Australian Regulatory Compliance Review

Productivity Commission Report on Consumer Policy: consumer protection law and product safety

The Minister for Competition Policy and Consumer Affairs, Chris Bowen MP, has released the Productivity Commission's final report of the Review of Australia's Consumer Policy Framework.

The Productivity Commission's key recommendations include:

• a single national generic consumer law, based on the Trade Practices Act 1974 (TPA), which would apply in all States and Territories;
• identifying unnecessary or costly consumer regulation that only applies in a few States and Territories, or to one industry, and either removing them or, if justified, introducing nationally consistent rules;
• transferring regulation of credit providers and finance brokers to the Australian Government, with the Australian Securities and Investments Commission (ASIC) as the regulator;
• national laws to tackle unfair terms in consumer contracts;
• a national approach to product safety laws and enforcement; and
• new redress and enforcement powers for consumer regulators, including the ability to seek redress for non-parties, civil pecuniary penalties, banning orders and substantiation notices.

The Commission also recommended an enhanced role for the Australian Government in consumer policy.

The Government will consider the recommendations and, as agreed by the Council of Australian Governments (CoAG), respond formally at the end of October 2008.

Corporate Governance In Today's Volatile Market Condition

The Minister for Superannuation and Corporate Law's speech on Corporate Governance In Today's Volatile Market Condition summarises the government's caution about further regulation as a response to the sub-prime crisis:

"on the whole, our robust financial system has coped extremely well with the recent global pressures. And our market regulators have been doing a solid job in difficult circumstances.

... But I can assure you that I am well aware of the need for caution before we introduce any new regulation in this area.

We must look beyond immediate events and preoccupations. We must consider the medium-term risks, opportunities, and vulnerabilities that confront corporate law.

I am committed to pursuing reform of the regulatory and corporate governance framework. Reform that is comprehensive, effective, and — above all — sustainable.

The speech discusses:

• disclosure requirements for  equity derivatives
• short selling and securities lending
• directors’ conduct and obligations to their companies
• reforms to corporate offences, sanctions and personal liability for directors
• financial services consumer protection
• reform of regulation of credit-related financial  services
• financial reporting
• self managed superannuation funds

Deregulation update

In a speech to the Sydney Institute, the Minister for Finance and Deregulation, Lindsay Tanner has reported on progress on deregulation and repeated the Government's commitment to change.

"We are serious about change.

I understand that business wants certainty and stability.  I’m not seeking endless change for change’s sake. But that is no reason to allow excessive and unnecessary regulatory burdens to remain in place indefinitely."

He identified the biggest challenge as establishing an entrenched culture of continuous regulatory improvement and reform. He has appointed economist, Nicholas Gruen, to work with him on this.

Progress to date

"We are working with states and territories through the Council of Australian Governments (COAG) to address areas of regulatory duplication or inconsistency between different levels of government.

Our Business Regulation and Competition Working Group has been meeting to progress an accelerated program of reform which will be presented to COAG in late March.

These measures will be targeted at reducing the  cost of regulation to business.

For example, the Standard Business Reporting initiative will allow businesses to submit BAS statements, state tax returns, ASIC documents and ABS survey responses through a simpler, faster and easier process using their own record keeping software.

Streamlined environmental assessment processes will stop the time wasting process of two groups of environmental assessors looking at the same information and holding up approval processes.

Nationally consistent occupational health and safety laws will allow multi-state employers to roll out the same training and safety programs across all work sites.

The recommendations of the Banks Review will be revisited. The Banks Review made over 170 recommendations but many of these have not been implemented.  We want to turn these recommendations into real outcomes for business. 

The Productivity Commission will also conduct  regular reviews of the regulatory burden in individual sectors of the economy.

The Government’s response to the Commission’s 2007 report into the regulatory burden in the primary sector will be delivered as soon as possible.

Agriculture Minister Tony Burke has already announced the deregulation of the single desk arrangements for wheat exports. ...

Transport Minister Anthony Albanese has concluded a bilateral open skies agreement with the United States, which will benefit Australian consumers and businesses....

Minister for Superannuation and Corporate Law Nick Sherry and I recently announced the formation of the Financial Services Reform Working Group to solve this problem (the Financial Services Reform Act disclosure regime) .

Consultation papers on the new national employment standards, the design and regulation of the first home saver accounts, implementation of a carbon emissions reporting scheme, and proposed amendments to the export cargo legislative framework have already been released.

The Assistant Treasurer has established a Tax Design Review Panel to examine how to reduce delays and improve the quality of tax law changes.

The Office of Best Practice Regulation (OBPR) has moved into the Department of Finance and Deregulation, reflecting its central role in improving the quality of regulation.

The OBPR will continue to administer the best practice regulation principles and be a regulation watch-dog on government departments, agencies and Ministers.

Regulatory proposals will not come to Cabinet unless the OPBR agrees that adequate regulatory impact analysis has been performed. "

Streamlining tax law changes

The Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP, has announced the appointment of a Tax Design Review Panel that will be charged with examining how to reduce delays in the enactment of tax legislation and improve the quality of tax law changes.

