Financial Sector Ombudsmen

The Interim Report of the national Review of the financial system external dispute resolution and complaints framework features the following comments, accompanied by the Government resiling from past statements about a tribunal.

One cannot, it seems, have too many industry ombudsmen equipped with lettuce leaves.

A single industry ombudsman scheme for financial, credit and investment disputes (other than superannuation disputes)

The Panel recommends that there be a single industry ombudsman scheme to deal with all financial, credit and investment disputes (apart from superannuation disputes) to replace FOS and CIO .

The Panel considers that a shift to a single industry ombudsman scheme for these disputes would incorporate all the strengths of the existing industry ombudsman model — such as the focus on providing low cost, fair and accessible dispute resolution, the ability to innovate and adapt to changes in the regulatory and broader socio-economic environment, and the focus on improving industry behaviour — while addressing the problems that arise where the framework consists of multiple schemes with overlapping jurisdictions.

An assessment of this draft recommendation against the Review principles is presented below.

New industry ombudsman scheme for financial, credit and investment disputes

Efficiency ↑ economies of scale expected, as w ell as the capacity to reallocate resources as priority areas shift; opportunity to enhance coverage across the framework; and review scheme’s powers and remedies. Removes jurisdictional overlap .

Equity ↑ equity as creating a new scheme provides an opportunity to strengthen accountability and improve fairness for users .

Complexity ↓ consumer confusion and complexity .

Transparency ↑ transparency is possible as a shift to a single scheme removes competition between financial firms on price, and so removes any incentives by the scheme not to be financially transparent.

Accountability ↑ accountability as creating a new scheme provides an opportunity to enhance accountability mechanisms and regulatory oversight

Comparability of outcomes ↑ comparability of outcomes due to greater consistency in processes and procedures .

Regulatory costs ↓ costs for ASIC and industry: duplicative costs would reduce with the move to a single scheme.

In relation to key features such as the scheme’s jurisdiction, governance arrangements and monetary limits and compensation caps, the Panel considers that:

• the jurisdiction of the new scheme should be at least as broad as FOS’s existing jurisdiction , which is the broader of the two existing schemes ; 

• governance arrangements should recognise the importance of ensuring that the scheme is, and is perceived to be, independent of its members, and is sufficiently resourced and has appropriate processes to render high - quality and timely decisions; and 

• monetary limits and compensation caps should be higher than the current monetary limits and compensation caps of FOS and CIO.

A new industry ombudsman scheme for superannuation disputes

The Panel considers that the existing problems with SCT cannot be addressed within the existing tribunal structure, even with substantial reforms to funding, governance, appointment processes or other aspects of the legislative regime, as the rigidity of the statutory model would continue to hamper flexibility and innovation, making it difficult for SCT to respond to unanticipated future challenges. Recognising that the core purpose of the Review is to make recommendations to ensure that the EDR system can deliver effective outcomes in a rapidly changing and dynamic financial system, the Panel recommends that SCT be transitioned to a new industry ombudsman scheme for superannuation disputes.

In transition ing to a superannuation industry ombudsman scheme , the Panel intends to retain the existing strengths of SCT, such as:

• unlimited monetary jurisdiction; and 

• a broad jurisdiction to review decisions of trustees of superannuation funds .

However, the new structure would also incorporate the strengths of industry ombudsman schemes such as:

•   decision making centred on providing ‘fairness in all the circumstances’; 

• flexibility to innovate; 

• a flexible and responsive funding model ; 

• a board , with an independent chair and equal number of directors with industry and consumer backgrounds , to oversee the scheme ; 

• the a bility to make timely and appropriate staffing decisions; 

• systemic issues work to improve industry practice; 

• regular independent reviews of the scheme ; and 

• strong stakeholder engagement to increase accessibility .

The following table assesses the draft recommendation for a new superannuation industry ombudsman scheme against the Review principles.

New industry ombudsman scheme for superannuation disputes

Efficiency ↑ efficiency and more timely decision making due to more flexible and responsive funding, enhanced governance, faster and more flexible recruitment , flexibility to develop new procedures and tailor processes to disputes and respond to changes in the external environment .

Equity ↑ equity, with reduced delays, greater flexibility to define ‘fairness’ and to provide for a range of remedies, including for non - financial loss.

Complexity ↓ complexity, with a focus on developing informal dispute resolution processes and an easy - to - navigate system.

Transparency ↑ transparency of funding and operations, with a focus on stakeholder engagement .

Accountability ↑ accountability, with ASIC oversight and periodic independent reviews .

Comparability of outcomes ↑ comparability of outcomes ; eg. as independent reviews provide additional scrutiny of procedures and processes.

Regulatory costs ↑ potential direct regulatory costs (increased industry funding, regulator costs from overseeing scheme , offset by some decreased costs in m aintaining legislation, making appointments). A user pays (industry funded) model may reduce cost as there would be an incentive for funds to reduce complaints to EDR.

Future directions: a single industry ombudsman scheme for all disputes in the financial system

The Panel considered the merits of moving immediately to a single dispute resolution body to handle all dispute s in the financial system , including superannuation disputes . On balance, the Panel’s view is that it is preferable to initially introduce an ombudsman model in superannuation through a separate scheme focused exclusively on superannuation disputes. This approach is more likely to facilitate strong stakeholder engagement in the development and implementation of the scheme, which has been a critical foundation for industry ombudsman schemes in other parts of the financial system and in other industries .

The new industry ombudsman scheme for superannuation disputes should be encouraged to work closely with the new scheme for financial, credit and investment disputes, to share knowledge and resources (such as back - office functions) and realise efficiencies where possible .

Once the two new schemes are fully operational and have garnered consumer and industry support, consideration should be given to further integrating the schemes to create a single ombudsman scheme for all financial system disputes. The Panel notes that integration of this kind would be consistent with the evolution and adaptation that has been a hallmark of t he existing EDR framework, with the current ombudsman schemes the products of amalgamations and consolidations.

