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ASIC Supervisory Cost Recovery Levy Act 2017 Becomes Law and Implements an Industry Funding Model

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    On 15 June 2017, the Senate passed the ASIC Supervisory Cost Recovery Levy Bill 2017 and related bills to implement an industry funding model for the Australian Securities and Investments Commission. Regulations that provide additional detail on the operation of the industry funding model have now been made. The new scheme commences on 1 July 2017. Division 2 of Part 3 of the regulations relates to entities that are part of the deposit-taking and credit sector. Entities may fall within multiple subsectors within the sector depending on the activities they undertake during a financial year. The levy is calculated on business written of the relevant type. For the credit sector:

    • the credit sector will pay for the cost of its regulation by ASIC
    • ASIC will levy each licensee with the notional cost of its regulation
    • levies will either be a ‘flat rate’, a ‘graduated rate’ or a combination of both.
    • Where a licensee enters the industry during the course of a year, levies may or may not be at a pro-rata rate.

    Credit sector to have a base levy and a graduated levy

    Levies will apply to:

    • credit intermediaries
    • credit providers
    • deposit product providers
    • payment product providers
    • small amount credit providers

    As stated in the explanatory statement:

    • Credit intermediaries (holders of an Australian credit licence that authorises the entity to engage in credit activities other than as a credit provider).will have to pay a minimum levy of $1,000 and then a variable amount depending on the number of credit representatives each entity has. (Regulation 25)
    • Credit providers (same meaning as in the National Consumer Credit Protection Act 2009) will pay a minimum levy of $2,000. Credit providers that provide more than $100 million in credit contracts will also pay a variable component depending on their share of the total value of credit contracts above the $100 million threshold provided in a financial year. (Regulation 26)
    • Small amount credit providers (same meaning as in the National Consumer Credit Protection Act 2009) that also provide credit under small amount credit contracts will also have to pay an additional levy calculated by reference to each entity’s share of the total amount of credit provided under SACCs issued by the subsector in the financial year (Regulation 24). In addition, a minimum levy of $2000 will also apply on the basis that small amount credit are also credit providers (refer to Explanatory Memorandum)
    • Deposit product providers (holders of an AFSL Licence that authorises the holder to deal in a financial product by issuing deposit products) will pay a minimum levy of $2,000. Deposit providers that more than $10 million in deposits in a financial year will also a variable component depending on their share of the total value of deposit products above the $10 million threshold held in the financial year.(Regulation 27)
    • Payment product providers (holders of an AFSL Licence that authorises the holder to deal in a financial product through which, or through the acquisition of which, non-cash payments can be made) will pay a minimum levy of $2,000 and then an additional amount based on net revenue from payment product activity (Regulation 28)

    The consumer leasing sector is not mentioned in the Explanatory Statement, nor the Regulations. While it might be tempting to assume that providers of consumer leases will be treated as credit providers, this does not sit well with a plain reading of the credit legislation.

    Levies also apply to other sectors

    A reminder that the ASIC Levies will apply to all sectors regulated by ASIC, including as set out in schedule 1 of the regulations:

    Free Trade Agreements: Increasing Utilisation but Emerging Compliance Issues

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    Australian traders are embracing the trio of free trade agreements negotiated between 2014 and 2015. DFAT has reported that use of the Japan, Korea and China FTAs is up above 80%. This level of utilisation is a great return on the investment the Government has made with promoting the Northern Asian FTAs. However, it is important to remember that the FTA landscape is not static and there are both emerging opportunities and risks.

    Existing FTAs, new opportunities

    For Australian exports in particular, lower duty rates are phased in over time. The duty rates generally drop on 1 January (China and Korea) but for Japan the rates drop on 1 April. With each year’s duty reduction, the opportunity and competitive advantage granted by the FTA increases and it is important to periodically review whether using the FTA makes sense for your business.

    FTAs on the drawing board

    The low hanging fruit has gone but there are still important FTA opportunities which the Australian Government is pursuing.