In conducting the review, the Panel will examine:

• options to reduce the delay between the announcement of proposed changes to tax laws and the introduction into Parliament of associated tax legislation;
• how the quality of the law can be improved through enhanced community consultation, particularly in the development of tax policy changes prior to the announcement of specific changes; and
• methods to increase community input into the prioritisation of changes to tax laws.

The Panel will report its findings to Government by 30 April 2008.

Rights of persons with disabilities

The Australian Government has issued an invitation to participate in its consultation on a National Interest Analysis (NIA) to enable it to make an informed decision on whether or not to ratify The United Nations Convention on the Rights of Persons with Disabilities .

The effect of ratification is to affirm Australia’s intention to be bound by the Convention’s articles. The NIA will assess whether ratification of the Convention is in the national interest by analysing the impact ratification is likely to have on Australia and Australians living with a disability. 

Greenhouse gas emissions and energy reporting policy paper

The Australian Government has released the Greenhouse and Energy Reporting System, Regulations Policy Paper on mandatory corporate reporting of energy and greenhouse gas emissions data.

The policy paper outlines proposed approaches to detailed reporting requirements for a national framework for corporations to report greenhouse gas emissions and actions to reduce emissions, including the scope of data subject to mandatory reporting, detailed definitions of terms such as facilities and emissions, registration and deregistration information, as well as reporting requirements for greenhouse gas offsets, and actions to reduce or remove emissions.

Eligible Australian corporations will be required to report on their emissions and energy for the 2008-09 financial year, with the first reports submitted by 31 October 2009.

Interested individuals and organisations are asked to submit their views on the proposals presented in the policy paper by 27 February 2008.

Compliance toolkit

The Compliance Toolkit has quick links to up to date source material on Corporations Act amendments, anti-money laundering, the Privacy Act, Do Not Call Register, Trade Practices Act and other compliance requirements.

Product development, misleading advertising and regulatory compliance

Why is it so hard for some businesses to accurately advertise their products? Are they too complex or is the advertising not checked?

Last week the ACCC issued proceedings for misleading advertising against Crazy John's (in respect of mobile phones) and Saab Australia (in respect of green claims on their cars). How could such claims be prevented?

The Australian Competition and Consumer Commission has instituted proceedings in the Federal Court against Mobileworld Operating Pty Ltd (trading as Crazy John's) for alleged contraventions of sections 52 and 53 of the Trade Practices Act 1974 in relation to the promotion of certain of its mobile phone plans.

The ACCC alleges that Crazy John's has engaged in misleading or deceptive conduct by representing that handsets on its Crazy Phone Plans are available 'FREE' or for '$0', when in fact consumers are required to pay for the handsets through higher call rates than those available on comparable plans which do not include a handset.

The ACCC has also instituted legal proceedings against GM Holden Ltd, which supplies and markets Saab motor vehicles in Australia and trades as Saab Australia, alleging misleading and deceptive conduct and false representations concerning 'green' claims made in the advertising of Saab vehicles.

In 2004 I posted this article (pdf) on the need to consider end compliance issues (such as product standards and misleading advertising) when developing new products or modifying existing products (regardless whether it is a car, a mobile phone plan or a financial product). I recently updated the article to take into account the decisions in ACCC v Audi and ACCC v Telstra. As the issues covered are still relevant I am publishing the full amended version below.

CONTINUOUS COMPLIANCE AND PRODUCT DEVELOPMENT
Even in organisations that have well designed compliance systems,  compliance must be put into the daily practice of the business.

New product development and changes to existing products involve compliance risks. This can occur because of the way in which decisions are made and the way such projects are implemented.

Poor product knowledge combined with lack of understanding of regulatory requirements can lead to a breach.

Even small changes have risks.

In Australian Competition and Consumer Commission V Wizard Mortgage Corporation Limited [2002] FCA 1317 considered an existing advertisement for a loan product which had been legally cleared but had been changed by the marketing head by adding in an interest rate (there was no rate before). However the product was not available at that rate. The Federal Court agreed with the ACCC that the ad was misleading and deceptive.

In BMW Australia Limited v Australian Competition & Consumer Commission [2003] FCA 727 the Federal Court of Australia found that BMW’s 2002 318i model had breached the Trade Practices Act (TPA) by using safety warnings on the jacks which did not comply with the Australian Safety Standards. In dispute was the importance of 5 words which had been omitted.

In Australian Competition and Consumer Commission v Audi Australia Pty Ltd [2007] FCA 1990, the Federal Court made orders against Audi relating to its misleading advertising that the Audi Q7 3.6 SE motor vehicle had 7 seats as a standard feature at the standard price when in fact the standard seating for the Audi Q7 3.6 SE was 5 seats.

In Australian Competition and Consumer Commission v Telstra Corporation Limited  [2004] FCA 987 the Federal Court decided that Telstra's $0 mobile phone advertising was misleading and deceptive after analyding Telstra's mobile phone plans.

