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Securities Trustees and Statutory Supervisors Bill (Consistent) (Sections 17, 21, 25(c)) [2009] NZBORARp 79 (11 December 2009)

Last Updated: 28 April 2020

Securities Trustees and Statutory Supervisors Bill

11 December 2009

ATTORNEY-GENERAL LEGAL ADVICE

CONSISTENCY WITH THE NEW ZEALAND BILL OF RIGHTS ACT 1990: SECURITIES TRUSTEES AND STATUTORY SUPERVISORS BILL

1. We have considered whether the Securities Trustees and Statutory Supervisors Bill (the ‘Bill’) (PCO 13956/9.6) is consistent with the New Zealand Bill of Rights Act 1990 (‘Bill of Rights Act’). We understand the Bill is likely to be considered by the Cabinet Business Committee at its meeting on Monday, 14 December 2009.

2. We considered potential issues of inconsistency with ss 14, 21 and 25(c) of the Bill of

Rights Act and assessed whether or not these issues are justifiable under s 5 (justified limitations) of that Act. To that end we examined whether the relevant clauses serve an important and significant objective, and whether there is a rational and proportionate connection between these clauses and that objective. [1]

3. We have reached the conclusion that the Bill appears to be consistent with the rights

and freedoms affirmed in the Bill of Rights Act.

PURPOSE OF THE BILL

4. The purpose of this Bill is to protect the interests of security holders, and enhance investor confidence in financial markets, by—

(a) requiring persons who wish to be appointed as trustees, statutory supervisors, or unit trustees to be capable of effectively performing the functions of trustees, statutory supervisors, or unit trustees; and

(b) requiring trustees, statutory supervisors, and unit trustees to perform their functions effectively; and

(c) enabling trustees, statutory supervisors, and unit trustees to be held accountable for any failure to perform their functions effectively. [2]

BILL OF RIGHTS ACT ISSUES

Section 14 – Freedom of Expression

5. Section 14 of the Bill of Rights Act affirms the right to freedom of expression, which includes the freedom to seek, receive, and impart information and opinions of any kind and in any form. The right has been interpreted as including the right not to be compelled to say certain things or to provide certain information. [3]

6. We note, taking into account the various domestic and overseas judicial pronouncements on the issue, a two-step inquiry has been adopted to determine whether an individual’s freedom of expression has been infringed. The first step involves a determination of whether a particular activity falls within the freedom of

expression. The second step is to determine whether the purpose or effect of the proposed government action is to restrict that freedom. [4]

7. Clauses 17, 23, 24, 25, 26, 27, 31, 44, 45, 46, 47 and 62 require disclosure of

information by trustees and supervisors to the Securities Commission (the

‘Commission’).

8. Clauses 17 and 31 allow the Commission to require further information to that contained in a request for the Commission to review its decision to issue or vary a licence granted under the Bill. Clauses 23, 24, 25, 26 and 27 set out the regular reporting requirements of trustee licence holders and investigation powers of the Commission. Clause 40 requires an existing trustee or supervisor to supply documents where the existing trustee or supervisor is subject to a removal notice. The disclosure requirements in cll 44 to 47 relate to the duties of trustees and supervisors to the Commission in relation to their duties to issuers. Clause 62 requires trustees or supervisors to disclose information in circumstances of insolvency or a breach of a trust deed or terms of offer.

9. An important component of the first step in determining whether the freedom of

expression has been infringed is that the communication in question must attempt to express an idea or meaning. [5] It is arguable whether this component is satisfied in relation to the information that has to be provided under the disclosure provisions because the information is of a factual nature and does not seem to be sufficiently expressive in nature to engage s 14. With respect to the second step, the disclosure requirements plainly compel the provision of information. For completeness, we

also consider whether, if the provisions place a limit on the freedom of expression, they are justifiable in terms of s 5 of the Bill of Rights Act.

10. All the disclosure requirements in cll 17, 23, 24, 25, 26, 27, 31, 44, 45, 46, 47 and 62 support the important objective of the Commission being able to license and monitor trustees and supervisors. It is the trustees and supervisors that, in turn,

supervise an issuer’s compliance with the terms of the security, the trust deed which governs the offer and other prudential factors. The Commission would be unable to carry out its licensing and monitoring role if it was unable to compel the disclosure of relevant information.

