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29 JULY 2013 

Welcome to 

Issue No. 22 of 

Corporate Reporter, 

Bell Gully's regular 

round-up of 

corporate and 

general commercial 

matters, designed to 

keep you informed 

on regulatory 

developments, 

legislation and 

cases of interest. 

IN BRIEF 

Items in this issue include: 

• Cabinet makes key decisions on the Financial Markets Conduct regulations; 

• Further amendments to the Consumer Law Reform Bill; 

• FMA highlights potential issues for KiwiSaver offer documents; 

• Australian franchise successfully protects its intellectual property rights in 

New Zealand; 

• Court holds that corporate trustees do not have a duty to vet the accuracy 

of prospectuses; 

• New Register of Securities Offers provisions in force; 

• MBIE consults on DIMS and custody regulations for the financial advisers 

regime; and 

• The latest media releases from the New Zealand Commerce Commission 

and the Australian Competition and Consumer Commission.

COMPANY AND COMMERCIAL LAW 

Regulatory developments 

Financial Reporting Bill passes second reading 

The Financial Reporting Bill has passed its second reading, with cross-party support for all of the Commerce 

Select Committee’s recommended amendments to the Bill. These included: 

• an exemption for "non-active" entities as provided for under the Financial Reporting Act 1993 (FRA); 

• simplification of the timing requirements for the preparation and registration of financial statements (by 

removing the intermediate deadline for preparation) to provide entities with more flexibility to allocate time 

between preparation, audit, and filing; 

• an increase in the time period given to prepare financial statements from within three months to within five 

months of balance date for entities that are not issuers (or other ‘FMC reporting entities’ – as classified under 

the Financial Markets Conduct Bill); 

• an exemption from audit requirements for "large" companies if the company is a wholly-owned subsidiary of a 

company that has complied with a requirement to lodge or register group financial statements with the 

Registrar of Companies; and 

• a requirement for limited partnerships that are not large to prepare audited financial statements for an 

accounting period if partners (who together must have contributed at least 5% of the capital contributions of 

all the partners) require the limited partnership to do so. 

The Bill is the latest stage in the review of New Zealand's financial reporting framework which commenced in 

2009 and will replace the FRA and amend a number of other statutes that contain financial reporting obligations 

for various entities. 

An overview of the key changes arising from the Bill is set out in our November 2012 client update: Submissions 

called on Financial Reporting Bill and further details on the select committee's recommendations are available in 

our May 2013 client update: Some welcome amendments proposed for the Financial Reporting Bill. 

Companies and Limited Partnerships Amendment Bill passes its second 

reading 

The Companies and Limited Partnerships Amendment Bill continues its slow progress through Parliament with 

the passing of its second reading on 2 July. The Commerce Select Committee’s recommendations have been 

accepted, as has the Supplementary Order Paper 249 (SOP) which made significant amendments to the 

criminalisation of breaches of certain directors’ duties provisions and introduced further amendments to both the 

Companies Act 1993 and the Limited Partnerships Act 2008 to assist New Zealand in meeting the Financial 

Action Task Force recommendations about the transparency of legal persons. Further details on the SOP are 

available in the previous issue of Corporate Reporter here. 

The Bill brings together three strands of government policy aimed at strengthening the rules applying to the 

governance, registration, and reconstruction of companies and the registration of limited partnerships. 

CORPORATE REPORTER – 29 July 2013 2

Accounting Infrastructure Reform Bill 

The Minister for Commerce, Craig Foss, has announced reforms to three areas of regulation regarding 

accounting and auditing services in New Zealand. These reforms are to be included in an Accounting 

Infrastructure Reform Bill which will be introduced to Parliament later in 2013. 

The reforms will: 

• enable the New Zealand Institute of Chartered Accountants to amalgamate with the Australian Institute of 

Chartered Accountants in the creation of a new trans-Tasman Institute, if their members vote to do so; 

• better allow competent auditors with the appropriate qualifications to offer audit services to New Zealand 

firms by altering restrictions on non-issuer audit work; 

• allow audit firms to incorporate as a company, if they decide it’s the most efficient business form for them. It 

will also allow overseas limited liability partnerships to perform some statutory audits in New Zealand. 

To view the Minister’s press release click here. 

Supervisors of new AML/CFT regime begin monitoring and enforcement 

role 

All three anti-money laundering and countering financing of terrorism (AML/CFT) supervisors, the Financial 

Markets Authority (FMA), the Reserve Bank of New Zealand (RBNZ) and the Department of Internal Affairs (DIA) 

have agreed a framework to guide the actions, strategies, tools and techniques that will be used by them to 

ensure reporting entities comply with the AML/CFT regime. 