The decision making process
Decisions on new products and changes to existing products may be made for different reasons:
• Defensive: follow the leader
• Product innovation
• Market research
• Compliance input

How is the decision made? Is there a team that investigates the options and puts together a business case before a decision is made or does the CEO or the board make the decision and then ask one or more people to investigate it?

You need to do your homework to show that careful business judgment was exercised.

Do you have all the regulatory licences and approvals?
Have you satisfied all regulatory conditions?
Does your pricing model take into account different scenarios?
Have you considered tax issues?
Have you done full "specifications" of the product?
What are the product terms and conditions?
Have pros and cons been weighed?
What are the most important objectives?
Can compromises be made?
Is the change worth making?
What are the different options?
Are there ethical or governance issues?
Is there any ambiguity?
Is it fully documented?
Have you done a cost/benefit analysis?

Implementing decisions
Once the decision is made, who has control?
Is there an external Project Manager?
Is there an implementation team? If so, is every relevant person on it?

An implementation committee should represent the following interests:
• Legal (for issues such as name of product, intellectual property, trade practices, advertising clearance, documentation and specific product regulation)
• Commercial
• Prudential/risk profile
• Accounting/actuarial
• Software (new, modifications)
• Marketing
• HR/training

Will you seek input from your front line staff, key suppliers, customers or regulators?
The committee needs to give clearance at both draft AND final stages.

Product documentation
The process should result in documentation that identifies the background of the product, specifications and operational risks. This will ensure that whoever markets the product has a proper understanding of the product and does not inadvertently mislead consumers. And when the marketing material is produced, a person must have responsibility for checking its accuracy and compliance.

Conclusion
There needs to be a method for ensuring that a new product or a change to an  existing product has been considered from all angles (marketing, IT, compliance, HR, finance etc) before a decision is made to proceed with it.

At the least, failure to do your basic homework can jeopardize your marketing campaign. If timing is critical, the success of the product can be affected.

National trade measurement

The Commonwealth will assume responsibility for trade measurement from the States and Territories commencing on 1 July 2010.

The National Measurement Institute (NMI) will administer the national system.

NMI has issued a discussion paper (pdf). Comments should be forwarded to NMI by 8 February 2008.

Discrimination law: Human Rights and Equal Opportunity Commission

The Human Rights and Equal Opportunity Commission (HREOC) administers Commonwealth discrimination laws in the areas of age, race, sex and disability discrimination.

Its latest Human Rights Law Bulletin 21 gives an idea of the scope of its interests: there are reports on cases dealing with self-represented litigants, unfair dismissal, racial hatred, gender balance in schools and ethno-religious derogatory remarks at work.

Under the draft report on the review of the Disability Standards for Accessible Public Transport it is proposed that the HREOC be given the power to refer cases of breaches of the Standards to the Federal Court.

A personal compliance officer

Alex is always good value but this cartoon strip set in Philip Pullman's fantasy world brought a smile.

2007 business regulation in review

2007 ended with a "one in 10 year" change of federal government which in retrospect defined 2007 as a  year of policy reviews and proposals mixed in with marginal regulatory improvements and some significant court decisions.

Whilst 2008 is likely to bring substantive regulatory changes in the areas of commonwealth-state relations, business deregulation, climate change, freedom of information, tax reform and workplace relations, 2007 was a year of media releases in preparation for an election.

At the same time, regulators sought to show they were effectively implementing and enforcing their area of supervision.

What happened in 2007?

The Do Not Call Register started.

Anti-money laundering law implementation continued.

In financial services regulation, Basel II starts on 1 January 2008 after a long gestation period.

The Corporations Act was updated with the Simpler Regulatory System changes.

ASIC defended itself against criticisms of its performance of its consumer protection mandate and launched some major actions with mixed results. (Westpoint, Citigroup)

The ACCC had some successful cartel and price-fixing prosecutions (including Visy).

The Access Card proposal sank without a trace.

What are the "sleeper issues"?

Privacy and security of customer data (especially electronically stored information) and business integrity and ethics (eg AWB) are issues that will continue to trouble businesses.

I'll continue this blog in 2008 with my RSS feeds, regular email newsletters and occasional podcasts. Thank you for reading.

NEW YEAR BONUS: 2007 has seen a few new Australian legal blogs...check them out here

Standards of Ministerial Ethics

The Prime Minister has published the Standards of Ministerial Ethics (pdf) which set out his expectations of his Ministers and Parliamentary Secretaries.

"In several important aspects, the Standards will require Ministers to accept higher levels of conduct than has been the case in the past. In particular:
• Lobbyists will be required to register their details publicly on a Register of Lobbyists to be established by the Department of the Prime Minister and Cabinet before seeking access to Ministers or their offices;
• Ministers will be required to undertake that, when they leave office, they will not seek to have business dealings with members of the Government, the Public Service or the Defence Force on any matters that they dealt with in an official capacity in the preceding 18 months;
• Electoral fundraising at The Lodge and Kirribilli House will be prohibited;
• Ministers will be required to divest themselves of all shareholdings other than through investment vehicles such as broadly diversified superannuation funds or publicly listed managed or trust arrangements."

Is legal professional privilege waived by disclosure in company reports?