The Panel is confident that its draft recommendations — which should be considered as an integrated package of reforms — will address shortcomings in the current EDR framework and ensure that the framework is well - placed to address current problems and withstand future challenges.

Other matters: whether an additional statutory dispute resolution body is needed

In its Issues Paper, the Panel sought stakeholder views on the establishment of an additional statutory dispute resolution body in the financial system. The majority of submissions did not support this proposal. For the reasons outlined in Chapter 6, the Panel is of the view that an additional statutory dispute resolution body is not required.

Report of the House of Representatives Standing Committee on Economics — Review of the Four Major Banks

On 24 November 2016 , the House of Representatives Standing Committee on Economics released its Review of the Four Major Banks: First Report . One the Committee’s recommendations is:

... that the Government amend or introduce legislation, if required, to establish a Banking and Financial Sector Tribunal by 1 July 2017. T his Tribunal should replace the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. The Government should also, if necessary, amend relevant legislation and the planned industry funding model for the Australian Securities and Investments Commission, to ensure that the costs of operating the Tribunal are borne by the financial sector.

The Panel observes that many of the Committee’s recommended features for this body are consistent with the Panel’s draft findings and recommendations including:

• free access for consumers; 

• decisions to be binding on members of the body; 

• the body to be funded directly by the financial services industry; and 

• the body to have a board that is comprised of equal numbers of consumer and industry representatives.

The Panel also observes that the Committee has recommended the Government establish the body by legislation if required indicating it is not necessarily the case the body would be established by legislation or that it would operate within a legislative framework. This would only occur if it is required.

A difference between the recommendation of the Committee and the draft recommendations of the Panel is that the Committee recommends the establishment of a Tribunal to replace FOS, CIO and SCT. In this Interim Report, the Panel makes draft recommendations for the establishment of a single industry ombudsman scheme for financial, credit and investment disputes and an industry ombudsman scheme for superannuation disputes. In Chapters 2, 4 and 5 of this Interim Report the Panel identifies what it sees as the advantages that ombudsman schemes have when compared to tribunals, such as SCT, when dealing with disputes relating to financial products and services.

The recommendations of the Committee are a matter for the Government. However, the Panel will give further consideration to the Committee’s recommendations in its Final Report.

Increased accountability and transparency

Recognising the importance of ensuring that the new ombudsman scheme for financial, credit and investment disputes and the new ombudsman scheme for superannuation disputes are, and are perceived to be, independent of financial firms and consumers, and are sufficiently resourced to provide robust, timely and quality decision making, the Panel considers there is a case for enhancing some existing accountability mechanisms. Both new schemes, in order to fulfil their mandate of providing effective EDR, must meet the standards set by ASIC and be accountable to their users. At a minimum, the Panel recommends that ASIC’s regulatory guidance requires schemes to:

• be adequately funded (for example, in order to be able to respond to unforeseen spikes in dispute volumes); 

• have sufficient coverage (including fit - for - purpose monetary limits in the case of the new scheme for financial, credit and investment disputes); 

• be subject to more frequent, periodic independent reviews (the Panel is of the view that given the importance of independent reviews, they should occur more frequently than every five years, which is currently the case for FOS and CIO. The Panel notes that independent reviews of ombudsman - type schemes in the financial services sector in the United Kingdom and Singapore occur every three years — see Chapter 2 and Appendix 1 ) ; and 

• be responsive to findings of independent reviews, including by providing detailed updates on implementation of actions taken in response to an independent review and a detailed explanation when a recommendation of an independent review is not accepted by the scheme.

Additionally, the Panel recommends that each scheme establish an independent assessor whose role would be to investigate complaints by users (consumers, small business and financial firms) into the handling of a dispute by the schemes. The independent assessor’s role would not involve reviewing the findings or outcomes of the relevant decision (that is, they would not be an avenue of appeal). The assessor would make a recommendation in relation to the service handling of the dispute which, where the dispute was not handled satisfactorily, may include that the scheme make an apology or provide compensation to the affected user. The independent assessor would report directly to the Board.

The Panel also recommends bolstering ASIC’s capacity to oversee the new industry ombudsman schemes by providing ASIC with more specific powers to allow it to give directions to schemes, as appropriate, to comply with the EDR benchmarks.

Internal dispute resolution

Recognising that sound EDR is supported by sound IDR, the Panel also recommends that financial firms be required to undertake enhanced public reporting of their IDR activity and the outcomes consumers receive in relation to IDR complaints. ASIC should be provided with power to determine the content and format of IDR reporting. Additionally, the industry ombudsman schemes should be required to register and track the progress of disputes referred back to a financial firm’s IDR processes.

Enhanced small business access to redress

It is clear that there are strong and compelling reasons for further steps to be taken in relation to the resolution of disputes for small business. The Panel considers that coverage of the framework should be expanded by improving access to dispute resolution for small business, to increase efficiency and equity. This is best achieved by ensuring the monetary limits of the new scheme for financial, credit and investment disputes are higher than the monetary limits of the existing industry schemes (FOS and CIO).

Better handling of complex disputes through panels

Recognising the potential for increased complexity of disputes, particularly given the increased monetary jurisdiction of the new industry scheme for financial, credit and investment disputes (relative to the status quo), the Panel recommends that both new industry schemes consider the use of panels (which consist of an industry representative, consumer representative and a scheme ombudsman) as a means of enhancing the quality and robustness of decisions.

While recognising the costs associated with decision making by panels (including additional time to resolve the dispute), the Panel notes the benefits of utilising industry and consumer expertise and of getting ‘buy - in’ from consumer and industry stakeholders. Schemes should also ensure they are transparent to users about the circumstances where a panel will be used.