Each supervisor is responsible for a certain section of the institutions that are subject to the AML/CFT Act 2009 

(reporting entities). RBNZ supervises banks, life insurers, and non-bank deposit takers. FMA supervises issuers 

of securities, trustee companies, futures dealers, collective investment schemes, brokers, and financial advisers. 

DIA supervises casinos, non-deposit taking lenders, money changers, and any other financial institutions not 

supervised by RBNZ or FMA. 

RBNZ has said that any reporting entities that have not made a genuine and reasonable attempt at compliance 

and are found to be in breach are likely to face formal enforcement action. It intends to use three tools to assess 

and ensure compliance with AML/CFT legislation: on-site inspections, desk-based reviews, and thematic surveys 

and questionnaires. Further details on RBNZ’s expectations are set out in a recent RBNZ presentation which is 

available here. 

FMA has also indicated that it will be taking an assertive approach to monitoring and enforcing compliance with 

the new regime. Details of its enforcement policies are set out in a guide it released in June: FMA’s supervision of 

Anti-Money Laundering and Countering Financing of Terrorism. 


In the courts 

Drawing on Australian businesses for inspiration may be too close for 

comfort 

A successful Australian drive-through coffee franchise trading as Muzz Buzz has obtained permanent injunctions 

against a New Zealand company which established two similar drive-through coffee outlets in Auckland under the 

label ‘Jitta Buzz’. See Muzz Buzz Franchising Pty Limited v JB Holdings (2010) Limited [2013] NZHC 1599. 

The Australian franchise claimed that the New Zealand company’s choice of brand name, building shape, colours, 

design, website, uniforms, Facebook page and other brand identifiers were a deliberate attempt to see how close 

they could go to the Muzz Buzz franchise without actually being an identical copy. In seeking injunctive relief, the 

franchise claimed that the New Zealand company had: 

• breached its copyright in the design elements of the Muzz Buzz kiosks and Muzz Buzz’s website; 

• breached its trade marks; 

• been passing off the plaintiff’s intellectual property in the design features of the business as the defendants’ 

own; and 

• engaged in misleading or deceptive conduct in breach of section 9 of the Fair Trading Act 1986. 

The New Zealand company rejected these claims, denying that they had appropriated the Muzz Buzz branding 

and emphasing that Muzz Buzz was not present in the New Zealand market when the first Jitta Buzz outlet was 

established in November 2010. 

Breach of copyright 

On the evidence, the court found no difficulty in concluding that the New Zealand company had decided to 

capitalise on the success of the Muzz Buzz brand in Australia by copying the essential elements of the brand “in 

the belief that being the first to brand drive-through coffee outlets in New Zealand in that manner entitled them to 

do so.” 

The court found that the comparable size and shape of the buildings did not establish a breach of copyright, but 

the similarities between the appearance of the Jitta Buzz kiosks and the wording, layout, colour scheme and 

placement of the elements of the Muzz Buzz “look and feel” displayed on the facades of its kiosks were sufficient 

to make out a breach of copyright. The same held for Jitta Buzz’s website which was also markedly similar in 

appearance and in some cases had identical text. 

Breach of registered trade marks 

Although, the Australian franchise had not set up its first outlet in New Zealand until 2012, it had registered 

various trade marks in New Zealand which included the words “Muzz Buzz” and combined image/text logo shortly 

after it had set up its business in Australia. The court found that the franchise was entitled to injunctive relief under 

the Trade Marks Act for the use of the words “Jitta Buzz” in respect of the facades of its kiosks and in other media 

such as the website. The words Jitta Buzz used in relation to the drive through retailing of coffee were likely to 

deceive or confuse customers about whether the service and products are identical or, at least, whether there is a 

link or association between the two businesses and their goods and services. 

Passing off 

The Australian franchise was also successful under the allegation based on the tort of passing off. This required 

the franchise to prove that there had been injury or likely injury to its business or its goodwill. Once again the court 

did not consider the fact that Jitta Buzz had been operating in Auckland for two years before Muzz Buzz entered 


the New Zealand market as in anyway assisting Jitta Buzz’s position. In Justice Toogood’s view “it can hardly be 

doubted that [in 2013] New Zealand and Australia, may for the purposes of enforcing intellectual property rights, 

be regarded as one market.” As such, the fact that Muzz Buzz had registered a trade mark in “Muzz Buzz” in New 

Zealand before the New Zealand company opened its first Jitta Buzz outlet and had a well-established reputation 

in Western Australia and elsewhere, including in New Zealand, through internet access was sufficient to establish 

the goodwill and reputation of Muzz Buzz in New Zealand. 

Breach of the Fair Trading Act 

Justice Toogood also found that the establishment of the New Zealand company’s business was in breach of 

section 9 (conduct in trade which is likely to mislead or deceive) of the Fair Trading Act given the similarity 

between the brands and the resulting likelihood for confusion. 