11. The disclosure provisions are proportionate in the circumstances. The disclosed information is limited to the factual information which is necessary carry out the purposes of the Bill. Moreover, cll 48 and 57 provide various immunities for trustees or supervisors who make a protected disclosure under cll 44 to 47. The Bill also provides for the confidentiality of information obtained for the purpose of the Bill where certain criteria are met. [6]

12. We, therefore, consider that if the disclosure requirements were found to amount to

a prima facie infringement of s 14 they appear to be justifiable under section 5 of that Act.

Section 21 – Unreasonable search and seizure

13. Section 21 of the Bill of Rights Act provides for the right to be secure against unreasonable search or seizure, whether of the person, property, correspondence or otherwise. There are two limbs to the s 21 right. First, s 21 is applicable only in respect of those activities that constitute a "search or seizure". Second, where

certain actions do constitute a search or seizure, s 21 protects only against those searches or seizures that are "unreasonable" in the circumstances.

14. We consider that the requirement to produce documents under statutory authority

constitutes a search for the purposes of s 21 of the Bill of Rights Act. [7]

15. As stated above, the Bill sets out regular reporting and disclosure requirements. [8] The Bill provides immunity only in respect to protected disclosures under cll 44 to

47. Compelled disclosure in other instances may place the trustee or supervisor in criminal jeopardy.

16. We note, however, that the information disclosed by virtue of the reporting and disclosure requirements that may attract criminal liability relates to the regular reporting requirements of licence holders and investigation powers of the Commission. A trustee or supervisor would have a limited expectation of privacy in relation to the information sought by the Commission as expectations of privacy are not as great in the commercial world as they are in the domestic sphere. [9] In addition, the power to demand the production of documents is less of an intrusion into the expectations of privacy than a power of entry. [10] The financial sector is heavily regulated and information sought by the Commission is necessary for it to monitor compliance by trustees and supervisors with the regime set up by the Bill.

17. We consider that the search and seizure powers in the Bill appear to be consistent with its purposes and reasonable in the circumstances. The search and seizure provisions of the Bill are therefore consistent with s 21 of the Bill of Rights Act.

Section 25(c) – Right to be presumed innocent until proved guilty

18. Section 25(c) affirms the right to be presumed innocent until proved guilty. This means that an individual must not be convicted where reasonable doubt as to his or her guilt exists. The prosecution in criminal proceedings must therefore prove, beyond reasonable doubt, that the accused is guilty.

19. Reverse onus defences give rise to an issue of inconsistency with s 25(c) because the accused is required to prove (on the balance of probabilities) a defence to escape liability. Where an accused is unable to prove the defence, then he or she could be convicted even though reasonable doubt exists as to his or her guilt. In other criminal proceedings an accused must merely raise a defence in an effort to create reasonable doubt.

20. Clauses 23(4), 23(6), 26(5), 37(4), 40(5), 40(7) and 49(5) create statutory defences

where an accused may prove a reasonable excuse to escape liability for the offence created by those clauses.

21. Clause 23(4) creates an offence for a person to fail to comply with a notice by the Commission to supply information relating to expiry of a licence. Clause 23(6) creates an offence to use a document provided pursuant to a notice under this clause other than for the purpose of performing the functions of the position to which the Commission trustee or issuer trustee has been appointed.

22. Clause 26(5) creates an offence for a person to fail to comply with a notice by the Commission to supply information relating to breaches of trustee obligations, material changes in circumstances of a person holding a licence, or where the information causing issuance or variance of a licence was wrong or incomplete in a material respect.

23. Clause 37(4) creates an offence for a person to fail to comply with a direction by the

Commission to an existing trustee or supervisor subject to a removal notice.

24. Clause 40(5) creates an offence for a person to fail to comply with a notice to provide the Commission trustee or issuer trustee with any documents that relate to the existing trustee or supervisor’s functions and may assist the Commission trustee or issuer trustee in carrying out their functions as a trustee or supervisor. The defendant in this case will be an existing trustee or supervisor who is subject to a removal notice. Clause 40(7) creates an offence to use a document provided pursuant to a notice under this clause other than for the purpose of performing the functions of the trustee or supervisor in respect of the affected security.