Compensation scheme of last resort

An efficient, resilient and fair financial system that facilitates economic growth and meets the financial needs of its users is dependent on the trust and confidence of those users.  However, it is clear that many Australians currently lack confidence in the financial system and this is due, at least in part, to the issue of uncompensated consumer losses.

Where consumers are denied compensation due to a financial firm’s lack of resources, it has a negative impact on both the individual consumer and the broader financial system. In circumstances where the market is currently unable to provide a solution to this problem, the Panel is of the view that there is considerable merit in introducing an industry - funded compensation scheme of last resort.

The Panel is aware that to help achieve broad consensus about the structure and operation of a compensation scheme of last resort, the Australian Bankers’ Association and FOS are working with key stakeholders to identify any issues that would impede implementation of such a scheme.  The Panel will consider the outcomes of this work in the context of its Final Report.

Implementation considerations

Noting these draft recommendations represent a significant shift from the current system, the Panel is calling for further submissions on the broad approach, the draft recommendations, and implementation and transitional issues. The Panel supports a staged process f or implementation, recognising that such an approach may better manage transitional issues. 1

The Panel's draft recommendations are -

Draft recommendation 1 A new industry ombudsman scheme for financial, credit and investment disputes

There should be a single industry ombudsman scheme for financial, credit and investment disputes (other than superannuation disputes) to replace FOS and CIO.

Draft recommendation 2 Consumer monetary limits and compensation caps

The new industry ombudsman scheme for financial, credit and investment disputes should provide consumers with monetary limits and compensation caps that are higher than the current arrangements, and that are subject to regular indexation.

Draft recommendation 3 Small business monetary limits and compensation caps

The new industry ombudsman scheme for financial, credit and investment disputes should provide small business with monetary limits and compensation caps that are higher than the current arrangements, and that are subject to regular indexation.

Draft recommendation 4 A new industry ombudsman scheme for superannuation disputes

SCT should transition into an industry ombudsman scheme for superannuation disputes.

Draft recommendation 5 A superannuation code of practice

The superannuation industry should develop a superannuation code of practice.

Draft recommendation 6 Ensuring schemes are accountable to their users

Both new schemes should be required to meet the standards developed and set by ASIC. At a minimum, ASIC’s regulatory guidance should require the schemes to:

• ensure they have sufficient funding and flexible processes to allow them to deal with unforeseen events in the system, such as an increase in complaints following a financial crisis or natural disaster;

• provide an appropriate level of financial transparency to ensure they remain accountable to users and the wider public; 

• be subject to more frequent, periodic independent reviews and provide detailed responses in relation to recommendations of independent reviews, including updates on the implementation of actions taken in response to the reviews and a detailed explanation when a recommendation of an independent review is not accepted by the scheme; and 

• establish an independent assessor to review the handling of complaints by the scheme but not to review the outcome of individual disputes.

In addition, ASIC’s regulatory guidance should require the new scheme for financial, credit and investment disputes to regularly review and update its monetary limits and compensation caps so that they remain relevant and fit - for - purpose over time.

Draft recommendation 7 Increased ASIC oversight of industry ombudsman schemes

ASIC’s oversight powers in relation to industry ombudsman schemes should be enhanced by providing ASIC with more specific powers to allow it to compel performance where the schemes do not comply with EDR benchmarks.

Draft recommendation 8 Use of panels

The new industry ombudsman schemes should consider the use of panels for resolving complex disputes. Users should be provided with enhanced information regarding under what circumstances the schemes will use a panel to resolve a dispute.

Draft recommendation 9 Internal dispute resolution

Financial firms should be required to publish information and report to ASIC on their IDR activity and the outcomes consumers receive in relation to IDR complaints. ASIC should have the power to determine the content and format of IDR reporting.

Draft recommendation 10 Schemes to monitor IDR

Schemes should register and track the progress of c omplaints referred back to IDR.

Draft recommendation 11 Debt management firms

Debt management firms should be required to be a member of an industry ombudsman scheme . One mechanism to ensure access to EDR is a requirement for debt management firms to be licensed.

The Interim Report observes that 

The Panel is of the view that there is considerable merit in introducing an industry - funded compensation scheme of last resort

Personhood and Automation

'From Deep Blue to Deep Learning: A Quarter Century of Progress for Artificial Minds' by Dina Moussa and Garrett Windle in (2016) The Georgetown Law Technology Review comments

 In a future that is nearly upon us, machines outthink human beings. In many specialized domains, machines already do; beyond the nearly instantaneous math and text processing that has become mundane, computer systems have overtaken humans in tasks as complex as image and facial recognition, learning to play simple video games, and guessing where the nearest McDonald’s might be. Artificial intelligence (“AI”) systems have already entered the workforce, replacing grocery store cashiers, bank tellers, and, soon, taxi drivers. If the age of sentient machines is upon us, how must our law adapt?

Exploring the issue in 1992, Professor Lawrence Solum published 'Legal Personhood for Artificial Intelligences', in which he laid out two thought experiments. In the first, Solum imagines what the law might require before an AI agent could be allowed to serve as an independent trustee. In the second thought experiment, Solum evaluates such an AI’s claim to rights under the Constitution.

In this essay, we examine Solum’s theory and predictions in light of the intervening developments in technology and scholarship. We will first survey important technological developments in AI research, focusing on the deep learning algorithms that challenge previous assumptions about the pace and scope of the changes to come. We will then proceed to apply Solum’s dual thought experiments to these new technologies. Solum introduced the insight that for an AI system, we might separate the concepts of legal duties and legal rights. Applying a contemporary understanding of the facts and theory, we reimagine whether and how an AI system might shoulder legal duties such as trusteeship, and when such a system might have a colorable claim of constitutional rights. Finally, we synthesize these findings into an updated theory, in keeping with the framework that Solum first offered in 1992.