In GMCG, LLC v Agenix Ltd [2007] QSC 309 the Supreme Court of Queensland refused to order disclosure of documents over which legal professional privilege had been claimed even though the documents had been referred to in the company's annual report lodged with the ASX.

The companies were involved in a dispute over fees. The defendant disclosed the dispute as a contingent liability and stated "The company has received legal advice that it has no liability whatsoever." The company subsequently changed that statement to read “The company has received legal advice. Based on that advice, the company believes that it has no liability whatsoever.” The plaintiff claimed privilege over the legal advice had been waived and sought disclosure not only of the advice but also of the documents “that reveal the process of reasoning and the factual assumptions and instructions lying behind that legal advice”.

The judge accepted the defendant's finance officer's evidence that "he referred to the legal advice to make it clear that the classification of the claim as a contingent liability was based on the company’s belief, following legal advice, that it had no liability. I also accept that the advice was mentioned in order to explain the reason why the defendant believed that its possible further exposure in these proceedings was properly classified as a contingent liability."

Justice Douglas concluded:

In this case...it was important that the defendant be able to disclose why it had adopted a particular accounting treatment of its potential exposure to the plaintiff. It promoted the integrity of the accounts and market transparency by the provision of appropriate information to shareholders, potential shareholders and creditors in circumstances where the disclosure has given it no advantage in the litigation. I do not conclude from those references to the advice the defendant received that it thereby waived the privilege in the advice for the purpose of these proceedings.

Workplace Ombudsman Warning to Employers on AWA’s

The Workplace Ombudsman has warned employers against applying undue pressure on workers to sign Australian Workplace Agreements (AWA’s) following reports that some businesses may seek to move their employees to AWA’s to pre-empt proposed transitional legislation by the Rudd Government to phase out AWA’s and stop new ones being signed.

Legal professional privilege of in-house emails

I recently noted the decision of Telstra v Minister for Communications disallowing Telstra's claim of privilege for certain communications by its in-house lawyers because it could not be shown the lawyers were acting independent of management.

What would be the situation regarding e-mails and attachments between in-house lawyers and non-legal personnel addressed to both lawyers and non-lawyers for review, comment and approval?

The US decision in  In re Vioxx Prods. Liab. Litig. is the subject of a Litigation Alert (pdf) by Hogan & Hartson (via Stephen Warne). Here's some key points:

• After the pain drug Vioxx was pulled from the market in 2004 due to concerns that it caused an increased risk of heart attacks and strokes, the drug’s manufacturer, Merck, was flooded with lawsuits.
• Merck’s claimed privilege over approximately 500,000 pages of documents, primarily e-mails and attachments between Merck in-house attorneys and non-legal personnel.
• The Court decided that e-mails “addressed to both lawyers and non-lawyers for review, comment, and approval,” and any attachments are not privileged since the primary purpose of the request is “not to obtain legal assistance since the same [advice] was being sought from all.”
• Such a communication could be considered a request for legal advice with a notification to the non-lawyer recipients of the advice sought, but the burden of establishing this is on the proponent of the privilege.
• Documents sent to an attorney for legal advice do not remain privileged if later circulated to other company personnel for non-legal purposes unless the purpose was to apprise them of the legal advice sought and received.
• Parties cannot claim an entire e-mail thread is privileged. They must prove that each thread is privileged unless the entirety of the e-mail chain is integrated into a communication made only to an attorney for legal advice.

As ediscovery becomes a routine litigation procedure in Australia, this issue will arise for consideration here.

Takeovers Panel updates guidance on lock-up devices

The Takeovers Panel has published a revised  version of its Guidance Note 7 on Lock-up devices.

The term "lock-up device" refers to different types of restrictive arrangements entered into between bidders and targets (or other parties) to encourage or facilitate a takeover bid.

Guidance Note 7 sets out the Panel's approach to such arrangements entered into by a target entity, including devices such as break fees, asset lock-ups, no-talk agreements and no-shop agreements. It explains the two guiding criteria, concerning competition and coercion that the Panel applies when considering whether such arrangements give rise to unacceptable circumstances.

The changes which the Panel has made include:

• adjusting the focus of the guidance note from singular devices to lock-up arrangements generally.
• guidance on agreements affecting dealings with rival bidders, including 'no due diligence' agreements and agreements to pass on information. In summary, the Panel considers that, similar to no talk provisions, such agreements require appropriate safeguards and fiduciary exceptions.
• adding references to the recent panel decisions in Magna Pacific Holdings Limited 02 [2007] ATP 03 and Queensland Cotton Holdings Limited 02 [2007] ATP 05. Accordingly, the policy reflects that the Panel would be likely to find a no-talk agreement to be anti-competitive if the form of any fiduciary exception meant that it was likely to be unavailable to target directors in practical terms.
• clarification of policy application. The revised policy clearly states that the principles will be applied to any arrangement which has the effect of fettering the actions of a target, a bidder or a substantial shareholder.

Free Speech in Australia

A media coalition (the Right to Know Coalition) has sponsored The Independent Audit of the State of Free Speech in Australia (pdf).