Injunctive relief 

The court has not stopped the New Zealand company from operating its drive-through coffee businesses but it 

has been prevented from operating them in breach of the Australian franchisee’s intellectual property rights. This 

includes a permanent injunction form using the words “Jitta Buzz” or any similar words and from displaying or 

using any text or images which are similar in appearance to the text images used by the Muzz Buzz franchise. 

Comment 

Although this is a particularly stark example of copying an overseas brand, the case does highlight a number of 

factors to be considered when establishing a business brand. Researching the local market to ensure that you will 

not be infringing another business’s intellectual property rights should be at the top of the list. In this instance, a 

search of the trade mark register would have disclosed that Muzz Buzz had possible intentions to enter the 

New Zealand market at some stage. Also, the court’s findings on goodwill and passing off regarding the 

integration of the Australian and New Zealand markets suggests that New Zealand businesses may need to 

extend their intellectual property search further afield. The decision also makes it more important for New Zealand 

businesses considering expansion into Australia to establish trade mark rights in Australia as early as possible. 

CAPITAL MARKETS 


Cabinet makes key decisions on Financial Markets Conduct regulations 

Last month the Ministry of Business, Innovation and Employment (MBIE) released a series of Cabinet papers 

which set out Cabinet’s policy decisions on a substantial body of the regulations required to implement the 

Financial Markets Conduct Bill (FMC Bill). 

Bell Gully has prepared a detailed outline of Cabinet’s key decisions on the Financial Markets Conduct 

Regulations, which is available here. 

Overview of Cabinet’s decisions for the proposed regulations 

Cabinet’s policy decisions focus on regulations required for: 

• the new disclosure regime: with particular regard to the direction of the content of product disclosure 

statements (PDSs) and a number of other disclosure-related issues, such as the appropriate level of 


disclosure for offers that operate under exclusions in the FMC Bill. Decisions have also been made on the 

new obligation to provide limited ongoing disclosure for equity and debt products when key events occur. 

(See Cabinet Paper 2); 

• financial product markets: most of the regulations with respect to financial product markets will be carried 

over from the current regime into the FMC regime with necessary modifications. Examples of these 

regulations include those made under the Securities Markets Act 1988 for regulating insider trading, market 

manipulation, continuous disclosure, substantial security holder disclosure, directors and officers disclosure 

and unsolicited offers. Some additional policy decisions have been made for wholesale markets, directors 

and officers disclosure, unsolicited offers and disclosures of equity derivative positions. (See Cabinet Paper 

2); 

• baseline governance standards: including defining “managed funds” as a distinct type of managed 

investment scheme to help differentiate disclosure and governance; setting clear rules applying to 

withdrawals for some superannuation schemes; determining a default set of meeting procedures and 

minimum notice and quorum requirements; determining supporting requirements, and exceptions, for related 

party transactions; and setting the detailed requirements for custodians and issuer registers and records. 

(See Cabinet Paper 3.); 

• licensing regimes: which includes general licensing criteria for licensees relating to insurance, reporting, 

client agreements and key personnel, and specific regulations relating to independent trustees of restricted 

schemes, discretionary investment management services (DIMS), derivative issuers, person-to-person 

lending services and crowd-funding. (See Cabinet Paper 4.); and 

• the application of the old and new legislation during the transitional period: regulations will apply the 

FMC Act and the core former legislation (i.e., the Securities Act 1978, Superannuation Schemes Act 1989, 

parts of the KiwiSaver Act 2006, and the Unit Trusts Act 1960) on the following basis during the transitional 

period: 

- the core former legislation will continue to apply to a security or scheme as if it was not amended or 

repealed by the FMC Act, but with modifications needed to enable the legislation to work with the FMC 

Bill and associated legislation; and 

- the amendments made to other legislation by the FMC Act will apply immediately, but with modifications 

needed to enable the legislation to work with the core former legislation. 

As an example, this will mean that a requirement to give a PDS under the KiwiSaver Act 2006 (as amended 

by the FMC Act) will be met if the issuer gives the investor an investment statement (the former requirement 

under the KiwiSaver Act). 

Timeline 

The Cabinet papers suggest that there has been no change from the previously announced April 2014 

implementation of the FMC Bill (although we had expected the Bill to be enacted before 30 June). An exposure 

draft of the regulations is expected to be ready for release in October 2013 and in place by March 2014. 

The Minister does however note that this timeframe is ambitious. There is a considerable amount of work that is 

still required to be done, including the development of online registers which will contain information about offers 

of financial products and managed investment schemes. 

The Minister has also noted that the successful implementation of the Bill will be reliant on FMA’s development 

and implementation of numerous operational policies and an extensive body of market guidance as some of the 

proposed regulations involve FMA having significant decision-making discretion. 