'Can Robots Be Lawyers? Computers, Lawyers, and the Practice of Law' by Dana Remus and Frank S. Levy comments

We assess frequently-advanced arguments that automation will soon replace much of the work currently performed by lawyers. Our assessment addresses three core weaknesses in the existing literature: (i) a failure to engage with technical details to appreciate the capacities and limits of existing and emerging software; (ii) an absence of data on how lawyers divide their time among various tasks, only some of which can be automated; and (iii) inadequate consideration of whether algorithmic performance of a task conforms to the values, ideals and challenges of the legal profession.

Combining a detailed technical analysis with a unique data set on time allocation in large law firms, we estimate that automation has an impact on the demand for lawyers’ time that while measureable, is far less significant than popular accounts suggest. We then argue that the existing literature’s narrow focus on employment effects should be broadened to include the many ways in which computers are changing (as opposed to replacing) the work of lawyers. We show that the relevant evaluative and normative inquiries must begin with the ways in which computers perform various lawyering tasks differently than humans. These differences inform the desirability of automating various aspects of legal practice, while also shedding light on the core values of legal professionalism.

Speech

The Parliamentary Joint Committee on Human Rights has been asked to report by 28 February 2017 on the following matters:

1. Whether the operation of Part IIA of the Racial Discrimination Act 1975 (Cth) imposes unreasonable restrictions upon freedom of speech, and in particular whether, and if so how, ss. 18C and 18D should be reformed.

2. Whether the handling of complaints made to the Australian Human Rights Commission (“the Commission”) under the Australian Human Rights Commission Act 1986 (Cth) should be reformed, in particular, in relation to:

a. the appropriate treatment of: i. trivial or vexatious complaints; and ii. complaints which have no reasonable prospect of ultimate success;

b. ensuring that persons who are the subject of such complaints are afforded natural justice;

c. ensuring that such complaints are dealt with in an open and transparent manner;

d. ensuring that such complaints are dealt with without unreasonable delay;

e. ensuring that such complaints are dealt with fairly and without unreasonable cost being incurred either by the Commission or by persons who are the subject of such complaints;

f. the relationship between the Commission’s complaint handling processes and applications to the Court arising from the same facts.

3. Whether the practice of soliciting complaints to the Commission (whether by officers of the Commission or by third parties) has had an adverse impact upon freedom of speech or constituted an abuse of the powers and functions of the Commission, and whether any such practice should be prohibited or limited.

4. Whether the operation of the Commission should be otherwise reformed in order better to protect freedom of speech and, if so, what those reforms should be.

The Committee is asked, in particular, to consider the recommendations of the Australian Law Reform Commission in its Final Report on Traditional Rights and Freedoms – Encroachments by Commonwealth Laws [ALRC Report 129 – December 2015], in particular Chapter 4 – “Freedom of Speech”.

In this reference, “freedom of speech” includes, but is not limited to, freedom of public discussion, freedom of conscience, academic freedom, artistic freedom, freedom of religious worship and freedom of the press.

The Attorney-General comments

Among other things, the Committee will examine whether the existing processes of the Commission are sufficient to ensure that trivial or vexatious complaints to the Commission, and complaints which have no reasonable prospects of success, are identified and dismissed at an early stage. It will also examine ways to ensure that complaints are dealt with in an open and transparent way, without unreasonable delay, and in a manner which ensures those subject to complaints are afforded natural justice.

The review of provisions of Part IIA of the Racial Discrimination Act was recommended by the Australian Law Reform Commission in its Report on Traditional Rights and Freedoms – Encroachments by Commonwealth Laws, released earlier this year. The review of the Commission’s complaints-handling procedure was invited by the Commission itself.

It is important that Australia strikes the right balance between laws which protect social harmony and mutual respect, and the fundamental democratic value of freedom of speech. The purpose of the inquiry is to ensure that we have that balance right. Equally, it is important that the machinery for human rights protection in Australia operates in such a way as to ensure procedural fairness, and that it cannot be used as a vehicle for vexatious complaints

Incarceration

The national Government has released the draft Terms of Reference for the Australian Law Reform Commission inquiry into the incarceration rate of Indigenous Australians .

The Attorney-General of Australia states

 In referring to the ALRC an inquiry on laws and legal frameworks, it is acknowledged that these are an important, but not the only, factor that contributes to the rate of Indigenous incarceration.

It is also acknowledged that, while the rate of imprisonment of Indigenous Australians significantly exceeds the rate of imprisonment of non-Indigenous Australians and while Indigenous Australians experience contact with the criminal justice system – as both offenders and as victims – at much higher rates than non-Indigenous Australians, the majority of Indigenous Australians never commit criminal offences.

The draft continues

Scope of the reference

In developing its recommendations, the ALRC should have regard to laws and legal frameworks that contribute to the incarceration rate of Indigenous Australians, including:

• laws and legal frameworks that inform decisions to hold or keep Indigenous Australians in custody, including decisions in relation to:

o cautioning

o protective custody

o arrest

o remand and bail

o diversion

o sentencing, including mandatory sentencing

o parole, parole conditions and community reintegration

• factors within laws and legal frameworks that affect decisions to hold or keep Indigenous Australians in custody, including:

o consideration of community safety

o the nature of the offences resulting in incarceration

o availability of alternatives to incarceration

o degree of discretion available to decision-makers

o consideration of incarceration as a last resort

o consideration of incarceration as a deterrent and as a punishment

• whether certain laws and legal frameworks, for example laws that regulate the availability of alcohol, contribute to the rate of Indigenous offending and incarceration

• legal institutions and law enforcement, including police, courts (including courts specialising in dealing with Indigenous offenders), legal assistance services and prisons

• differences in the application of laws in different local contexts.

