Ken Hayne is a most unlikely revolutionary.
But when future historians seek to identify those responsible for the great turning points in corporate law, this former High Court judge could emerge as first among equals.
Standing with Hayne will be at least two other change agents – former Attorney-General Christian Porter, and former Law Reform Commission president Justice Sarah Derrington. They both took up the challenge outlined by Hayne in the report from his royal commission into the financial services sector.
The big unknown is whether Mark Dreyfus, the current attorney-general, will join them by giving effect to a reform agenda that began five years ago with the report from Hayne’s inquiry.
While some politicians like to congratulate themselves about the quantity of law they enact, Hayne took a long look at corporate and financial services law and concluded that quantity is no substitute for simplicity and clarity. His call for change was an implicit endorsement of one of the great principles of the rule of law: the law should be clear and capable of being known. If it were otherwise, how could anyone be expected to comply with their legal obligations?
Hayne’s call for simplicity is in line with that of the late 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 British governance.
Federal Treasury told Hayne that financial services law in this country had become increasingly convoluted, resulting in a legal framework with elements that are “disparate, unclear and arguably conflicting”. Hayne’s call for clarity lit the fuse on a massive reform project that was taken up by Porter and Derrington.
The final report from the three-year inquiry commissioned by Porter is enormous. It runs to 326 pages and is the last instalment in a project that has produced twelve background papers and three interim reports.
Hayne was part of the commission’s seventeen-member advisory committee, as was Joe Longo who chairs the Australian Securities and Investments Commission.
The final report was handed to Dreyfus in November by Justice Mordecai Bromberg who succeeded Derrington at the commission in July last year. It amounts to a challenge to the system of corporate lawmaking that has produced a regime that, in some areas, is simply incoherent.
The test confronting the Albanese government is this: will it embrace the reform agenda outlined by the commission and change the way corporate and financial law has been made by successive governments and regulators? Or will it persist with a system that produced a legal regime that was denounced from the Federal Court bench in 2019 as “complex and prolix, if not labrynthine”.
That criticism came from Justice Michael Wigney and is consistent with the problems that have been identified by the commission.
Early in this project, when Derrington was still at the helm, the commission produced a briefing note that says the complexity of financial services and corporations laws undermines the rule of law by reducing the community’s ability to understand the law’s scope and content. It cited these examples:
# 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. Some changes have already been made and Dreyfus is giving “careful consideration” to others.
The easy part will be fixing the obvious errors and inconsistencies that have been listed in the commission’s report.
A bigger test will be whether the government accepts recommendations aimed at restoring democratic legitimacy to a system that currently permits statutory agencies and the executive branch of government – not the parliament – to make “notional amendments” that change the meaning of the law. Unlike orthodox regulations which give effect to laws enacted by parliament, notional amendments change the legal effect of a provision without changing its text. They insert, omit and substitute provisions and make it difficult to navigate and understand the law. According to the commission, these amendments are simply unknowable on the face of the notionally amended legislation – which challenges the rule of law principle that the law should be known and accessible. Its report says crucial provisions have been created by notional amendments, including regulatory and disclosure regimes that are simply invisible on the face of the Corporations Act.
It terms of democracy, it is difficult to see any justification for the current arrangement in which notional amendments can even become a source of power for the executive and its agencies to make delegated legislation. “This is a feature of legislative design that undermines meaningful limits on executive law-making,” the commission says. “The broad powers to create notional amendments in the Corporations Act have been used to create other powers for the executive government to produce delegated legislation.”
This is not a minor problem: the commission found 1200 distinct notional amendments were in force, affecting 600 provisions of the Corporations Act and its regulations.