    • The EU and Australia have concluded a joint scoping exercise on a potential FTA.  This exercise is a prelude to formal negotiations and will form the basis for gaining agreement from EU member states to commence negotiations, and, the scope of those negotiations. While Britain will not be part of this FTA, Germany, Italy and France each fall within the top 15 countries that export to Australia.
    • Speaking of Britain, Liam Fox, the British International Trade Secretary has made a personal submission to an Australian parliamentary committee on foreign affairs and trade in which he advocated an FTA between Britain and Australia. However, any such FTA could not be concluded before Britain leaves the EU (2019). This, Mr Fox submitted, would not prevent preparatory work being undertaken in the meantime.
    • The brakes have been put on FTA negotiations between Australia and India. For 3 years we have heard comments that the FTA with India will be streamlined and it was originally hoped to be concluded by the end of 2015. Now Prime Minister Turnbull has emphasised the need for a quality deal over a quick deal. The delay reflects the challenges of concluding an FTA between two countries with very different levels of economic development and existing protection.
    • After the fall of the Trans-Pacific Partnership, all eyes turned to the Regional Comprehensive Economic Partnership (RCEP) which involves Australia, China, Korea, India, Japan, NZ and the ASEAN countries. Negotiations for this agreement began in late 2012 and were hoped to be concluded last year.  Recently the negotiating parties affirmed their commitment to a quality agreement in the “headwinds against globalisation”. However, “quality agreements” is also code for longer negotiations.
    • The Government has recently announced that negotiations of the Pacific Agreement on Closer Economic Relations (PACER) Plus have concluded. PACER Plus is an agreement covering Australia, NZ and 13 Pacific Islands such as Fiji and Vanuatu. It is not a traditional FTA in that Australia was not seeking a balanced outcome. Rather it was seeking to promote economic development for the Pacific Island countries. From an Australian import tariff perspective, little will change with most member countries already enjoying developing country duty-free status. However, it is likely that the rules of origin will be more flexible under PACER Plus than those currently relating to developing countries. While the removal of some Pacific Island import tariffs is expected, the gains are not likely to be as significant for Australian exporter as achieved under other FTAs. More details should follow in the coming months.

    Be careful when using FTAs

    There is a catch with using FTAs, if you use them incorrectly, you are liable for underpaid duty.  We are starting to see an increase in issues with the certificates of origin used to justify the use of FTAs. Issues include:

    • The CoO missing key elements such as the HS code of the goods or the rule of origin being used;
    • The CoO missing mandatory information which may not seem crucial. Examples include the quantity and/or brand of the goods. It is also important to remember that many FTAs require CoOs to include a “detailed” goods description.
    • The one CoO is being used for multiple shipments. Issues can arise where the supplier provides the one CoO for an order that is then broken up into multiple shipments to Australia.
    • An ASEAN CoO is provided but the importer seeks to use the Thai, Singapore or Malaysian FTA.
    • The HS code on the CoO is different to the HS code on the import declaration.

    The extent to which the above problems prevent the use of a FTA depends on the terms of the FTA and severity of the defect.

    Currently, these issues are more likely to arise upon review of a refund application made by the importer. However, the action of the refunds area is almost a crystal ball to the future focus areas of the Australian Border Force. If an issue is stopping refunds in 2017 it is not unlikely to suspect that it will be a compliance focus area in 2018 and beyond. In this respect, it is important to remember that compliance reviews can go back 4 years, but it is generally only possible to correct a defective CoO within 12 months of the export of goods.

    If you rely on a FTA for a transaction to be economically viable, you cannot chance whether the use of that FTA will withstand an ABF audit.

    Hunt & Hunt Lawyer named Corporate Livewire M&A Lawyer of the Year

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    Corporate Livewire has named Hunt & Hunt Partner Nick Miller as the Corporate Livewire Australian M&A Lawyer of the Year.

    Announcing the winners in the UK this week Jake Power, Awards Director of the 2017 M&A Awards said:

    It is fantastic to see yet another year of successful mergers and acquisitions. Some of the largest firms have spent billions in M&A deals to put a new spin on technology, user activity and industry growth. We commend all the winners and I look forward to seeing their future developments.

    Hunt & Hunt’s Victorian Managing Partner, David Thompson said:

    This award follows Nick being selected by industry peers for inclusion in the listings of Best Lawyers in Australia over several years and for being named in Who’s Who Legal as a leading Corporate Governance Lawyer for 2017

    I congratulate Nick for once again receiving recognition for his work. His genuine approach coupled with his diligence has brought about many satisfied clients.

    Receiving the award Nick Miller said:

    I am honoured to be recognised and I pay tribute to my team, all of whom are passionate and focused on providing practical legal solutions to help clients achieve their commercial objectives.

    Corporate LiveWire is a publishing house owned by Fenice Media. With an international profile, Fenice Media aims to offer a number of platforms for connecting clients with an exclusive, global audience.

     

    No Liability for Home-Turf Topple

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    In the District Court of New South Wales, in the matter of McKenzie v Day (No 2) [2016] NSWDC 236, the plaintiff claimed damages for negligence having sustained significant injuries to her lower legs and left elbow when she fell at the defendant’s residential premises in 2013. The defendant was a deaf and partially blind 92-year-old woman who owned and occupied the house. The plaintiff was employed by the Clarence Valley Council Community Support Services as a support worker and was at the time undertaking a regular ‘safety check’ on the defendant.