In conducting its inquiry, the ALRC should have regard to existing data and research that demonstrates:

• best practice laws and legal frameworks both in Australia and internationally that reduce the rate of Indigenous incarceration

• the effects of laws and legal frameworks on the rate of Indigenous incarceration, including:

o the paths of Indigenous Australians through the criminal justice system, including most frequent offences, relative rates of bail and diversion and progression from juvenile to adult offending

o the availability of alternatives to custody in reducing Indigenous incarceration and/or Indigenous offending, including rehabilitation, therapeutic alternatives and community reintegration supports

o the availability of and access to legal assistance and Indigenous language and sign interpreters

• the experiences of the legal system and incarceration and its impacts for Indigenous Australians, including in relation to employment, housing, health, education and families

• the broader contextual factors contributing to Indigenous incarceration and any laws and legal frameworks with regard to these, including:

o the characteristics of the Indigenous prison population

o the relationships between Indigenous offending and incarceration and alcohol and drug use, trauma including inter-generational trauma, loss of culture, poverty, discrimination, experience of violence, child abuse and neglect, educational access and performance, availability of disability supports, housing circumstances and employment

o availability and effectiveness of programs that intend to reduce Indigenous offending and incarceration.

In undertaking this reference, the ALRC should identify and consider other reports, inquiries and action plans that relate to this issue, including:

• the Royal Commission into Aboriginal Deaths in Custody

• the Royal Commission into the Protection and Detention of Children in the Northern Territory (due to report 31 March 2017)

• Senate Standing Committee on Finance and Public Administration’s inquiry into Aboriginal and Torres Strait Islander experience of law enforcement and justice services

• Senate Standing Committee on Community Affairs’ inquiry into Indefinite detention of people with cognitive and psychiatric impairment in Australia

• Senate Standing Committee on Indigenous Affairs inquiry into Harmful use of alcohol in Aboriginal and Torres Strait Islander communities

• reports of the Aboriginal and Torres Strait Islander Social Justice Commissioner

• the ALRC’s inquiries into Family violence and Family violence and Commonwealth laws

• the National Plan to Reduce Violence against Women and their Children 2010-2022.

 In conducting its inquiry the ALRC should also have regard to relevant international human rights standards and instruments. The ALRC should also consider the gaps in available data on Indigenous incarceration and consider recommendations with regard to laws and legal frameworks that might improve data collection.

Consultation

In undertaking this inquiry, the ALRC should identify and consult with relevant stakeholders including Aboriginal and Torres Strait Islander persons and their representative organisations, state and territory governments, relevant policy and research organisations, law enforcement agencies, Indigenous legal assistance service providers and the broader legal profession, community service providers and the Australian Human Rights Commission.

Timeframe

The ALRC should provide its report to the Attorney-General by 15 December 2017.

NZ Trusts Reform

The New Zealand Government has released A new Trusts Act for New Zealand: Exposure draft of the Trusts Bill as the basis of consultation that is expected to result in new legislation in 2017.

The Trusts Bill reflects the Law Commission’s 2013 report Review of the Law of Trusts: A Trusts Act for New Zealand, accepted by the Government in March 2014 with adoption of 48 of the Commission’s 51 recommendations.

The consultation document states

 Part 1 – preliminary provisions

Part 1 of the Bill sets out preliminary matters such as the purpose and scope of the Bill and definition s of terms used in the Bill . The purpose provision in cl 3 is a key aid to interpretation for the courts. It ’s intended to reflect the overall policy objectives of the trust law reforms and reflect the relationship between the Bill and the existing body of trust common law and equity . The Bill isn’t intended to be an exhaustive code but rather a statement of key principles and administrative rules for trusts to enhance accessibility. The Bill isn’t intended to completely displace the common law or equitable rules on trusts . Clause 3(3) reflects the policy intent that common law and equity will continue to apply unless it’s inconsistent with the provisions of the Bill . Common law and equity will continue to provide context when interpreting the Bill (unless to do so would be clearly inconsistent with the Bill ).

Part 2 – express trusts

Part 2 sets out the core principles governing express trusts covered by the Bill such as the characteristics of an express trust and how they must be created. An express trust under the Act must satisfy the characteristics under cl 9 and be created in accordance with cl 10. Clause 9 provides that a trust under the Act: • must have the fundamental characteristics specified in cl 9(1), or • if it does not have the fundamental characteristics, but does have characteristics recognised at common law as constituting a trust, the Court may determine that the trust has the characteristics for the purposes of the Act (cl 9(2)). Clause 10 sets out how a trust may be created under the Act. It reflects the well-accepted requirements for the creation of a trust – the 3 certainties articulated in Lord Langdale’s judgment in Knight v Knight (1840) 3 Beav 148; (1840) 49 ER 58. These are that the settlor: • indicates an intention to create a trust • identifies the beneficiaries or the permitted purpose, and • identifies the trust property. The 3 certainties are essential components of an express trust and should remain as a requirement in the statutory test. These provisions aren’t intended to exclude common law rules that provide that an express trust may be invalid for other reasons. The intent is that cl 3(3) preserves the common law in this regard without express reference. Trusts created by any means will be covered by the Bill when they meet the criteria in these key provisions. It is intended that the Bill will apply to trusts created through a will or upon intestacy under the Administration Act 1969.

Part 3 – trustees’ duties and information obligations

Subpart 1 – duties of trustee

Subpart 1 of Part 3 contains the mandatory and default duties of a trustee. This gives effect to R2, R3, R13, R14(2) of the Commission’s report. The intention is to improve the clarity and accessibility of a trustee’s duties by summarising and restating the current law while leaving room for the interpretation of these duties by the courts. Mandatory duties As outlined in cl 14, the mandatory duties must be performed and can’t be modified or excluded by the terms of the trust deed. Common law will continue to inform the content and application of those duties ( cl 3(3)). However, while the terms of the trust can’t exclude a mandatory duty, the trust deed can influence how the duty to hold or deal with trust property for the benefit of the beneficiaries or permitted purpose is applied (cl 14 (2)).