Consultation on DIMS and custody regulations for financial advisers 

The Ministry of Business, Innovation and Employment (MBIE) has released a discussion paper “Discussion 

document: Discretionary Investment Management Services and Custody” to seek stakeholder views on potential 

regulations relating to discretionary investment management services (DIMS) and custody in light of the proposed 

amendments for the Financial Advisers Act 2008 (FAA) under the Financial Markets Conduct Bill (FMC Bill). 

The FMC Bill will change how DIMS and custodians are regulated under the FAA. In particular, the FMC Bill will 

require providers of class (non-personalised) DIMS to be licensed and require all DIMS providers to use an 

independent custodian, unless otherwise permitted by their authorisation or licence conditions. 

MBIE are proposing to, where appropriate, align the obligations of Authorised Financial Advisers (AFAs) who 

offer personalised DIMS under the FAA with those that will be applied to DIMS providers licensed under the FMC 

Bill. This would involve changes to the eligibility, disclosure, reporting and client agreement requirements for 

AFAs who wish to continue to offer DIMS under the FAA regime. 

The discussion paper also proposes standardising options to mitigate risks to investors through requirements for 

custodians under the FAA obligations for brokers. These proposals are based on suggestions MBIE received from 

submitters on the Financial Market Conduct Regulations discussion paper in March this year and on overseas 

regulatory requirements. The aim is to ensure custodians have appropriate control systems in place to minimise 

risks to clients’ assets and that clients are provided with sufficient information to allow them to monitor their 

assets. 

MBIE anticipate that any regulations resulting from this consultation process will be approved prior to the greater 

part of the FMC Bill coming into force around April 2014. However, MBIE acknowledge that AFAs and custodians 

will require additional time to change some of their operations, and is seeking stakeholders’ views on transitional 

measures that may be needed. 

Submissions on the discussion paper close on 23 August 2013. 

Further details on this consultation are available here. 

New Register of Securities Offers provisions in force 

The Companies Office has established a temporary Register of Securities Offers (the Offers Register) following 

provisions introduced in the Securities Amendment Act 2011 coming into force on 1 July 2013 (see sections 43N 

to 43S of the Securities Act). This register will cease to exist when the Financial Markets Conduct Bill is enacted, 

and will eventually be replaced by two registers (the register of offers of financial products and the register of 

managed investment schemes) which will be an integral part of the new offer disclosure regime. 

While the Offers Register remains in place, when a new prospectus is submitted for registration issuers are 

required to provide additional information to the Registrar of Financial Service Providers as set out in the new 

Companies Office Form RSO (last updated on 12 July 2013). This form is attached to the Companies Office’s 

Prospectus Payment Form here. 

Any new prospectus registered from 1 July 2013 will be recorded on the Offers Register and will be publicly 

viewable. However, the current form of the register does not have the features that were envisaged for the 

register when the legislation was introduced in 2011. The Offers Register was intended to provide the public with 


comparable information about different offers of securities available under registered prospectuses in order to 

assist investors make more informed investment decisions, complete with search functions designed to facilitate 

comparisons. These features will be incorporated as part of the registers being designed for the new regime 

under the Financial Markets Conduct Bill. 

The new Securities Act provisions (which came into force on 1 July) also include a duty on issuers to notify certain 

ongoing matters and provide certain documents and information to the Registrar (section 43Q) in the prescribed 

manner. However, no manner of providing this information has been prescribed, so the Companies Office has 

confirmed that issuers may choose not to provide this information. 

Further information is available on the Companies Office website here. 

Securities Act (Overseas Companies) Exemption Amendment Notice 2013 

The Securities Act (Overseas Companies) Exemption Amendment Notice 2013 has added Germany to the list of 

jurisdictions in the Securities Act (Overseas Companies) Exemption Notice 2013. The principal notice exempts 

offers of securities by overseas companies whose securities are quoted on a stock exchange in one of the listed 

jurisdictions from most requirements of the Securities Act and Securities Regulations including the prospectus, 

investment statement, trustee and statutory supervisor provisions. 

Securities Act (Australian Registered Managed Investment Schemes) 

Exemption Amendment Notice 2013 

The Financial Markets Authority has extended the term of the Securities Act (Australian Registered Managed 

Investment Schemes) Exemption Notice 2008 from 30 September 2013 to 30 September 2017 and updated the 

notice with references to the Securities Regulations 2009. The amendment notice is available here. 

This notice has been a long-standing class exemption allowing certain Australian issuers (which are not 

adequately covered by the trans-Tasman mutual recognition of securities regime) to extend offers of securities to 

members of the public in New Zealand using Australian offer documents, particularly offers of securities in 

Australian registered managed investment schemes under distribution reinvestment plans. 