    Background

    The defendant had asked the plaintiff to bring in washing from the rear of the house. Sheets were hung on a line attached to a wall immediately adjacent to steps leading from the rear veranda. A rotary line on the lower level of the yard was unused. The plaintiff estimated that she had visited the defendant about 50 times previously. Her unchallenged evidence was that on no occasion prior to the incident had she been outside at the back of the house (the defendant was assisted by support workers other than the plaintiff). However, and relevantly, it was unknown whether the defendant knew or remembered that the plaintiff had not been outside at the back of the house and whether the defendant was aware that the sheets had been hung on the wall line and not the rotary line.

    The plaintiff gave evidence that she was standing on the rear veranda at the top of the steps when she reached forward to feel if the sheets were dry. The next thing she recalled was waking up at the bottom of the steps. She had no recollection of falling or seeing a handrail attached to the wall beneath the clothesline.

    The house was constructed in accordance with local authority regulations and the tiles on the rear veranda and steps were compliant.

    Decision

    His Honour Judge Neilson found that the plaintiff had seen the steps on approach and knew she was standing at the top of the steps when she reached forward to touch the washing. The plaintiff had given evidence that she did not notice the handrail and she did not look where she placed her foot because she was ‘distracted’ by the sheet on the line.

    The evidence of the plaintiff’s liability expert (that the steps were not delineated and would have created a hazard to any person in the plaintiff’s position) was held to be irrelevant in light of the plaintiff having seen and been aware of the steps.

    His Honour found that the plaintiff misstepped, that is the best description of what occurred to her, because she failed to heed the presence of the step, which she had clearly seen on two occasions prior to standing where she stood to feel the clothing, immediately prior to misstepping.

    His Honour opined that the duty of care which the law imposed on the defendant involved close assessment of the premise that the plaintiff herself exercise reasonable care for her own safety and found that section 5B(1)(c) of the Civil Liability Act 2002

    “requires that, in the circumstances, a reasonable person in the position of the defendant would have taken the precautions to avoid the risk of harm. The precaution here urged upon me was to give the plaintiff a warning. It seems to me an extraordinary proposition that a 92-year-old lady should be required to warn a 60-year-old lady that there was washing hanging on the line near the steps and not to be distracted by the washing hanging on the line when the presence of the steps was obvious to the 60-year-old woman. In other words, I am also of the view that s 5B(1)(c) is not here satisfied.”

    Ultimately the plaintiff’s case was advanced on the basis that the defendant was negligent in placing the clothesline on the wall above steps and not warning the plaintiff.

    His Honour accepted the defendant’s submission that it would not be appropriate for liability to be imposed where the actual cause of the plaintiff’s fall was her failure to look where she placed her foot, knowing she was standing adjacent to steps. He found the defendant had not been negligent and gave judgment for the defendant.

    Key lessons

    Whether the defendant breached her duty of care was assessed in conjunction with careful consideration of whether the plaintiff had fulfilled her duty to take for her own safety.

    Factual causation was not proved in circumstances where the plaintiff had failed to take proper heed of an obvious risk about which she was aware. While at first blush it may have seemed that the plaintiff was tasked with undertaking a dangerous chore (noting the awkward location of the washing line immediately adjacent to steps), careful examination of the facts revealed that the true cause of the accident was the plaintiff’s own inadvertence.

    Judicial assessment of the relevant duties of plaintiff and defendant was conducted in the context of the accident occurring on domestic property owned by a 92-year-old disabled owner/occupier and as such took important public policy considerations into account. The decision contains an important and encouraging message of confidence for domestic occupiers and their insurers which will be welcome after the decision Schultz v McCormack [2015] NSWCA 330 and may have the result that plaintiffs are less likely to pursue claims in negligence against domestic occupiers.

    The decision is a reminder that close analysis of all the facts at an early stage is important when assessing liability prospects: a plaintiff positioned close to a hazard at the request of the defendant does not equate to an automatic breach of duty on the part of the defendant.

    Pressure Mounts on Timbercorp as Investors Entitled to Plead Defences Despite Having Participated in Class Action

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    The Victorian Court of Appeal has held in Timbercorp Finance Pty Ltd (In Liquation) v Collins and Tomes [2016] VSCA 128 that parties who participated in the unsuccessful class action against Timbercorp are not precluded from pleading their individual defences in response to recovery proceedings instituted by Timbercorp. The result is that Timbercorp now face the prospect of defending over 1000 individual claims.

