News - Legal Affairs
Lehman judge damns new laws
28 September 2012
The Australian Financial Review
Copyright 2012. Fairfax Media Management Pty Limited.
A Federal Court judge has slammed the new legislative regime governing misleading and deceptive conduct, calling the framework "pointlessly technical and befuddling". When Justice Steven Rares handed down his lengthy decision on the liability of failed investment bank Lehman Brothers Australia last Friday, he took the opportunity to make clear what he thought of the new laws prohibiting misleading and deceptive conduct. Justice Rares found the Australian arm of the failed Wall Street giant had misled investors in breach of fiduciary duties, and said what naive local councils were told about thecomplex financial products they invested in was wrong. Among the successful claimants against Lehman were council representatives, Montrose Access chief executive Darrel Bourke, Parkes Shire Council corporate services director Les Finn and City of Swan executive manager corporate services Colin Cameron. The Lehman case was the first time internationally a court had ruled on the duties of banks when compiling and selling structured debt products called collateralised debt obligations. Justice Rares was no doubt aware of the interest in the case. The lengthy reasons were accompanied by a short summary, which the judge read in court. It was in this summary that he said the forerunner of Lehman, Grange, had engaged in misleading and deceptive conduct "contrary to what is now a plethora of pointlessly technical and befuddling statutory provisions scattered over many acts in defined situations". He did not stop there, adding: "The repealed, simple and comprehensive section 52 of the Trade Practices Act 1974 (Cth) that prohibited corporations engaging in misleading or deceptive conduct in trade or commerce has been done away with by a morass of dense, difficult to understand legislation." Each of the acts which now dealt with misleading and deceptive conduct applied in difference circumstances depending on different definitions. "Those apparently simple terms are nothing of the sort," Justice Rares said. Instead, the definitions included "mind-boggling detail" in numerous pages of small print. In an unusually direct criticism of the government, he said: "The cost to the community, business, the parties and their lawyers, and the time for courts to work out which law applied, have no rational or legal justification. "The Parliament should consider returning to a simple, clear two-line long universal norm of conduct as was contained in s52, if it considers that misleading and deceptive conduct in trade or commerce ought be prohibited," he said. Middletons partner Murray Deakin said he had "some sympathy" for Justice Rares and the views he expressed. "Indeed it is unnecessarily complex. But the reason for the complexity appears to be more to do with an allocation of statutory responsibility and power sharing between [theAustralian Securities and Investments Commission] and [theAustralian Competition and Consumer Commission] rather than any substantive legal reason" Mr Deakin said. The complex framework was "only being driven by the regulators in their power-sharing arrangements", he said. "It is not really driven by the business community." Freehills emeritus partner Bob Baxt said the legislative regime governing misleading and deceptive conduct was "a total mess". Professor Baxt said the great amount of legislation meant many in the industry might not be on top of its content. Judges were "capable of dealing with a broad brush provision" such as the original section 52 of the TPA. Specific definitions enacted by the legislation could lead to loopholes emerging, he said. Fairfax Media Management Pty Limited
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