Financial Markets Authority (FMA) 

FMA is consulting on an AML/CFT customer due diligence implementation 

issue for reporting entities 

FMA is seeking submissions on the practical implications of the Anti-Money Laundering and Countering Financing 

of Terrorism Act 2009 (AML/CFT Act) in situations where reporting entities are transacting with other reporting 

entities. 

The consultation is in response to FMA’s concerns over difficulties some reporting entities are having in 

determining aspects of their obligations under the AML/CFT Act to identify their customers’ beneficial owners 

where the customer is itself a reporting entity. 


The consultation is aimed at assisting reporting entities to develop and adopt practical processes and procedures 

to meet their AML/CFT obligations. FMA has prepared a draft “Factsheet on Managing Intermediaries” which 

supplements the Beneficial Ownership Guideline issued by the AML/CFT supervisors in December 2012. 

Following the consultation, the AML/CFT supervisors will issue a finalised version of the factsheet which may 

contain additional or alternative practical advice for achieving compliance with obligations described in the 

factsheet. 

Submissions close on 1 August 2013. 

A copy of the consultation paper is available here. 

FMA review market disclosures and make recommendations 

Following a review of all directors’ and officers’ (D&O) relevant interest disclosures and substantial security holder 

(SSH) disclosures made on the NZX Limited Market Announcement Platform (MAP) over a five week period, FMA 

has issued a report to: 

• highlight areas of concern FMA has with these disclosures; 

• remind directors, officers and substantial security holders of their statutory disclosure obligations under the 

Securities Markets Act 1988; and 

• clarify FMA’s expectations of market participants to whom these requirements apply. 

FMA’s review found that the quality of D&O and SSH disclosures was generally good, but there were some issues 

with timeliness and accuracy. FMA recommends that for D&O disclosures public issuers have policies and 

procedures in place to identify the occurrence of events requiring disclosure, and to assist the director or officer to 

make the necessary disclosures. FMA also emphasises in the report that the director or officer responsible for 

filing should satisfy themselves as to the accuracy of the disclosures rather than relying on the public issuer, or 

others, to do it on their behalf. 

In the case of SSH disclosures, FMA note that: 

• The requirement under the Securities Markets Act to file an SSH disclosure notice ‘as soon as the person 

knows or ought to know’ of a relevant event, means ‘immediately’. 

• The requirement to provide SSH disclosure to the market arises when the transaction is agreed, not when the 

transaction is settled, even if the transaction implies future or conditional control of the securities in question. 

• Where future or conditional provisions apply to a transaction, disclosure is required both at the time the 

transaction is agreed, when the fact of the substantial holding, or change or cessation of substantial holding, 

is first known; and again at the time the transaction is effected, when the nature of the relevant interest 

changes. The nature of the relevant interest in each case should be detailed on the disclosure form, as 

required by the SSH Regulations. 

The full report is available here. 


FMA highlights issues for KiwiSaver offer documents 

FMA has recently released a report which highlights potential compliance issues for KiwiSaver offer documents in 

relation to current market practices. Particular reference is made to the changes that will need to be made to 

these documents in light of FMA’s Effective Disclosure Guidance Note issued in June 2012 (which only applied to 

offer documents issued by continuous issuers after 1 January 2013) and the new KiwiSaver (Periodic Disclosure) 

Regulations 2013. 

Consistency between periodic disclosure statements and offer documents necessary 

FMA points out that the new periodic disclosure statements required by the KiwiSaver (Periodic Disclosure) 

Regulations are “advertisements” for the purposes of the Securities Act 1978 and, therefore, must be consistent 

with the KiwiSaver scheme’s investment statement and prospectus. FMA notes that given the highly prescriptive 

nature of the periodic disclosure statements, it is likely that for consistency purposes it will be the investment 

statement and the prospectus that will need to be aligned with the periodic disclosure statement. FMA has 

highlighted in the report some instances where it considers the additional disclosures required in the periodic 

disclosure statements may be inconsistent with current disclosures in offer documents. These include instances 

relating to the disclosure of investment returns, risk disclosures, disclosures of key personnel, and disclosure of 

performance and fund fees. 

Trustee statements in prospectuses 

FMA also notes that it is concerned with trustee statements in a number of KiwiSaver schemes. Trustees of nonrestricted 

KiwiSaver schemes are required to make a statement in the scheme’s prospectus confirming whether 

or not in the trustee’s opinion the manager of the scheme has complied with the trust deed and the offer of 

interests in the scheme. However, it is common practice for trustees to add a disclaimer to the effect that the 

trustee has assumed that the factual information contained in the prospectus and all information given to the 

trustee by the manager is correct and that the trustee has not carried out an independent check of that 

information. In FMA’s view, trustees should be doing sufficient work to satisfy themselves of the accuracy of the 

information provided by the manager to make the trustee statement without such a disclaimer. 