Putting aside potential biases about the role of the media, the 336 page report is a useful collection of research material on :

• access to information by media
• protecting whistleblowers
• freedom of information
• anti-terrorism and sedition
• restrictions on court reporting
• privacy and defamation.

Review of the Legal Deposit scheme

Under s 201 of the Copyright Act 1968, Australian publishers of ‘library material’ are required to deposit copies of that material with the National Library of Australia (NLA). The scheme only applies to material that is published in Australia. ‘Library material’ is defined broadly and includes all paper-based publications, books, pamphlets, sheet music, and periodicals (s201(5)). Non-compliance with the requirement to deposit set out in s 201(1) constitutes an offence attracting a $100 penalty.

Publishers are not entitled to payment or compensation for depositing items as required by the scheme.

The scheme does not currently apply to films, sound recordings or other materials in an electronic form such as web material or books published electronically but submissions have been invited by 11 January 2008 on a discussion paper which considers extending the scheme to include audiovisual and electronic material.  (for discussion see Law Font).

The review of the legal deposit scheme raises issues for arts policy, our heritage and national collections policy, information technology policy and copyright law policy.

ASIC's policy on independent expert reports

ASIC has released two regulatory guides updating its policy on independent expert reports.

These are Regulatory Guide 111 [RG 111] and Regulatory Guide 112 [RG 112].

RG 111 focuses on reports prepared for transactions under Chs 5, 6 and 6A of the Corporations Act, whether the reports are required by the Corporations Act or are commissioned voluntarily. The Guide addresses the issues reports are required to consider to satisfy the Corporations Act.

RG111 also observes that : An expert report should only contain information that relates directly to the decision to be made by security holders. Including extraneous information in an expert report undermines the effectiveness of that report.

We encourage an expert to consider preparing a concise or short form expert report. The commissioning party would make a longer expert report containing additional, more technical or detailed information available on request free of charge or ensure it is accessible online.

RG 112 discusses how previous and existing relationships with commissioning and other interested parties may affect the independence of an expert  and how an expert should deal with the commissioning party and other interested parties to maintain its independence.

First successful share warehousing prosecution

Section 610 of the Corporations Act contains a complicated definition of "voting power" for the purpose of the Act's takeover provisions in Chapter 6. The definition aims to prevent persons from collectively "warehousing" shares in separate entities to avoid the 20% threshhold which requires a takeover offer to be made.

ASIC have announced that Mr Stuart Adrian Corp, of Subiaco in Perth, and Mr Brian Millwood Smith, of East Perth, have been sentenced in the District Court of Western Australia on a total of 29 charges brought by ASIC related to share warehousing.

The charges, which arose from Messrs Corp and Smith’s conduct as directors of two Australian publicly-listed companies, formerly known as Hallmark Gold NL (Hallmark Gold) and Welcome Stranger Mining Company NL (Welcome Stranger), represents the first successful prosecution relating to the use of offshore entities to avoid disclosure of director’s interests.

Messrs Corp and Smith were each sentenced to three years in prison, to be released on a recognisance after serving 16 months. They had been found guilty by a jury in relation to the charges on Thursday 4 October 2007.

Messrs Corp and Smith were found to have:

• engaged in conduct concerning the undisclosed relevant interest in shares in Hallmark Gold and Welcome Stranger while they were directors of those companies;
• controlled shares through the use of offshore entities, and used those shares to vote on related party resolutions at general meetings of Hallmark Gold and/or Welcome Stranger which delivered them financial benefits; and
• provided false and misleading information to ASIC and the Australian Securities Exchange (ASX) in documents required to be lodged under the Corporations Law which should have showed that they had an interest in those shares.

Mr Smith was jailed in relation to:

• six charges of knowingly providing misleading information as to his relevant interest in shares to ASIC and the ASX;
• six charges of failing to act honestly and hereby breaching his duty as a director; and
• two charges of unlawfully permitting voting on related party resolutions at general meetings of the shareholders.

He had been found not guilty in relation to six further charges.

Mr Corp was jailed in relation to:

• seven charges of knowingly providing misleading information as to his relevant interest in shares to ASIC and the ASX;
• six charges of failing to act honestly and thereby breaching his duty as a director; and
• two charges of unlawfully permitting voting on related party resolutions at general meetings of the shareholders.

Mr Corp had been found not guilty in relation to six further charges.

Employment screening

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 requires organisations affected by the Act to have an employee due diligence program for employees involved in the provision of designated services.

AS 4811—2006 Australian Standard Employment Screening may be a useful base for such a program.

The objective of the screening process is to reduce the risk of a potential security breach and to ensure the integrity, identity and credentials of personnel within an organization.

Employment screening, for the purpose of this Standard, is the process of verifying, with the consent of the individual, the identity, integrity and credentials of an entrusted person and should apply to any individual that is, or will be, entrusted with resources and/or assets.

Food regulation in Australia

I am generally aware of the multitude of laws and codes affecting food safety and packaging in Australia.
(for an overview see Food Legal and Food Standards Australia)

But I was surprised to recently note the existence of The Office of the Gene Technology Regulator and The   Australian Pesticides and Veterinary Medicines Authority , both of which have a role in regulating providers of our food.

