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Financial Markets Conduct Bill (Consistent) (Sections 14, 18, 19, 21, 25(c)) [2011] NZBORARp 46 (3 October 2011)

Last Updated: 29 April 2019

Financial Markets Conduct Bill

3 October 2011 ATTORNEY-GENERAL LEGAL ADVICE

CONSISTENCY WITH THE NEW ZEALAND BILL OF RIGHTS ACT 1990:

FINANCIAL MARKETS CONDUCT BILL


  1. We have considered whether the Financial Markets Conduct Bill (PCO 15084/11.0) (‘the Bill’) is consistent with the New Zealand Bill of Rights Act 1990 (‘the Bill of Rights Act’). We understand that the Bill is likely to be considered by the Cabinet Legislation Committee at its meeting on Thursday, 6 October 2011.
  2. We have concluded that the Bill appears to be consistent with the rights and freedoms contained in the Bill of Rights Act. In reaching this conclusion, we considered potential issues of inconsistency with ss 14 (right to freedom of expression), 18 (right to freedom of movement), 19 (right to be free from discrimination), 21 (right to be secure against unreasonable search or seizure) and 25(c) (right to be presumed innocent) of the Bill of Rights Act. Our analysis under those sections is set out below.

PURPOSE OF THE BILL


  1. The Bill seeks to:

To support these goals, the Bill sets out the following additional purposes:


The Bill repeals the Securities Act 1978, Securities Markets Act 1988, Unit Trusts Act 1960, Superannuation Schemes Act 1989, and Securities Transfer Act 1991 and amends several other enactments, including the Financial Advisers Act 2008 and the KiwiSaver Act 2006.

The Bill covers four types of financial product: debt, equity, managed investment products and derivatives. The Bill contains nine Parts and four Schedules, which regulate: the financial products covered by the Bill (Parts 1 and 8), misleading and deceptive conduct (Part 2), disclosure and exclusion (Part 3 and Schedule 1), governance of financial products and services (Part 4), financial product markets and licensed services (Parts 5 and 6), enforcement and liability (Part 7), transitional

provisions (Part 9), registers (Schedule 1), schemes (Schedule 3) and consequential amendments (Schedule 4).


SUMMARY OF THE BILL OF RIGHTS ACT ISSUES

Issues of consistency with the Bill of Rights Act arise in the following ways:


Section 14 – Right to freedom of expression


Section 18 – Right to leave New Zealand


Section 19 – Right to be free from discrimination


Section 21 – Right to be secure against unreasonable search and seizure


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


Where a provision is found to limit a particular right or freedom, it may nevertheless be consistent with the Bill of Rights Act if it can be considered a reasonable limit that is demonstrably justified in terms of s 5 of that Act. Following the guidance of the New Zealand Supreme Court decision in Hansen v R, the s 5 inquiry may be summarised as follows: [1]


(a) Does the objective serve a purpose sufficiently important to justify some limitation of the right or freedom?
(b) If so, then:
  1. is the limit rationally connected with the objective?
    1. does the limit impair the right or freedom no more than is reasonably necessary for sufficient achievement of the objective?

We have concluded that the issues summarised above appear to be justified under s 5 of the Bill of Rights Act.


DISCUSSION OF THE ISSUES OF CONSISTENCY WITH THE BILL OF RIGHTS ACT

Disclosure provisions

The Bill provides for a comprehensive disclosure regime. The relevant disclosure provisions require, or authorise the Financial Markets Authority (‘FMA’) to direct, [2] among other things, that statements, information or documents be made available to relevant persons or the FMA or that they be notified, made public, or kept in a register. [3] The Bill also states that certain information (for example, misleading information, insider information or false statements) must not be disclosed [4] and that the disclosure obligations do not apply to certain offers or investors. [5] The Bill further authorises the Governor-General to make regulations relating to the disclosure of information, documents and other matters. [6]


Section 14 – Right to freedom of expression


Is the limit on the right to freedom of expression justified?


Limits on advertising and publicity


remedies. [12] Clauses 13 and 17 of Schedule 1 state that it is also not permitted to advertise offers that would be regulated offers but for the exclusions referred to in cl 12 (small offers) and 16 (small schemes) of that Schedule (exceptions apply).