The “Monitoring of KiwiSaver Offer Documents” report is available here. 

FMA releases its annual Investigations and Enforcement Report 

FMA has released its Investigations and Enforcement Report which highlights the key issues and themes that 

have emerged through FMA’s investigations and enforcement activities from July 2012 to June 2013. 

The report includes details of FMA’s investigations into the failed finance companies which it inherited from the 

Securities Commission and certain parts of the former Ministry of Economic Development. Over the last 

12 months failed finance company matters only accounted for 15 percent of FMA’s investigations. This reflects 

FMA’s move away from legacy issues and focus on current issues impacting the market. 

The Investigations and Enforcement Report is available here. 


Financial Advisers (Australian Licensees) Exemption Amendment Notice 

2013 

This notice extends the Financial Advisers (Australian Licensees) Exemption Notice 2011 for a further five years 

to 31 May 2018. The 2011 notice permits Australian-regulated financial services firms to provide financial adviser 

services into New Zealand on an offshore basis without incurring the costs of full compliance with the New 

Zealand financial adviser regime. The notice also amends the 2011 notice to require Australian licensees to 

provide certain information to the FMA within 15 working days of receipt of a request from FMA. 

Reserve Bank 

Covered Bonds discussed in the latest Reserve Bank Bulletin 

The June 2013 edition of the Reserve Bank Bulletin includes discussion on the background of the covered bond 

market and the Reserve Bank’s response to the development of a covered bond market in New Zealand. A copy 

of the Bulletin is available here. 

Consultation on relevance of small charitable and religious organisations to 

the NBDT regime 

The Reserve Bank has released a consultation document seeking stakeholder feedback on a proposal to declare 

small charitable and religious organisations out of the definition of “non-bank deposit taker” for the purposes of the 

Non-bank Deposit Takers Bill, which is currently before Parliament. Submissions close on 20 August. 

In the courts 

Court holds that corporate trustees do not have a duty to vet the accuracy 

of prospectuses 

In a recent High Court case (FMA v Hotchin [2013] NZHC 1611*) Justice Winkelmann held that trustees of debt 

issuers: 

• owe duties to depositors to monitor compliance with the trust deed and take appropriate enforcement action; 

but 

• do not owe a duty potential subscribers or roll-over investors to ensure that the contents of a prospectus are 

true in terms of the Securities Act 1978. 

Background 

Mr Hotchin, together with his fellow directors, faces a claim by the Financial Markets Authority (FMA) for allegedly 

untrue statements in prospectuses, investments statements, and advertisements registered and published by 

debt securities issuers in the Hanover group in 2007 and 2008. The FMA alleges that those offer documents 

contained untrue statements or statements that became misleading over time. The FMA seeks declaration of 

contravention to enable investors to obtain compensation and civil pecuniary penalties. 

Mr Hotchin brought third party claims against the corporate trustees of the Hanover group debt issuers, The New 

Zealand Guardian Trust Company Limited (NZGT) and Perpetual Trust Limited (Perpetual). 


Mr Hotchin says that the corporate trustees are each liable to contribute to any compensation that he is liable to 

pay under the Securities Act to the extent that each of NZGT and Perpetual were responsible for the same losses 

suffered by those investors in respect of the defective prospectuses. The trustees denied this and applied to strike 

out the third party claims. 

Key issue – co-ordinate liability 

In order to maintain his claims for contribution under equity and the Law Reform Act 1936, Mr Hotchin needed to 

establish that his alleged liability is of the same nature as the trustees’ liability. That is, the liability of the directors 

and the trustees must be “co-ordinate”. 

Mr Hotchin’s alleged liability is to investors for the losses caused by untrue statements in the prospectus and 

advertisements. The trustees accepted that they owed duties to monitor the terms of the trust deed and to take 

appropriate enforcement steps. However, they denied that they also owed a duty of care to ensure that the 

information contained in the prospectus was true. They said that a duty of this kind would fall well outside of the 

recognised duties of a trustee and would cut across the regime established by the Securities Act and Securities 

Regulations. Accordingly, one of the critical questions considered by Justice Winkelmann was whether Mr Hotchin 

could establish a tenable claim that NZGT and Perpetual owed duties of care in tort to existing and prospective 

depositors for a failure to ensure that the representations contained in the prospectus were true. 

NZGT and Perpetual contended that their duties to monitor the companies’ compliance with the trust deeds and 

the terms of the offer only arose under the terms of the relevant trust deeds (which included terms implied by 

statute) and that this did not include a duty to monitor the contents of the prospectuses to ensure that the 

information relating to the business and financial position of the companies was accurate in terms of the 

Securities Act. They also argued that, if the duty was owed at all, it was owed only to existing depositors and did 

not extend to prospective subscribers (i.e., members of the general investing public and existing depositors who 

decided to roll over their investments upon maturity). 