National Greenhouse and Energy Reporting Act 2007

The National Greenhouse and Energy Reporting Act 2007 received assent on 28 September.

It establishes a single, national framework for reporting greenhouse gas emissions, abatement actions and energy consumption and production by corporations from 1 July 2008.

The Act lays the foundation for the Australian Emissions Trading System.

ASIC consults on exemptions for rights issues

The Corporations Legislation Amendment (Simpler Regulatory System) Act 2007, allows listed entities to conduct a rights issue without a prospectus or product disclosure statement (PDS) disclosure.

ASIC has now released a consultation paper (pdf) seeking comments on its proposal to widen the disclosure exemption for rights issues to cover non-traditional features developed by issuers and their advisers to raise capital more effectively.

ASIC’s proposal would extend the disclosure exemption to rights issues that allow accelerated institutional participation and other deviations from the ‘vanilla’ rights issue format, provided there is, in substance, an equality of opportunity to participate for all holders.

The exemption is intended to benefit retail holders by encouraging listed entities to use rights issues, rather than other forms of fundraising that exclude retail participation (e.g. placements). 

For technical reasons, some rights issues would not qualify for the disclosure exemption without ASIC relief and ASIC has therefore proposed the widening of the exemption.

ASIC invites comments on the consultation paper by Wednesday 7 November 2007. 

Client Legal Privilege and Federal Investigatory Bodies

The Australian Law Reform Commission (ALRC) has released a  Discussion Paper, Client Legal Privilege  and Federal Investigatory Bodies (DP 73), containing 42 proposals aimed at addressing lengthy and costly disputes over client legal privilege in federal investigations.

The paper adopts the definition of client legal privilege formulated by Dr Sue McNicol:
It provides that, in civil and criminal cases, confidential communications passing between a lawyer and her or his client, which have been made for the dominant purpose of seeking or being furnished with legal advice or for the dominant purpose of preparing for actual or contemplated litigation, need not be disclosed in evidence or otherwise revealed. This rule also extends to communications passing between a lawyer or client and third parties if made for the purpose of actual or contemplated litigation.

The ALRC's research identified 41 federal investigatory bodies—as well as Royal Commissions that are established from time to time—that have coercive information-gathering powers. Many of the laws governing these bodies provide no guidance about whether client legal privilege applies wholly or in part. In those laws that do address privilege, there is no consistency of language or approach.

The ALRC proposes that where privilege applies, there should be a consistent legal framework. Where Parliament determines that privilege should be abrogated, this should be on the basis of clear principles—that is, where there is a significant public interest, and where legal advice is central to the matters being investigated. Where it is abrogated, appropriate safeguards should be put in place about the subsequent use of the information disclosed.

Other key proposals include:

• to allow privilege to apply to advice on taxation law provided by accountants;
• requiring parties claiming privilege to provide details of privileged documents and the basis of the claim; and
• improved education and training for lawyers concerning their ethical responsibilities in relation to making privilege claims.

The ALRC is seeking community feedback before a final report is completed in December 2007. Submissions close on 1 November 2007.

Licence breach notifications

For both financial services licensees and superannuation licensees not only is it an offence to breach a licence term, it is also an offence not to report a material breach within a required time (in the case of financial services licensees, the obligation covers significant breaches, or likely breaches). (see s. 912D Corporations Act 2001 and s. 29JA of the Superannuation Industry (Supervision) Act 1993).

For RSE Licensees, APRA has released an online breach notification process.

Takeovers Panel issues discussion paper on treatment of equity derivative holdings

The Takeovers Panel has released a draft Guidance Note, and discussion paper, seeking public discussion and comment on the approach which the Panel proposes as to when, and in what circumstances, the use of equity derivatives may constitute unacceptable circumstances.

The Panel proposes that for control and substantial holding disclosure purposes, at least, long equity derivatives (cash settled or deliverable) should be treated the same as physical holdings of the relevant securities. The Panel's discussion Guidance Note indicates that: when considering whether or not unacceptable circumstances exist, the Panel will normally treat a person's long equity derivative interests and voting power in listed entities in a combined manner.

Responses are due by 7 December 2007.

Best Practice Regulation Handbook

The Office of Best Practice Regulation has issued the Best Practice Regulation Handbook .

The Handbook sets out the Australian Government's enhanced framework for analysing regulatory proposals. It is intended to ensure that regulation is only introduced after a rigorous examination of options and consequences.

How effective is regulation reform?

Nicholas Gruen from Lateral Economics has released a report (pdf) he did for the Victorian Government in 2006 on Regulation and Innovation.

He argues that regulation reform has become too scientific and process-focussed rather than looking at outcomes which encourage improvement and innovation as well as compliance. A new approach to regulation should be more fully focused on continually optimising our regulatory systems in the way businesses continually improve their own production systems.

He gives the example of an organisation which did not update its regulatory requirements because to do so would require a new Regulatory Impact Statement.

