act.

ASIC and ASX on share lending and short selling

The Australian Securities and Investments Commission (ASIC) and the Australian Securities Exchange (ASX) have issued three statements to clarify and reinforce existing obligations in relation to share lending and short selling.

These statements follow the joint statement issued by the organisations last week on finance arrangements and margin loans involving listed companies.

The three further statements are:

• ASIC reminds market participants about stock lending disclosure obligations
• ASX on short selling (pdf)
  
• ASIC on false and misleading rumours   

Telstra loses challenge to telecommunications access regime

In Telstra Corporation Limited v The Commonwealth [2008] HCA 7 the High Court of Australia upheld the constitutional validity of the telecommunications access regime set out in the Trade Practices Act.

Telstra asserted that contrary to section 51(xxxi) of the Constitution, which provides that Parliament has the power to make laws with respect to the acquisition of property on just terms, the access regime effected an acquisition other than on just terms of some of its local loops, the twisted pairs of copper or aluminium wire running between a local exchange and a consumer’s premises.

The Court unanimously dismissed Telstra’s case, holding that sections 152AL(3) and 152AR of the TPA were not invalid. The rights in Telstra’s assets were rights to use the assets in connection with the provision of telecommunications services but those rights were always subject to a statutory access regime which permitted other carriers to use its assets.

Franchising Code of Conduct compliance manual

The ACCC has published a Franchising Code of Conduct compliance manual for franchisors and master franchisees .

The manual contains sample disclosure documents and checklists.

Self managed super funds compliance

Ian Read, Assistant Deputy Commissioner of the ATO has delivered a speech on The SMSF Regulatory Environment which discussed the regulatory environment for SMSFs, upcoming rulings and determinations and what is on the ATO's "compliance radar".

He made it clear that ""the way the ATO administers the super and tax laws in relation to self managed funds includes:

• verifying whether a fund’s primary purpose is to pay retirement benefits to its members
• providing information and forms to help you and your clients set up and manage a fund
• implementing and maintaining systems to check funds comply with super laws
• taking enforcement action to correct matters when breaches of the law are detected, and
• checking that approved auditors perform their duties to the required standard.

If trustees make an honest mistake when trying to meet their obligations, individual circumstances will always be taken into consideration. However, trustees who fail to make a genuine effort to comply, or who deliberately set out to avoid meeting their legal obligations can face:

• losing their tax concessions
• being disqualified as a trustee
• administrative penalties, and
• being prosecuted.

The responsibilities of trustees include:

• making sure the purpose of their fund is to provide retirement benefits to the members
• preparing and implementing an investment strategy and making investment decisions with respect to super and tax laws
• accepting contributions and paying benefits (pension or lump sums) in accordance with super and tax laws
• ensuring an approved auditor is appointed for each income year
• undertaking administrative tasks such as lodging annual returns and record keeping, and
• making sure new trustees sign the Trustee declaration

The ATO's compiance efforts this year will focus on :

• auditor contravention reports, mainly unrectified contraventions but also some rectified cases
• significant SIS Act contraventions, and
• new registrants, to build knowledge and enable early intervention.

Consumer policy under the new Government

Speaking at the  National Consumer  Congress the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP discussed the current policy debates of developing truly national approaches to Australia’s consumer policy framework.

His comments included:

• increasing meetings of the Ministerial Council on Consumer Affairs to twice a year to progress reforms and clear any bottlenecks to those reforms that will benefit consumers.
• the need to ensure that any regulation is well focussed and will deal with the mischief we are trying to fix – without creating an undue burden for those businesses which are doing the right thing.
• increasing use of a range of tools designed to assist consumers in being more effective – like education, awareness and better information provision – and tools that can encourage improvements in supplier behaviour – such as codes of conduct, standards and accreditation.
• The Government is committed to introduce the necessary amendments regulating cartel conduct within 12 months of taking office.
• the harmonisation and review of the existing mandatory product safety standards and bans.
• He also discussed grocery prices, petrol prices, bank switching and the Productivity Comnmission's upcoming report on consumer policy.