Court’s decision 

In addition to the duties owed to depositors under the trust deed, the court concluded that trustees can also owe 

tortious duties of care. Justice Winkelmann therefore found that there was a tenable argument that NZGT and 

Perpetual may owe a duty of care in tort to existing depositors to monitor the relevant issuer’s compliance with the 

terms of the trust deed and the terms of the offer. Justice Winkelmann also found that this duty may extend to 

prospective depositors and roll-over depositors. However, these findings were not sufficient to allow a claim for 

contribution from the trustees in equity or under the Law Reform Act 1936 as the damages arising from a breach 

of this particular duty are not of the same nature and same extent as the directors’ potential damages under 

FMA’s proceedings against them. 

The court was satisfied that there was no tenable argument that NZGT and Perpetual owed a duty of care in 

respect of the accuracy of the statements contained within the prospectuses. Justice Winkelmann noted that to 

impose such a duty would be “to require that the trustee assume a role quite different to that currently performed 

by trustees”. 

Her Honour stated “[i]t cannot be argued that the trustees owed a duty to monitor the prospectuses. The trust 

deeds, Securities Act and [Securities] Regulations and the prospectuses do not suggest that the trustees have 

any responsibility for the overall contents of the prospectuses, and the imposition of such a duty would run 

contrary to the legislative division of responsibilities between issuers, trustees and auditors.” 

Hotchin’s third party claims against NZGT and Perpetual were therefore struck out. The judgment is under appeal. 

*Bell Gully acted for NZGT in this case. 


Lombard Finance directors lose their appeal and gain increased sentences 

The Court of Appeal has upheld the convictions of the former directors of Lombard Finance and Investments Ltd 

(Lombard Finance) on charges laid under the Securities Act 1978 following the collapse of the company in April 

2008, and has also increased their sentences. 

Background 

Last year, the High Court found the directors of Lombard Finance guilty on charges arising from untrue 

statements made in offer documents issued by Lombard Finance leading up to its receivership in April 2008. 

Justice Dobson found the directors guilty in relation to one particular – the offer documents' description of 

Lombard Finance's liquidity risk. The documents described that risk conditionally – that is, if the company failed to 

manage its liquidity, problems could arise – but did not express a concern about an existing liquidity risk. Further 

details of this decision are set out in our earlier article: The Lombard verdict: important lessons for directors. 

In the Court of Appeal the directors argued that there was no support for Justice Dobson's finding that the 

statements in the prospectus were untrue and further that Justice Dobson was wrong to dismiss their defence 

under section 58(4) of the Securities Act. Section 58(4) provides directors with a defence where they believe, and 

have reasonable grounds to believe, that the statements in a prospectus are true. 

Court of Appeal’s decision 

The Court of Appeal disagreed with both arguments ruling that the High Court’s verdicts were open on the 

evidence and Justice Dobson could reasonably have been satisfied of the directors’ guilt (see Jefferies v R [2013] 

NZCA 188). With regards to the section 58(4) defence the court noted that: 

“Given the [directors’] own knowledge of the critical state of Lombard’s liquidity, neither reliance on the views of 

the company’s executives nor the advice of professionals could avail the [directors]. It was open to the Judge to 

conclude they could not have had reasonable grounds to believe that their expressions of confidence in the 

company’s liquidity were true without reference to the omitted matters which demonstrated clearly the vulnerable 

state the company was in. Nor could they have reasonably relied on the advice and assurances of management 

in the circumstances. That is because of the non-delegable nature of the duty imposed by [section] 58 and 

because the ultimate responsibility to govern and manage the company is theirs.” 

For further commentary on the Court of Appeal’s decision see an earlier client update here. 

Increased sentences on cross-appeal 

The Crown also brought a cross-appeal, arguing that the sentences that Justice Dobson imposed on the directors 

were "manifestly inadequate". The Crown asked the Court of Appeal to substitute sentences comprising a 

combination of home detention and community work. The court agreed and held that Justice Dobson had erred by 

adopting a starting point for sentencing which was short of imprisonment. In a subsequent decision (see Jeffries v 

R [2013] NZCA 274) the Court of Appeal substituted the sentences of community work imposed by the High Court 

with combined sentences of community work and home detention (ranging from six months to nine months for 

each director). 


Leave to appeal to Supreme Court now sought 

The directors have since filed an application for leave with the Supreme Court to appeal both the Court of 

Appeal’s decision dismissing their appeal against conviction and the decision allowing the Crown’s cross-appeal 

against their non-custodial sentence. 