Default duties

The default duties are the key common law trustee duties, which can be modified or excluded, expressly or implicitly, by the terms of a trust. An exclusion or modification of a default duty must be consistent with the mandatory duties. Clause 15 (3) clarifies that excluding one of the specified default duties is not inconsistent with the mandatory duties. Again, the common law will continue to inform the content and application of the duties ( cl 3(3) ) . Clause 15 (4) adds to what was proposed by the Commission – it requires paid trust advisers to disclose and explain the exclusion or modification of any default duty. A failure to do so won’t invalidate the terms of the trust (cl 15 (5)), but may give rise to a claim against the adviser in tort or under the advisors’ rules of professional conduct. Standard of care The Commission’s report recommended inserting a standard of care: that when exercising a power of administration, a trustee must exercise such care and skill as is ‘reasonable in the circumstances’, taking account of any special knowledge or experience that the trustee has (R13). This is already part of the common law and can be excluded by the terms of a trust. In giving effect to this recommendation, the Bill frames the standard of care as a general default duty of care, which may be excluded by the terms of the trust deed (cl 22). A separate provision deals with the standard of care that applies to investment and is taken from existing section 13B of the Act (cl 23, giving effect to R1 4 (2)). A trustee must exercise the care and skill that a prudent person of business would exercise in managing the affairs of others. In both cases, a higher standard of care is likely to arise if a person has special knowledge or experience (cls 22(b) and 23 (b)).

Subpart 2 – exemption and indemnity clauses

Clauses 33 – 36 give effect to R4 of the Commission’s report and set out rules relating to the extent to which trustees can limit or exclude their liability. Two key features of these provisions are : • the terms of a trust can’t exclude a trustee from being liable, or indemnify a trustee, for a breach arising from dishonesty, wilful misconduct or gross negligence (cl s 33 and 34 ) , and • paid advisors must explain the effect of any exclusion or indemnification (cl 3 6 ). 9.

Subpart 3 – trustee’s obligations to keep and give trust information

Documents to be kept by trustee Clauses 37 – 40 set out basic requirements on trustees to keep specified documents, reflecting R5 of the Commission’s report. The p rovisions are drafted in a way that doesn’t require the information to be provided in a particular medium, so trustee s can retain the information in elect ronic form if they wish. Clause 3 7 sets out a list of documents of such significance to all trusts that they must always be kept. Trustees may choose to keep other documents as well. These provisions can’t be excluded or modified by the terms of a trust, although the terms of the trust could require additional information to be kept. Giving information to beneficiaries Clauses 41 – 47 give effect to R6 of the Commission’s report. The Commission intended the general principle in Schmidt v Rosewood Trust [2003] UK PC 26; [2003] 2 AC 709 be codified and clarified to make trustee’s information disclosure obligations clearer. The overall effect is that a trustee must proactively disclose some trust information, so that at least one beneficiary must know about the trust, to enable the trust to be enforced . Clauses 41 – 47 , therefore , replace existing common law rules, preserving the Court’s supervisory role in necessary cases (cl 4 7 ). These provisions can’t be overridden by the terms of a trust, but the terms can influence the decision about giving information to beneficiaries (cl 45 (2)(c)).

Part 4 – trustees’ powers and indemnities

Subpart 1 – powers of trustee

General powers

Subpart 1 of Part 4 sets out the powers of a trustee and is based on R7, R8, R10 – 12, R14 – 17 , R 27 and R28 of the Commission’s report. In line with the Commission’s recommended approach, cl 48 of the Bill confirms that trustees have legal capacity to deal with trust property, and all the powers necessary to carry out the trust. The trustee’s powers under this clause can be limited. The existence and extent of the powers are informed by the terms of the trust as well as by the applicable mandatory and default duties. The terms of the trust may: • specify particular powers , or • specifically, or by implication, exclude other powers.

Specific default powers set out in the Bill

The remainder of subpart 1 in Part 4 of the Bill provides specific default powers, in line with the Commission’s recommendations. It is necessary to provide these powers in statute, despite the breadth of cl 4 8 , because there may be some doubt about their existence if not included in the Bill (for example, the mandatory duties might be seen as precluding the ability for other persons to exercise trustee powers). The powers in these provisions are default so will be read into each trust, but can be modified or excluded expressly or by implication by the terms of the trust. The Bill specifically includes: • powers regarding investment (cls 51 – 5 5 ) • powers regarding the application of trust property for maintenance, education, and advancement (cls 56 – 63) • a power to appoint others to act in relation to the trust (cls 64 – 65) • a power to delegate the trustee’s powers if a person is temporarily unable to perform the role of a trustee for one of a number of specified reasons ( for example, temporary mental incapacity) (cls 66 – 69 ) • a power to appoint a special trust advisor (cls 70 – 72) • a power to distribute trust property without regard to claims of which the trustee doesn’t have notice (cl 75).

Exercise of trustee powers and functions by others

Clauses 64 and 65 reflect R10, R11, R17 and R27 of the Commission’s report, relating to the appointment of agents, nominees and custodians, and investment managers, but in a simplified form. This clarifies the obligations of a trustee and removes any overlap if the different types of 13 appointment are dealt with separately. These provisions are all exceptions to the general principle that a trustee must act personally. Under cls 64 and 65 the ability to appoint others to act in relation to the trusts is default (the terms of a trust can exclude or modify the power), but it’s mandatory for a trustee who does exercise this ability to keep the arrangement under review, and consider whether they need to intervene at any point. The general standard of care will always apply to that obligation. We consider that where a trustee is allowing another party to make trustee decisions or exercise a trustee function, the trustee must retain some oversight of that individual.

Subpart 2 – trustees’ indemnities

Clauses 76–79 replicate the well - understood principles relating to trustees’ liability for expenses, other liabilities, and their right to indemnity in respect of these matters, giving effect to R47 and R 48 of the Commission’s report. These provisions can’t be excluded or modified by the terms of the trust. Clauses 80 – 85 replicate specific provisions from the Act that deal with particular instances of trustee liability or indemnity.