Section 14 – Right to freedom of expression


artistic expression and consequently limitations on the right in this context are easier to justify. [15]

Requirements to report a breach of obligations, limit breaks or pricing errors


discretionary investment management service (‘DIMS licensee’) to report limit breaks to the FMA. Clause 154(2) requires the manager of a registered scheme to report pricing errors or non-compliances with the pricing methodology to the supervisor, if they are material.

Section 21 – Right to be secure against unreasonable search and seizure


Other reporting and notification obligations


$600,000 in any other case. [21]


Section 21 – Right to be secure against unreasonable search and seizure

2011_4600.jpg

As noted above, we consider that the requirements to provide information or produce documents constitute a search for the purposes of s 21 of the Bill of Rights Act. [23] However, in our view, the reporting obligations do not constitute an unreasonable search under s 21 because:


Presumption, strict liability and reverse onus offences

The Bill contains, inter alia, the following offence provisions:


Offence provisions providing statutory defences to escape liability


Offence for insider conduct and market manipulation


Strict liability infringement offences


$50,000. A conviction may not be entered for these contraventions.

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


doubt. Where an accused is unable to prove the defence or disprove the presumption, he or she could be convicted even though reasonable doubt exists as to his or her guilt.


Is the limit on the right to be presumed innocent justified?


Offence provisions providing statutory defences to escape liability


Strict liability infringement offences


Court orders to deliver up passport or prohibiting a person from leaving New Zealand


Section 18 – Right to leave New Zealand


Disclosure obligations: exceptions applicable to relatives

Under cls 4 and 5 of Schedule 1 of the Bill, disclosure under Part 3 of the Bill is not required in case of an offer of financial products to a close business associate or a relative of the offeror or director of the offeror. The definition of ‘close business associate of the offeror’ includes the spouse, civil union partner, de factor partner; and the child, parent, brother, or sister (whether or not by adoption or a step relationship) of a person who is a close business associate of the offeror under cl 4(2)(a) to (d) or (3) of Schedule 1. [29] The definition of ‘relative’ includes, inter alia, the spouse, civil union partner, de facto partner of the offeror or director of the offeror (B); a grandparent, parent, child, grandchild, brother, sister, nephew, niece, uncle, aunt, or first cousin of B, the offeror or director of the offeror; and the spouse, civil union partner or de facto partner of these persons. [30]


Section 19 – Right to be free from discrimination


issue of prima facie discrimination on the ground of marital and family status under s 19 of the Bill of Rights Act.


Conclusion

We have concluded that the Bill does not appear to be inconsistent 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. The proportionality test under s 5 of the Bill of Rights Act, as applied in Hansen v R [2007] NZSC 7 [123], draws on the test articulated by the Canadian Supreme Court in R v Oakes [1986] 1 SCR 103, R v Edwards Books and Art Ltd [1986] 2 SCR 713 and R v Chaulk [1990] 3 SCR 1303. See for example, Hansen, at [42] per Elias CJ; [64] and [79] per Blanchard J; [103],

[104] and [120]-[138] per Tipping J; [185] and [217] per McGrath J; and [272] per Anderson J. 2. See, for instance, cls 453-454(b), 456(1)(e) and 602.

3. See, inter alia, cls 27-28, 35, 37, 47, 59, 80-82, 200 ff, 214 ff, 265, 270-273, 283-285, 287 ff,

295-296, 302 ff, 421, 426, 576-580, 619 (new s 128), 696; cl 26 of Schedule 1; and Part 2 of Schedule 1. See also Schedule 2 (Registers).

4. Clauses 83, 236, 257, 425, 453-454(b)(iii) and cl 27 of Schedule 1.

5. See, inter alia, Part 1 of Schedule 1. 6. Clauses 517-519.

7. RJR-MacDonald Inc v Canada (Attorney-General) [1995] 3 SCR 199. Also see, Andrew Butler and Petra Butler, The New Zealand Bill of Rights Act: A Commentary (LexisNexis, Wellington, 2005), at 389-390.

8. See cls 84, 385 and 446.

9. Clauses 47(3), 80(3), 81(3), 200(4), 202(4), 206(4), 208(3), 211(3), 218(2), 290, 291(4), 305

and 696(3).