He argues that measurement of compliance should be a basis for improvement and higher morale rather than a basis of punishment and that the social objectives of regulation should be achieved in ways that maximise the operating flexibility of those who are regulated.

If you're interested you can listen to an interview Nicholas did on Radio National (it starts around the 37 minute mark).

ACMA releases reality television review

ACMA doesn't just monitor spam and marketing calls: it has released a review of regulatory issues affecting reality television.

Although the Commercial Television Industry Code of Practice and current regulatory arrangements were found to be broadly effective, a number of matters have been raised in the Report which require action (eg that a clause be included in the Code that prohibits the broadcast of material presenting participants in reality television programs in a highly demeaning or exploitative manner.)

Same-Sex Entitlements

The Human Rights and Equal Opportunity Commission's Same-Sex: Same Entitlements Report has identified 58 laws that must be amended to eliminate discrimination against same-sex couples and their children in the area of federal financial and work-related entitlements.

The Report concludes that straightforward definition changes could remove discrimination in the following areas:

• Employment
• Workers’ Compensation
• Tax
• Social Security
• Veterans’ Entitlements
• Health Care Costs
• Family Law
• Superannuation
• Aged Care
• Migration.

UPDATE: Draft Bill introduced into Senate on 14 August 2007 as a Private Senator's Bill.

Federal Parliament resumes

Parliament is resuming for its Spring Sittings starting with the period 7 to 16 August 2007.

Debate will resume on Government bills already introduced with some new Bills marked for introduction and passage this sittings (subject to an election announcement).

On Tuesday the Parliamentary Joint Committee on Corporations and Financial Services is scheduled to deliver its Report of inquiry into the structure and operation of the superannuation industry .

ATO offers Div 7A amnesty

The ATO has issued practice statement PSLA 2007/20 setting out how taxpayers can take corrective action to fix mistakes made between 2001-02 and 2006-07 regarding payments and loans from their private companies and avoid penalties under Division 7A. The Commissioner has a discretion to enable him to provide relief for deemed dividends that have arisen under Division 7A because of an honest mistake or inadvertent omission.

The Practice Statement gives examples of omissions and corrective action where the exercise of the Commissioner's discretion is not required.

If a taxpayer takes corrective action by 30 June 2008 they will not have to pay interest and penalties. However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it.

From 1 July 2008, the Tax Office will resume audit work to ensure payments made by private companies are correctly accounted for and company loans are not used to distribute tax free profits.

Australian Government issues Foreign Bribery Information and Awareness Pack

The Minister for Justice and Customs has issued a Foreign Bribery Information and Awareness Pack to assist Australians who encounter foreign public officials, whether it is in the course of business or simply as a result of travelling overseas.

The pack contains information about the criminal offence, how to report suspected foreign bribery, taxation implications of foreign briber and identification of suspicious transactions and notification requirements.

The ATO has also issued Bribes and facilitation payments: A guide to managing your tax obligations.

Tax Commissioner identifies business tax risks

In a recent Speech by Michael D’Ascenzo, Commissioner of Taxation, he identified tax risks for businesses and discussed:

• the new ATO Guide Bribes and facilitation payments: A guide to managing your tax obligations;
• The role of directors and board members in tax governance (including their own personal tax responsibilities);
• rights and options received under share schemes for both executives and general employees;
• ATO's compliance program for large business;
  
• an initiative encouraging people to come forward and make disclosures of undisclosed income from offshore activities.

Are your online documents readily accessible?

With the commencement of the Simpler Regulatory System company reporting changes, many companies can be expected to save printing and mailing costs by making annual reports available online.

A typical condition imposed by laws when permitting documents to be given to your shareholders or customers by making them available online for reading or downloading (rather than requiring the mailing of a hard (printed) copy or the emailing or faxing of an electronic copy) is that they be "readily accessible". (See section 314(1AA)(b) Corporations Act).

"Readily accessible" means more than being available for reading or download by anyone who has internet access. The expression has its source in Section 9(1)(a) of the Electronic Transactions Act 1999 (Cth) where it is part of the phrase "readily accessible so as to be useable for subsequent reference".

The readily accessible requirement appears to have been included to allow for changes in technology which can mean that over time different standards of communication can be become incompatible with later systems. Provided that the system used to transfer the information is relatively standard at the time of publication and is not difficult to use, then it should satisfy this test. For example, the PDF file format is now standard and the Adobe Acrobat Reader required to read it is freely available (and free). Use of a file format that was difficult to open would mean that the document is not "readily accessible".

As the legality of the giving of the document should not be questioned through lack of access, the direct address on the web site where the documents may be accessed should remain static for as long as they are relevant.

But accessibility may also be argued in the future to include whether:
•    the writing in the document is legible when viewed;
•    the document incorporates any image, message, advertisement or other feature that distracts the reader or reduces the reader's ability to understand the document;
•    if an image, message, advertisement or other feature accompanies or is associated with the document, the reader is readily able to distinguish the image, message, advertisement or other feature from the document;
•    the reader can readily scroll through the whole of the document.