Terms contracts for sale of land are regulated by Credit Code

In Geeveekay Pty Ltd & Ors v Director of Consumer Affairs Victoria [2008] VSC 50 , the Victorian Supreme Court decided that a terms contract of sale for land was regulated by the Consumer Credit Code.

The Director of Consumer Affairs Victoria applied for civil penalties relating to 46 contracts of sale including the sale to Rand.

The main features of the transaction between Mr and Mrs Keogh and Ms Rand were:

• Mr and Mrs Keogh were the registered proprietors of the property and would remain so until final settlement, probably in 30 years (2032)
• Mr and Mrs Keogh had mortgaged the property to Westpac
• by the terms contract of sale, Mr and Mrs Keogh sold the property to Ms Rand for a price plus interest payable by 360 monthly instalments unless additional payments were made
• Ms Rand was entitled to possession of the property (which was to be her home) shortly after signing the contract
• under the terms contract, Mr and Mrs Keogh agreed to use the instalments in the first instance to meet their payments under the Westpac mortgage and to discharge the mortgage before final settlement, and Ms Rand agreed to be bound by the terms of that mortgage

The vendors argued that they did not provide "credit". The court decided the contract provided credit because Ms Rand’s obligation to pay instalments was a present obligation to pay a future debt which came within the concept of “incurs a deferred debt” in the definition of “credit” in s 4(1)(b) of the Code. It also concluded the terms contract between the parties is a credit contract under the Code on the additional basis of Ms Rand’s assumption of Mr and Mrs Keogh’s mortgage and loan obligations.

Treasury Secretary speaks about regulation and COAG reform

Secretary to the Treasury, Dr Ken Henry's Ian Little Memorial Lecture pays tribute to the former Secretary of the Victorian Department for Treasury and Finance for a number of reasons including his involvement with the National Competition Policy which lead to a new National Reform Agenda that embraces competition, regulatory reform and human capital streams.

Dr Henry 's speech discusses the 3 streams of the National Reform Agenda and their results to date in detail:

In the regulation stream, COAG committed to addressing ten priority cross-jurisdictional regulation ‘hotspots’: rail safety regulation; occupational health and safety; national trade measurement; chemicals and plastics; development assessment arrangements; building regulation; environmental assessment and approvals processes; business name, Australian Business Number and related business registration processes; personal property securities; and product safety. In these areas (and many others), jurisdictions apply quite different regulatory regimes. As a consequence, businesses operating across state borders must comply with multiple regulations...

The NRA competition stream promises further reforms in the areas of energy, transport, infrastructure regulation and planning and climate change innovation and mitigation strategies.

The area of the NRA with the greatest potential benefits for the Australian economy, and the one that Ian Little pressed the hardest, is the human capital stream. In February 2006, COAG agreed a comprehensive framework of objectives for the human capital agenda, focused on improving health, education and training outcomes and encouraging and supporting work...

The failure of the NRA to achieve more meaningful reform in the human capital stream and the disappointing pace of implementation of the substantial and worthwhile reforms endorsed two years ago in the competition and regulatory reform streams can be attributed, in large part, to funding issues.
The absence of financial incentives and effective sanctions for failing to meet agreed timeframes and milestones probably explains most of the disappointing implementation progress to date. The aversion to the logic of markets to which I referred earlier can be managed only by financial flows.

Today, however, there is cause for optimism.

Less than a month after the November 2007 federal election, the Council of Australian Governments met here in Melbourne to reinvigorate the National Reform Agenda.

Heads of government recognised they had a unique opportunity to put behind them the tensions of the past, and deliver a substantial national reform effort.

At that meeting, COAG identified seven areas for its 2008 work program: health and ageing; education and training; climate change and water; infrastructure; business regulation and competition; housing; and indigenous reform. A set of working groups, headed by Commonwealth ministers, has been established to identify reforms for COAG’s consideration, and to drive their delivery.

Misleading advertising: Kleenheat Gas deceptive pricing

In Australian Competition And Consumer Commission v Wesfarmers Kleenheat Gas Pty Ltd Acn 008 679 543 the Federal Court made orders by consent against Wesfarmers Kleenheat Gas Pty Ltd in relation to conduct of Kleenheat Gas varying the pricing for bulk LPG supplied to particular customers, selected as 'Managed Monthly Accounts' or 'Quickhits', which differed from representations it made to those customers as to how their prices would move.