25. Clause 49(5) creates an offence to fail to comply with a direction from the

Commission to avoid material prejudice.

26. We consider that cll 23(4), 23(6), 26(5), 37(4), 40(5), 40(7) and 49(5) are prima facie

inconsistent with s 25(c) of the Bill of Rights Act.

27. The offences under cll 23, 26 and 40 all relate to the need of the Commission, the Commission trustee or issuer trustee to obtain information in severe situations where the trustee or supervisor has breached their obligations. This information is vital if the Commission, a Commission trustee or issuer trustee must step in and deal with the breaches and in extreme cases, take over from the existing trustee or supervisor. We consider this to be an important and significant objective.

28. The onus is on the defendant to prove a reasonable excuse for non-compliance because they have an obligation to maintain the same information and documents pursuant to the licensing regime. It is also relevant that, given the detailed and precise licensing of trustees and supervisors, the reason why a they have not met a disclosure requirement in relation to these offences is particularly within the trustee or supervisor’s realm of knowledge.

29. We consider that the requirement that the defendant in respect to cll 23, 26 and 40

prove that they have a reasonable excuse for not supplying or providing certain information or documents is both rationally linked and proportional to the objective and therefore consistent with s 25(c) of the Bill of Rights Act.

30. The objective of the offences under cll 37 and 49 is to allow the Commission to give directions in situations where there is a serious risk to security holders where the trustee or supervisor is subject to a removal notice or the trustee or supervisor has failed to take the opportunity to take action to eliminate or reduce the risk or the case is an urgent one.

31. The situations contemplated under cll 37 and 49 are extreme situations where the trustee or supervisor is likely in breach of their fiduciary obligations. We note that it is reasonable for the trustee or supervisor to prove a reasonable excuse of why they failed to comply with directions from the Commission in relation to the risk to the security holder’s interests. The matters in relation to the offences under cll 37 and

49 would be peculiarly within the defendant’s knowledge. We also note that the trustee or supervisor would be well aware of the licensing regime that they would be operating in and that they would likely be the only person that would be able to take the action required by the Commission to protect the security holder’s interests.

The Bill also provides for immunities for trustees or supervisors for protected acts further to a direction by the Commission under cll 37 and 49.

32. We consider that the reverse onus defences under cll 37 and 49 are both rationally linked and proportional to the objective and therefore appears to be consistent with s 25(c) of the Bill of Rights Act.

CONCLUSION

33. We have concluded that the Bill appears to be consistent with the rights and freedoms affirmed in the Bill of Rights Act. This advice has been prepared by the Public Law Group and the Office of Legal Counsel.

Jeff Orr

Chief Legal Counsel

Office of Legal Counsel

Footnotes:

1. In assessing the Bill under section 5 of the Bill of Rights Act, we have considered the guidelines provided in Ministry of Transport (MOT) v Noort [1992] NZCA 51; [1992] 3 NZLR 260 and R v Hansen [2007] 3 NZLR 1 (SC).

2. Clause 3.

3. RJR-MacDonald Inc v Canada (Attorney-General) [1995] 3 SCR 199.

4. Ross v New Brunswick School District No 15 [1996] 1 SCR 825.

5. R v Keegstra [1990] INSC 224; [1990] 3 SCR 697, 729, 826.

6. Clauses 54 and 55.

7. New Zealand Stock Exchange v Commissioner of Inland Revenue [1992] 3 NZLR 1 (PC)

8. Clause 48.

9. Trans Rail v Wellington District Court [2002] NZCA 259; [2002] 3 NZLR 780, 790.

10. Tranz Rail v Wellington District Court [2002] NZCA 259; [2002] 3 NZLR 780, 791 – 792.

In addition to the general disclaimer for all documents on this website, please note the following: This advice was prepared to assist the Attorney-General to determine whether a report should be made to Parliament under s 7 of the New Zealand Bill of Rights Act 1990 in relation to the Securities Trustees and Statutory Supervisors Bill. It should not be used or acted upon for any other purpose. The advice does no more than assess whether the Bill

complies with the minimum guarantees contained in the New Zealand Bill of Rights Act. The release of this advice should not be taken to indicate that the Attorney-General agrees with all aspects of it, nor does its release constitute a general waiver of legal professional privilege in respect of this or any other matter.