Part 5 – appointment and discharge of trustees

Part 5 sets out the provisions related to the appointment and removal of trustees, and transfer of trust property to new trustees. These provisions are based on R18 – R 26 of the Commission’s report, as well as certain sections of the Act not considered by the Commission. The aim of the policy is to provide a clear and comprehensive statutory framework for appointing and removing trustees and transferring trust property. Part 5 updates and clarifies provisions from the Act, ensuring there’s clear guidance about when and how a trustee can be removed. The provisions incorporate aspects of the common law, such as the duties that apply to people exercising the power to appoint and remove trustees. Part 5 alters the current position in some areas to provide further clarity and to ensure the process is simple, flexible and doesn’t require recourse to the courts in non - contentious cases. For example, the provisions provide a mechanism for transferring registered trust property when the departing trustee doesn’t, or can’t, complete the transfer documentation, which doesn’t require recourse to the court. The Bill includes some minor departures from the Commission’s recommendations.

Clauses 96 and 97 allow the trustee who is being removed to apply to the court and object to the removal, which will ensure the power of removal is only used in appropriate cases. Clause s 102 – 106 don’t adopt the Commission’s re commendations in relation to supervision by the Public Trust over the removal and replacement of trustees in certain situations and over the transfer of registered trust property. This oversight would create extra work and costs for trustees without a clear benefit in risk reduction. The oversight of the courts will be retained in appropriate cases.

Clause 88(1) sets out the people who may remove a trustee – should this include the receiver of a company in receivership?

Part 6 – revocation and variation of trusts

The clauses in Part 6 of the Bill give effect to R29, 30 and 31 of the Commission’s report. Clauses 108 – 110 are intended to reflect and replace the rule in Saunders v Vautier (1841) Cr & Ph 240, (1841) 41 ER 482 (Ch) which provides that, if the beneficiaries of the trust are all adults with full legal competence and they’re in agreement, they can require the trustees to terminate or vary the trust. The provisions also replace sections 64 and 64A of the Act, as explained by the Commission. The provisions also provide for certain powers of the court in relation to revocation and variation. Under the Bill, the court can: • approve a revocation, variation, or resettlement under clauses 108 or 109 on behalf of a minor, incapacitated or unborn beneficiary (under the current law, the rule in Saunders v Vautier can’t be used in this situation) (cl 111) • waive the requirement for consent of beneficiaries (cl 112), and • vary or extend the powers of trustees in relation to property transactions in certain circumstances (cl 113).

Part 7 – court powers and dispute resolution

Part 7 of the Bill sets out certain powers of the court in relation to trusts, including jurisdiction of the Family Court and facilitating the use of alternative dispute r esolution. It implements R4(3), R14 (in part), R32 – R36, R41, R42 and R46 of the Commission’s report. Court powers aren’t intended to replace the High Court’s inherent supervisory jurisdiction, but set out certain specific powers of the court. For example, cls 114 and 115 set out a new procedure for the court to review a trustee’s act, omission or decision, on application of a beneficiary, replacing section 68 of the Act. Clauses 132–138 implement R 42 of the Commission’s report and aim to facilitate the use of alternative dispute resolution when there are disputes involving trusts .

Part 8 – miscellaneous provisions

Part 8 sets out a number of miscellaneous provisions including : • provisions relating to the transfer of certain trust property to the Crown (which implements R37 of the Commission’s report ) • provisions about the audit of accounts of trust property ( R44 of the Commission’s report ) • a provision giving a life tenant the powers of a trustee (re - enacting section 88 of the Act). Part 8 also has provisions about transitional matters (dealt with in schedule 1, see below), consequential amendments and repeals.

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Schedule 2 – wholesale investment trusts

Capital markets use trusts to structure the large scale raising of capital. Trusts are a key wholesale (that is, not public or retail) market mechanism banks and corporations use to borrow money and structure their debt. Wholesale investment trusts are structured in a way that is different to typical family trusts. For example, in wholesale finance trusts it is creditors or investors and not beneficiaries that are the main focus. Such trusts are used as part of highly negotiated transactions, involving participants with a high degree of knowledge about the nature of the arrangement. Schedule 2 of the draft Bill modifies how certain provisions of the Bill will apply to wholesale investment trusts. The modifications are intended to remove obligations that are not relevant to the context in which wholesale investment trusts operate. The definition of wholesale investment trust has been developed to align with the Financial Markets Conduct Act 2013. We’re aware that there may be other interface issues between the Bill and that Act. We will work to ensure that both Acts operate together in a way that minimises compliance costs for trusts governed by both pieces of legislation. In considering any modifications required, the objective has been to maintain coherent and principled trust law that applies to all trusts in New Zealand where possible, while allowing some modifications in its application to trusts used in wholesale investment where appropriate

Patents and Moral Rights

'Patent Purchases and Litigation Outcomes' by Mark A. Lemley, Erik Oliver, Kent Richardson, James Yoon and Michael Costa comments 

We test empirically whether purchased patents that are litigated fare better or worse than litigated patents that aren’t purchased. We identified every case filed in 2009 and 2010 that had a definitive winner and had information on the presence or absence of an assignment or other transfer. That left us with 516 decisions. Of those 516 decisions, the patentee won 125, or 24.2%. Of the patents, 280, or just over half, had been transferred before the litigation began.