    Background

    Between 1992 and its collapse in 2009 the Timbercorp Group invested more than $2 billion in agribusiness projections on behalf of over 18,500 investors. Many investors borrowed moneys from Timbercorp to finance their investments in the schemes.

    After Timbercorp went into liquidation, thousands of borrowers failed to meet their loan repayment obligations and Timbercorp issued final demand notices to borrowers in respect of those loans. In June 2009 Timbercorp commenced proceedings against 20 defaulting borrowers to recover loan moneys.

    In October 2009 Timbercorp investors commenced a group proceeding in the Victorian Supreme Court against Timbercorp seeking an order that the group members were not liable for repayment of loans from Timbercorp. It was alleged that Timbercorp had failed to disclose in its product disclosure statements information about risks that might have had a material influence on the decision to invest, in breach of its disclosure obligations under the Corporations Act 2001 (Cth). It was also argued that the product disclosure statements given to investors and declarations made by the directors in scheme financial reports contained false and misleading statements in breach of the Corporations Act 2001 (Cth), Australian Securities and Investments Commission Act 2001 (Cth) and the Fair Trading Act 1999 (Vic).

    Timbercorp suspended its loan recovery project once the group proceeding commenced.

    Judgement was handed down by Judd J in 2011, dismissing the group proceedings. In 2013 the Court of Appeal dismissed an appeal against the decision. In 2014, an application for special leave to appeal to the High Court was refused.

    Loan recovery proceedings by Timbercorp

    Following the dismissal of the group proceeding, Timbercorp recommenced proceedings against individual investors seeking recovery of outstanding principal and interest on the moneys that it had lent them, including proceedings against Collins and Tomes, both of whom had participated in the group proceedings.

    Mr & Mrs Collins defended the claim on the basis that no loan had been advanced to them and they did not acquire an interest in the project relevant to them. Tomes’s defence alleged that it had been represented to him that, in the event of a default under a loan agreement, Timbercorp’s only recourse would be against the investment in the scheme.

    Timbercorp pleaded that each respondent was precluded from raising the pleaded defences because they were members of the group proceeding and so were subject to the doctrines of Anshun estoppel and abuse of process which operated to prevent them from raising the defences because:

    1. They had failed to opt out of the group proceedings and so had renounced their individual claims and had determined that the common claims would represent the totality of all their claims.
    2. They had not sought to have their individual claims ‘case managed’ in the group proceeding and so were barred from raising those claims in later proceedings.

    The primary judge, Robson J, rejected Timbercorp’s arguments and held that the respondents were not precluded by either Anshun estoppel or by the principles of abuse of process from raising any of the defences pleaded to the claims of Timbercorp. Timbercorp appealed the decision to the Court of Appeal.

    Court of Appeal decision

    On 1 June 2016, Warren CJ, Santamaria J and McLeish JJA unanimously upheld the findings of the primary judge and found that the respondents were allowed to advance their individual defences despite having already participated in the unsuccessful group proceeding.

    The Court made the following findings:

    1. A group member in a group proceeding has no opportunity to exercise any control over the way in which a plaintiff conducts the group proceeding, what evidence was adduced and what arguments were propounded.
    2. Where a group member has failed to opted out, the group member would not necessarily be taken to have accepted that the determination of the group proceeding will be the complete resolution of all or any claims that the group member has in respect of the group claim or any similar or related claim.
    3. A failure by a group member to opt out does not give rise to an estoppel in respect of the individual claims of a group member.
    4. The defences pleaded by Collins and Tomes were, in large part, matters personal to them and different to the allegations raised in the group proceeding. For example, Collins alleged that the licence agreement did not name Mr & Mrs Collins as persons allocated lots in the project and therefore Timbercorp could not reasonably satisfy itself that a grove lot licence agreement was in place to manage Collins’ investment and so the application moneys could not be used by Timbercorp Securities. Tomes relied on representations he says were made specifically to him.
    5. There is little prejudice caused to Timbercorp by having to respond to individual defences in these proceedings as they would have had to respond to them either as part of the group proceeding or in a separate proceeding. Accordingly maintaining their individual defences is not an abuse of process.
    6. The ability of group members to individually participate in the group proceedings depended upon the favourable exercise of discretion by the Court, and this discretion may have been refused.
    7. In all the circumstances it was not unreasonable of the respondents to defer reliance on their individual claims until such time as Timbercorp sought to enforce the loan agreements against them.

    What this means for investors

    Timbercorp now faces the prospect of over 1000 individually defended claims. This should provide a strong incentive to Timbercorp to settle claims rather than face lengthy and expensive court proceedings and to consider the commercial implications of not doing so.

    We act for a number of investors who Timbercorp have commenced proceedings against and can assist you to defend your claim against Timbercorp.