Attorney-General Christian Porter must not face trial by media
Chris Merritt 29 October 2021
Published in the Australian Newspaper
In the final report of his royal commission into financial services, Ken Hayne belled the cat: if the goal is to stamp out misconduct, the clarity of corporate law is more important than quantity.
“The more complicated the law, the harder it is to see unifying and informing principles and purposes,” Hayne’s report says.
He recognised that simplifying the law governing financial services would not be easy. But the former High Court judge put the onus on the government for a wide-ranging program aimed at placing greater emphasis on underlying principles and purposes.
Attorney-General Christian Porter took up the challenge in September and commissioned a three-year project that is being run by Sarah Derrington’s Australian Law Reform Commission. What the commission has found so far is not pretty. Hayne was absolutely right.
“The complexity of Australia’s financial services and corporations laws undermines the rule of law by reducing people’s ability to understand the law’s scope and content. This area of law is, in the words of one judge, complex and prolix, if not labyrinthine,” says a briefing note prepared by the commission.
Here are the most shocking examples from that briefing note:
● The Corporations Regulations, an ASIC class order and an ASIC Legislative Instrument all purport to insert a notional provision into section 1016A(2A) of the Corporations Act — which does not exist. There is no sub-section 2A.
● Key terms are defined differently between and within related statutes. The term “securities” has multiple definitions in different parts of the Corporations Act.
● The term “financial product” is defined differently in the Corporations Act and the ASIC Act.
● The prohibition against misleading and deceptive conduct is expressed differently in the Australian Consumer Law and the Corporations Act.
The problem goes beyond specifics to the overall structure of company law. The briefing note says the Corporations Act and its regulations run to almost 5000 pages of densely written and highly prescriptive rules, definitions and carve-outs.
Overlaid upon this are hundreds of pages of other delegated legislation, making it difficult for regulators, regulated entities, consumers, courts and lawyers to understand what the law requires.
This complexity raises great difficulties for those who want to know about their legal obligations, and has an adverse impact on the broader community.
The resources of corporate Australia are being unnecessarily diverted to cope with legal complexity when they could be creating jobs and repairing the damage done by the pandemic.
Derrington, who is the commission’s president, says removing complexity from the Corporations Act has the potential to refocus the efforts of corporate Australia on “the things companies should be doing, rather than risk management”.
“That was what we found when we did the corporate crime inquiry as well,” she says.
“It was so difficult for a company to know whether or not they were in fact committing a criminal offence that much time is taken up in risk assessment. This seems to be the same problem here [with financial services law] and it is the same with continuous disclosure obligations.
“It’s all part of that same narrative: Australian companies have been over-burdened and therefore they pay less attention to generating returns for the company and more attention on regulatory matters.”
Hayne had recommended that, as far as possible, exceptions and qualifications to generally applicable norms of conduct in legislation governing financial services entities be eliminated.
This complements another recommendation: as far as possible, legislation governing financial services entities should identify expressly the fundamental norms of behaviour that are being pursued.
This approach is in line with that of the late Lord Tom Bingham, a former Lord Chief Justice of England, who believed legislative bulk was not necessarily the path to better law.
In Britain, just like Australia, the rule of law requires legislation to be known, clear, certain and prospective. But that principle can be undermined by “legislative hyperactivity”, which Lord Bingham said had become a permanent feature of UK governance.
In a 2006 lecture on the rule of law, he wrote: “First, the law must be accessible and so far as possible intelligible, clear and predictable. This seems obvious: if everyone is bound by the law they must be able without undue difficulty to find out what it is, even if that means taking advice.”
Australia’s lawmakers are afflicted by the same legislative hyperactivity that blights Britain, which is apparent from federal Treasury’s submission to the Hayne inquiry. According to Treasury, financial services law has become convoluted, resulting in a legal framework with elements that are “disparate, unclear and arguably conflicting”.
At the time of the Hayne inquiry, Chapter 7 of the Corporations Act — which covers the conduct of the financial services sector — consisted of 891 pages of legislation and 467 pages of regulations.
On average, the Corporations Act, the ASIC Act and the regulations made under those statutes have grown by 153 pages a year since 2001.
The resulting law is so vast, diffuse and complex that the task of understanding and complying with the rules has created thousands of jobs for lawyers. The fact that directors still find time to do business is a quite an achievement. Imagine how many non-legal jobs might be created if the law were clear.
Because the simplification project covers such a vast amount of material, the commission plans to produce a consultation paper, three interim reports and a consolidated final report in November, 2023. It will run a series of seminars starting next month in Melbourne.