Justice Spender declared that in 2002 and 2003 Kleenheat Gas engaged in misleading or deceptive conduct in breach of the Trade Practices Act 1974 by:

• representing to particular customers that the price for bulk LPG supplied to them would vary according to movements in Kleenheat Gas' actual costs of supply, by reference to an external measure or benchmark (typically the Saudi Aramco Contract Price) or according to Kleenheat's 'list price' or 'ruling scale of prices', when in fact this was not, or was no longer, the basis on which the customer's price would be varied, and
• failing to disclose the existence and nature of the 'Managed Monthly Account' and 'Quickhit' price management practices by Kleenheat Gas, which were the actual basis for price variations for some customers.

Justice Spender granted consent injunctions restraining Kleenheat Gas for three years:

• from representing to bulk LPG customers that their price will be calculated in a particular way unless it intends to supply in accordance with the terms represented, and
• where Kleenheat's terms of supply to bulk LPG customers represent that the price will be calculated in a particular way, from charging to that customer a higher price than would result from such calculations unless by further express agreement with the customer.

The company was also ordered to pay the ACCC's costs in the proceeding in an agreed amount of $20,000.

The ACCC announced that the consent orders form part of an agreed resolution between the ACCC and Kleenheat Gas, together with Kleenheat Gas offering court-enforceable undertakings to the ACCC which provide for nearly $800,000 in refunds to be paid to an estimated 186 affected customers Australia-wide, the majority of whom are small businesses.

National Rental Affordability Scheme

The Prime Minister has announced the National Rental Affordability Scheme which is designed to create a new ‘asset class’ of affordable rental properties.

Under the Scheme, the Commonwealth will provide private investors with tax credits of $6,000 a year for ten years for new properties that are rented at 20 per cent below the prevailing market level.

States and Territories have agreed to provide $2,000 per home either through cash payments or in kind, such as via the provision of cut price land or concessions on stamp duty.

The initiative would mean, for example, that rent on a new average three bedroom unit would fall for $350 a week to $280 a week – a $70 saving.

Disclosure guidance for listed entities

ASX and ASIC have co-operated on the release of two Companies Updates to assist companies meet their disclosure obligations in ensuring the market is fully informed in a timely manner..

Companies Update 02/08 provides guidance on the disclosure of material information relating to the financing arrangements of listed entities and the margin loans held by company directors.

Companies Update 01/08 provides guidance on the disclosure obligations of listed entities when they seek a trading halt or suspension of their securities.

Austrac reporting reminder

All reporting entities under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) must submit a compliance report to the Australian Transaction Reports and Analysis Centre (AUSTRAC) by 31 March 2008.

Financial Disclosure Simplification update

The Minister for Superannuation and Corporate Law, Senator the Hon Nick Sherry, has announced that the Financial Services Working Group will initially focus its efforts on the development of a short form disclosure document for the First Home Saver Account.

A timetable will be established for other products.

Employment Seminar: Workplace Relations under Labor

On Thursday 13 March 2008 in Sydney, a seminar will be held at which Ron McCallum, Professor of Law at Sydney University, former Dean of Sydney Law School and leading authority on employment law, will guide you through and provide an overview of the important parts of the new Workplace Relations legislation.

I'll be presenting on drafting HR policies.

The seminar topics are:

• Are the changes to be made really significant or are they going to be “WorkChoices Light”?

• Is the end of AWAs going to be a big issue for you, and how are Collective Agreements changing?

• Is the dismissal of an unsatisfactory employee going to become a major (and costly) difficulty under the new employment law regime?

• What is the practical effect of some recent court cases on how you should be organising your HR procedures?

Contact Narelle Ryan at nryan@langes.com.au or (02) 9299 7577 by 11 March 2008 to register.

Franchising Code fact sheets

Amendments to the Franchising Code became law on 1 March 2008.

The ACCC has issued new publications including:

• Disclosure under the Franchising Code of Conduct
• Overview of the Franchising Code of Conduct, fact sheet
• The franchisee manual
• Resolving franchising disputes, fact sheet
• Being smart about your new franchise and your retail lease, fact sheet