10. Clauses 35(2) & (3), 40, 238, 259, 461(2) and 489.

11. Clauses 73 ff, 192(2)(b).

12. See cls 84, 385 and 473.

  1. Irwin Toy Ltd v Quebec (Attorney-General) [1989] 1 SCR 927 (SCC).
  2. RJR-MacDonald Inc v Canada (Attorney-General) [1995] 3 SCR 199 (SCC); see on this point the dissenting judgment of La Forest J.
  3. Richard Claydon and Hugh Tomlinson, The Law of Human Rights (Oxford University Press, Oxford, 2000), Vol.1, 15.171 – 15.176. An example is the European Court of Human Rights’ decision in Markt Intern Verlag GMBH and Klaus Beermann v Germany [1989] ECHR 21; (1989) 12 EHRR 161, para. 32.
  4. New Zealand Stock Exchange v Commissioner of Inland Revenue [1992] 3 NZLR 1 (PC), at [6], and R v Javid [2007] NZCA 232, at [45(d)].
  5. Tranz Rail Ltd v Wellington District Court [2002] NZCA 259; [2002] 3 NZLR 780 at [790].
  6. See, for instance, cls 84, 223 and 446.
  1. See, many of the infringement offences in this Bill (see footnote 25 below) or, for example, the offences in cls 35, 190, 198 and 489.

20. Clauses 103, 137, and 411.

21. Clause 223(4)(c) and (j), and cl 430(4)(a).

  1. See new s 117(2) for the applicable offence provision, which is discussed above in relation to s 25(c) of the Bill of Rights Act.
  2. New Zealand Stock Exchange v Commissioner of Inland Revenue [1992] 3 NZLR 1 (PC), at [6], and R v Javid [2007] NZCA 232, at [45(d)].

24. See cls 190(3), 370, 419(1), 461(2), 619 and 658.

25. See cls 47, 49, 71, 80, 81, 96, 109, 128, 152, 155, 176, 178, 196, 197, 200, 202, 203, 205, 206,

208, 211, 216, 218, 219, 280, 290, 291, 305, 334, 503, or 696.

  1. The infringement fee is set by regulations, see cl 522(1)(f).
  2. R v Wholesale Travel Group 84 DLR (4th) 161, 188 citing R v Oakes [1986] 1 SCR 103.
  3. For example, in case of the infringement offence for failing to keep a register in cl 200, the defendant is best placed to prove why a register has not been maintained and/or that the defendant has taken reasonable steps to comply (for example, the defendant is likely to more easily access evidence showing that a register was being maintained but was lost due to an unforeseen event such as a fire or serious IT failure). The defence in this case involves a straightforward question of fact.
  4. Clause 4(2)(e) and (f) of Schedule 1.
  5. Clause 5(2) of Schedule 1.
  6. See, for example, Atkinson v Minister of Health and others [2010] NZHRRT 1; McAlister v Air New Zealand [2009] NZSC 78; and Child Poverty Action Group v Attorney-General [2008] NZHRRT 31.
  7. Quilter v Attorney-General [1997] NZCA 207; [1998] 1 NZLR 523 (CA) at [573] per Tipping J (dissenting) relied on in Atkinson v Minister of Health and others [2010] NZHRRT 1 at [199]; McAlister v Air New Zealand [2009] NZSC 78 at [34] per Elias CJ, Blanchard and Wilson JJ and at [51] per Tipping J; and Child Poverty Action Group v Attorney-General [2008] NZHRRT 31 at [137].
  8. Atkinson v Minister of Health and others [2010] NZHRRT 1 at [211]- [212]; McAlister v Air New Zealand [2009] NZSC 78 at [51] per Tipping J; and Child Poverty Action Group v Attorney-General [2008] NZHRRT 31 at [137].
  9. See for example Child Poverty Action Group v Attorney-General [2008] NZHRRT 31 at [179]; and McAlister v Air New Zealand [2009] NZSC 78 at [40] per Elias CJ, Blanchard and Wilson JJ.

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 Financial Markets Conduct 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. Whilst care has been taken to ensure that this document is an accurate reproduction of the advice provided to the Attorney-General, neither the Ministry of Justice nor the Crown Law Office accepts any liability for any errors or omissions.


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