As more businesses make documents available on their website, consideration should be given as to whether they are readily accessible by looking at the following factors:

• the ability of readers to find the document (is there a direct link, adequate navigation, reference on a site map or index?)
• the file format of the document (HTML, PDF, Word, RTF or all?)
• the ability of onscreen readers to increase the font size
• for longer documents, the availablity of a summary or a tool such as a drop down list to find relevant parts of the document.

For example, the Alinta Scheme Booklet  as presented online seems to offer readers a range of features which may make it easier to read a complex legal document on their computer screen if they do not want to print or save it.

Tax agent regulation

The Minister for Revenue and Assistant Treasurer, the Hon Peter Dutton MP has released the draft Tax Laws Amendment (Tax Agent Services) Bill 2007 and associated draft Regulations and draft explanatory materials for public exposure.

ASIC v Citigroup decision: no conflict and no insider trading

In Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Limited
(ACN 113 114 832) (No. 4) [2007] FCA 963, the Federal Court has dismissed ASIC's claims and decided that :

(a)     Citigroup did not contravene its obligations under s 912A(1)(aa) of the Corporations Act to have in place adequate arrangements for the management of conflicts of interest (as it did not have a conflict); and

(b)     Citigroup did not breach the provisions of s 1043H of the Corporations Act and s 12DA of the ASIC Act which prohibit misleading and deceptive conduct; and

(c)     Citigroup did not contravene the insider trading provisions contained in s 1043A of the Corporations Act (firstly because the trader was not an "officer" of Citigroup and because he did not make the supposition alleged by ASIC as a result of a discussion with his superior (that Citigroup was acting for Toll in relation to the proposed takeover of Patrick) and secondly because the Chinese walls defence contained in s 1043F of the Corporations Act was engaged.)

As discussed here, the proceedings arose out of the purchase by a public side employee of Citigroup of over 1 million shares in Patrick Corporation Limited (‘Patrick’) at a time when private side employees working in the Investment Banking Division were acting for Citigroup’s client, Toll Holdings Ltd (‘Toll’) on a proposed takeover bid for Patrick.  The shares were purchased by the proprietary trader for Citigroup’s own account on the last trading day before Toll announced its bid for Patrick. When private side employees became aware of the proprietary trader’s purchase of the shares, steps were taken from within the private side that resulted in an instruction to the trader to stop buying any more shares in Patrick.  The trader did not buy more shares but in the half hour before the close of trading, he sold nearly 200,000 of the parcel of Patrick shares that he had purchased earlier that day.

The Court accepted Citigroup's  argument that  the terms of its letter of engagement with Toll excluded the existence of any fiduciary relationship between the investment bank and its client. ASIC contended that, notwithstanding the existence of a clause in the letter which excluded the existence of such a relationship, the investment bank breached certain fiduciary duties to its client by failing to obtain the client’s informed consent to proprietary trading in the takeover target’s shares by another division of the bank.The Court decided that the law does not prevent an investment bank from contracting out of, or modifying, any fiduciary obligations. In the absence of proof of a fiduciary relationship, ASIC's main claims failed.

The judgment contains useful discussions about conflicts of interest, insider trading and Chinese walls.

UPDATE 29 June: ASIC comments: "The Court has clarified important aspects of insider trading law, for example the operation of ‘Chinese Walls’ and the passing of sensitive information. These clarifications will assist ASIC in pursuing insider trading actions." 

UPDATE 18 July 2007: ASIC will not appeal

Simpler Regulatory System: takeover rules changes

The Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007 when passed will make amendments to the takeovers provisions in the Corporations Act.

Removal of telephone monitoring during takeover bids
The provisions of the Corporations Act that require the recording, storing, destroying, accessing and copying of the recordings of telephone conversations with retail shareholders during takeover bids are repealed.

The purpose of the subdivision was to ensure that security holders did not receive information from the takeover bidder or target that could be considered misleading.

The existing provisions have not increased the protection of security holders and impose significant costs on the parties involved.

The repeal of the telephone monitoring requirements will take effect on the day of Royal Assent.

85 per cent notices
The provisions of the Corporations Act that require the disclosure of an 85 per cent holding are repealed.

The provisions were enacted to provide holders of securities with an advanced warning that the majority holder is approaching the 90 per cent limit, at which the majority holder can compulsorily acquire their securities.

However, it is often the case that the minority are already aware of the majority holder’s position.  For listed entities, other mechanisms in the Corporations Act will mean that the information is already publicly disclosed.

The repeal of the 85 per cent notice requirement will take effect on the day of Royal Assent.

The Simpler Regulatory System Package update

The Simpler Regulatory System Package was passed by the House of Representatives and introduced into the Senate on 14 June 2007.

The Government intends to pass the Bills this week so that certain provisions can commence on 1 July 2007.

As the Bills cover a range of topics (Financial Services Regulation, Company Reporting Obligations,  Auditor Independence,  Corporate Governance,  Fundraising,  Takeovers, and  Compliance) which I summarised here, I will do separate notes dealing with the final changes in each area.

UPDATE: Detailed notes now added on

Company reporting changes

Corporate governance

Fundraising

Takeover rules