We find that overall, patentees won 21% of the time with patents that had been sold before litigation began, and 28% of the time with patents they developed in-house. But combining all patent cases may obscure important differences between plaintiffs who buy patents and those who don’t. Dividing our study into entity types produces a surprising result. Operating companies fare better when they assert patents they developed in house. They won 33% of the time when asserting their own patents, but only 23% of the time when asserting purchased patents. By contrast, inventor-owned NPEs -- but not patent assertion entities -- do better with purchased patents. The results also differ by area of technology

'Moral Rights: Exploring the Myths, Meanings and Misunderstandings in Australian Copyright Law' by Francina Cantatore and Jane Johnston in (2016) 21(1) Deakin Law Review 71 comments

This article examines how moral rights are treated in Australian publishing contracts, and whether this approach is consistent with the expectations of authors, journalists and academics. Although, in theory, moral rights cannot be sold or assigned in Australia, the apparent wide scope for exceptions raises questions of whether there is any real protection afforded to creators under the Copyright Act 1968 (Cth), notably in circumstances that relate to pressure on creators to accept contractual terms in order to get published. Additionally, Australian case law reflects some uncertainty about the traditionally accepted non-economic nature of moral rights. The article examines recent case law in this field, found in Meskenas, Perez and Corby, and considers the literature associated with development of moral rights in Australia. It then presents the findings of a two-part study of moral rights in Australia; first through the results of interviews with 176 Australian authors, journalists and academics, followed by an analysis of 20 publishing contracts. It concludes that — in some, but not all, instances — a combination of the exceptions allowed under the Act and practical exigencies have diluted the unique character of authors’ moral rights and have created an environment of uncertainty.

Genuine Fakes

The Canberra Times reports closure of a fake US embassy in Ghana, that supposedly issued "illegally obtained authentic visas" for over a decade.

"It was not operated by the United States government, but by figures from both Ghanaian and Turkish organised crime rings and a Ghanaian attorney practising immigration and criminal law," the US State Department said in a statement released late on Friday.

Turkish citizens, who spoke English and Dutch, posed as consular officers and staffed the operation.

US Department of State Investigations also uncovered a fake Dutch embassy, the US State Department said. Officials in the Netherlands were not able to be reached for comment on Sunday.

The crime ring issued legitimate, but fraudulently obtained, US visas and false identification documents, including birth certificates at a cost of $US6000 each, the statement said.

"The investigation identified the main architects of the criminal operation, and two satellite locations (a dress shop and an apartment building) used for operations," the statement said.

During raids that led to a number of arrests, authorities also seized authentic and counterfeit Indian, South African and European Union visas and 150 passports from 10 countries along with a laptop and smart phones.

The statement did not say how the gang obtained the authentic visas.

And the State Department did not say how many people were believed to have entered the US and other countries illegally using visas issued by the crime ring, which used bribery to operate unhindered.

I recall the loss in 2003 of the Papua New Guinea passports database, a stock of blank passports and even the machine used to print passports, reported at that time by the ABC

Papua New Guinea's Foreign Minister says blank passports were clearly the target of a break-in at his department's headquarters.

The country's national passport database and backups were stolen in the weekend theft. Foreign Affairs Minister Sir Rabbie Namaliu says the break-in and theft at the department's migration section is an extremely serious matter.

An investigation is underway, however it is believed there are no signs of forced entry.

Computer systems containing the country's national passport database, back-up materials and blank passports were stolen in the raid.

Sir Rabbie says the theft does not appear to be random, and instead was clearly targeted at passports and sensitive data.

He says if the passports fall into the wrong hands, the consequences could be serious.

A subsequent ABC report stated

SHANE MCLEOD: Around PNG it's known as "the passport scam". Allegations of widespread corruption surrounding the issuing of passports and visas allowing illegal immigrants both into PNG, and to use PNG travel documents to reach other countries, triggered a government investigation into the immigration system.

The report was delivered to the outgoing Morauta Government more than a year ago, and after much delay and not a little public pressure, finally the details of the investigation have come to light.

The Foreign Affairs Minister, Sir Rabbie Namaliu.

RABBIE NAMALIU: The report confirmed that abuses of the Migration Act for personal gains was rampant and was totally uncontrolled by the Department of Foreign Affairs. Officers at all levels in the Department, from senior management to the lower rank and file of migration officers had been parties to the scandal.

It became clear that Papua New Guinea was being used by some foreign nationals and corporations involved in people smuggling schemes to gain access to the country both as destination for employment, as well as a transit point to gain entry to other destinations, particularly Australia, New Zealand, United States and Canada.

SHANE MCLEOD: But the events surrounding the passport scam have themselves been overtaken by recent developments.

Two weekends ago, a break-in at the Department's headquarters saw the nation's entire passport issuance and tracking computer system stolen. Computers, printers, blank passports and even back-up discs disappeared in a theft where it appears the criminals had the keys to the office.

In the interim, Australia has stepped in to help rescue the PNG passport system. But it appears from Sir Rabbie's parliamentary statement that help has been long overdue. For example, he says scores of passports have been issued to people who aren't PNG citizens, including one foreigner who is said to have three PNG passports.

RABBIE NAMALIU: Typically, the process involved middlemen being stationed in the country to facilitate the entry of aliens through Papua New Guinea to other destinations. The middlemen collaborated with the PNG migration officers prior to the entry of the foreigner, who would normally arrive with one-way tickets and cleared by the officers concerned at the Jacksons International Airport, and after paying appropriate "service fees", the foreigners were given pre-processed PNG passports for use in their onward journey.

SHANE MCLEOD: Sir Rabbie says action has been taken against a number of Immigration Department officials and foreigners allegedly involved in the scam, but while 12 officers were charged with offences under the Public Service Act, only eight eventually faced action, and of them, only six were retrenched.

Another two faced criminal charges, and while action is pending in one case, the other accused was acquitted at trial, which has a few people puzzling over the Prime Minister's recent attacks on the media, which reported a survey by the international corruption watchdog, Transparency International, ranking PNG among the worst countries internationally in terms of perceptions of corruption.

Sir Michael Somare says it's the media that's creating negative perceptions.

MICHAEL SOMARE: This corruption thing, Mr Speaker, goes everywhere in every country but Papua New Guinea seems to get the worse end all the time when papers, when the newspapers give us the publicity and I am concerned, I'm very concerned about our image that is being tarnished by our papers. I think they need to be more responsible. Factual reporting is what we need in this country, it's not sensational reporting.