Contribution rules clarified – Hotchin v The New Zealand Guardian Trust Company Ltd
The decision of the majority of the Supreme Court in Hotchin v The New Zealand Guardian Trust Company Ltd (NZGT) has the potential to broaden the range of circumstances in which one wrongdoer is entitled to claim contribution from another for loss caused to a plaintiff.
The majority held that it is only necessary that both defendants are liable to the plaintiff for the same damage; there is no additional commonality of liability required. This decision, released on 15 March 2016, represents a welcome clarification and rationalisation of the law of contribution under the Law Reform 1936.
This was, however, an appeal against a strike out decision and the Supreme Court did not hold that NZGT was in fact liable to Mr Hotchin in contribution, only that it could be (depending on the full consideration of the relevant evidence at a trial). It does not, therefore, establish the proposition that trustee companies will be liable to contribute to investor's claims against directors.
Although not determinative, of interest in that regard is that Glazebrook J observed it was difficult to see how it could be just and equitable to order contribution against NZGT, given the respective roles of the directors of Hanover Finance and the trustee – that the directors were the ‘primary wrongdoers’ and that it may be contrary to the statutory scheme of the Securities Act 1978 to order contribution in such circumstances.
A copy of the judgment is available here.
Voidable transactions in the context of a Ponzi scheme
The Court of Appeal’s recent judgment inrelation to the liquidation of David Ross' investment schemes may have significant implications for unwitting investors caught up in Ponzi schemes. The majority of the Court upheld the High Court’s decision that an investor in a Ponzi scheme who had been repaid before liquidation was entitled to retain the capital sum he had deposited, but not fictitious profits. However Miller J, in a dissenting judgment, would not have allowed the investor to retain his deposit.
The liquidators are currently considering whether to appeal the Court of Appeal’s decision on the deposit to the Supreme Court. If the liquidators were to persuade the Supreme Court that Miller J’s approach is correct, it would greatly increase their ability to claw back assets in to the pool in such cases. A copy of the judgment is available here.
Financial advice reform: latest developments
In late February 2016, written submissions closed on MBIE’s Options Paper for proposed reform of the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FAA review). The Options Paper, which reflects the regulator's 2015 consultation on its Issues Paper, notes that the existing financial adviser regime has lifted industry professional standards, but that there are still barriers to achieving the regime’s objectives. MBIE’s next step will be to incorporate the written submissions into its final report to the Minister (due by 1 July 2016), which will set out MBIE’s conclusions and recommendations.
Looking to the FMA’s portfolio, the Code Committee has released the Final Exposure Draft of the Code of Professional Conduct for Authorised Financial Advisers and announced a further round of consultation on two key areas, specifically: (a) the obligation to ensure suitability of personalised services (the old Code Standard 8); and (b) the alternatives to the financial advice and investment strands of the New Zealand Certificate in Financial Services (Level 5) recognised in the Competence Alternatives Schedule to the Code. The Final Exposure Draft and further information on the FMA Code consultation is available here.
New Zealand’s reform of the financial advice sector coincides with similar reform efforts overseas. The UK Financial Conduct Authority (FCA) has recently produced its final report on its review of financial advice regulation. The FCA report makes a number of recommendations directed at the Government, employers, service providers and consumers in the three key areas of affordability, accessibility, and liabilities and consumer redress. A copy of the report is available here.
One area of financial advice reform that is picking up traction across jurisdictions is the regulation of digital financial product advice or ‘robo-advice’. Robo-advice commonly refers to the provision of automated financial product advice using algorithms and technology, with no direct human involvement. While the issue of robo-advice has been raised in the FAA review, we are yet to really see any substantial engagement by MBIE or the FMA on this issue. Over the ditch, the Australian Securities and Investments Commission (ASIC) has commenced a consultation on robo-advice, including on the ways in which digital advice licensees should monitor and test their algorithms. ASIC has also developed a draft regulatory guide on the provision of robo-advice to retail clients for comment. A copy of the ASIC consultation paper and the draft regulatory guide can be accessed here.
Reserve Bank consults on a crisis management regime for financial market infrastructures
The Reserve Bank released the consultation document ‘Crisis Management Powers for Systemically Important Financial Market Infrastructures’ on 24 March 2016, which seeks feedback on a proposed crisis management regime for systemically important financial market infrastructures (SIFMIs).
Financial market infrastructures are the systems through which financial institutions, governments, businesses and individuals transmit money and financial instruments. The consultation document states that, although crisis situations (such as the breakdown of a SIFMI) are very rare, it is in a crisis situation that negative externalities and spill over effects are likely to be most strongly felt. The proposed crisis management regime forms the final part of proposals the Reserve Bank published in December 2015 for a new oversight regime for SIFMIs.
The consultation document proposes a two-part regime: (a) SIFMIs would be required to maintain business continuity plans and recovery and wind-down plans; and (b) the Reserve Bank and the Financial Markets Authority would be given new statutory powers to manage a crisis when these plans are inadequate.
Submissions close on 20 May 2016. To make a submission, or for further information regarding the consultation, see here.
Commerce Commission warns payday-lender Cash in a Flash
The Commerce Commission has warned payday-lender Cash in a Flash that its consumer credit contracts were unlikely to meet the enhanced information disclosure requirements under the reformed Credit Contracts and Consumer Finance Act 2003 (CCCFA). The Commission found that the contracts did not provide borrowers with: their registration number as a financial service provider; the details of the relevant Dispute Resolution Scheme; and the borrower’s right to apply for relief on grounds of unforeseen hardship.
Cash in a Flash has since refunded customers or reduced customer account balances by a total of $122,365 and a copy of the warning can be viewed here.
Commerce Commission adopts an animated approach
Meanwhile, consistent with the Commission’s role under the CCCFA of providing information and guidance about the laws it enforces, it has launched an original animated series titled ‘It’s All Good’. Each episode follows legal adviser, Aunty, and her well-meaning nephew, Herman Faleafa, as Herman faces common situations that many New Zealanders will find themselves in, such as getting a loan or being a guarantor. The adventures of Aunty and Herman can be viewed here.
New Banking Ombudsman Guides
The Banking Ombudsman Scheme issued two guides at the end of March 2016. The first guide is about how the Banking Ombudsman approaches claims for compensation and the second is a quick guide about credit and debit card transaction disputes, following on from a number of complaints from both credit card holders and merchants. The guides can be found here and here.
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This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.