COMPETITION AND CONSUMER LAW 


Further clarification of “unfair contract terms” and other changes to the 

Consumer Law Reform Bill 

A new Supplementary Order Paper 273 to the Consumer Law Reform Bill has been released, replacing 

Supplementary Order Paper 207 discussed in the previous issue of Corporate Reporter here. SOP 273 retains 

the changes introduced in SOP 207 with some additions and amendments, particularly with regard to the new 

unfair contract term provisions and their application to insurance contracts. The main changes introduced by SOP 

273 to the Bill affecting the Fair Trading Act 1986 and the Consumer Guarantees Act 1993 are outlined below. 

Fair Trading Act 

The substantive amendments to the Fair Trading Act (FTA) include: 

• A delayed start for contracting out provisions: One of the key changes proposed in the Bill allows parties 

in trade to contract out of the FTA, in certain circumstances. The SOP proposes to delay the commencement 

of the contracting out provisions until six months after the Bill receives Royal assent. 

• Further clarification for unfair contract term provisions: The Bill introduces a new prohibition, under the 

FTA, on including or enforcing any term in a standard form consumer contract which the court has declared 

to be an “unfair contract term”. The SOP proposes further clarification on the regime for “unfair contract 

terms” as follows: 

(i) Prospective effect - the prohibition on unfair contract terms will not apply to consumer contracts entered 

into before the prohibition comes into force, but will apply to variations and renewals to those contracts (other 

than insurance contracts, as discussed in paragraph (iii) below). 

(ii) Varying unfair terms - a term that has been declared “unfair” can be used in a consumer contract if the 

term is varied to become compliant with the court’s declaration. 

(iii) Insurance contracts - the prohibition on unfair contract terms will not apply to insurance contracts entered 

into before the prohibition comes into force, nor to variations and renewals of such contracts. The SOP also 

provides a list of terms particular to insurance contracts that favour the insurer but that will not be deemed 

unfair on the basis they will be considered reasonably necessary in order to protect the legitimate interests of 

the insurer. These include terms limiting the liability of the insurer to indemnify the insured, terms providing 

for payment of the premium and terms specifying the requirements for disclosure by the insured. For further 

commentary on these changes see our earlier client update: Government proposes new exceptions for 

insurers under unfair contract legislation. 


(iv) Transitional period - The SOP proposes that the effective date of the new prohibition on unfair contract 

terms be delayed until 15 months after the Bill receives Royal assent. 

• Additions to the “shill bidding” prohibition: One of the highly publicised changes made by the Bill to the 

FTA was the implementation of a prohibition on “shill bidding”, the practice of vendors’ bidding on their own 

property, with the intention of artificially inflating the price. The SOP adds to the Bill’s existing rules by 

providing that a vendor (or agent) making a bid that is above the reserve price constitutes a false or 

misleading representation. 

• Clarification for Internet trading provisions: The Bill inserted a requirement to the FTA that if a vendor 

who is in trade offers goods or services for sale on the Internet, the vendor must make it clear to potential 

purchasers that the vendor is a person in trade. The SOP clarifies that the vendor need only disclose that 

they are in trade if the vendor’s offer is capable of being accepted via the Internet. 

• Modification of reporting requirements for voluntary product recalls: The Bill proposes a framework for 

streamlining the voluntary recall of goods. This framework imposes reporting requirements on the supplier to 

notify the Chief Executive of the Ministry of Consumer Affairs within two working days of recalling the goods. 

The SOP amends the provisions of the Bill, so that the reporting requirements apply only in situations where 

there is no other requirement to report to a government agency or take any other action in respect of the 

goods. 

• Further changes to the new uninvited direct sales regime: The Bill repeals the Door to Door Sales Act 

1967, and replaces it with the uninvited direct sales regime under the FTA. The Bill proposes that uninvited 

direct sales agreements be required to contain the total price payable under the agreement. The SOP 

clarifies that the price must be stated either as (i) the total price payable and any other consideration to be 

given under the agreement or (ii) the method by which the total price will be calculated. 

Consumer Guarantees Act 

The substantive amendments to the Consumer Guarantees Act (CGA) include: 

• A delayed start for contracting out provisions: As under the FTA, one of the key changes proposed in the 

Bill is that parties in trade will be able to contract out of the CGA, in certain circumstances. The SOP 

proposes to delay the commencement of the contracting out provisions until six months after the Bill receives 

Royal assent. 

• Clarifications for the guarantee as to acceptable quality in supply of gas and electricity: The most 

significant of the Bill’s reforms to the CGA is its insertion of a separate guarantee of acceptable quality in 

relation to the supply of gas and electricity. The SOP clarifies that the guarantee does not cover nonreticulated 

gas. It also proposes consequential amendments to other aspects of the CGA to assist the new 

guarantee to fit within CGA’s existing framework. 

• New guarantee as to delivery: The SOP proposes a new guarantee relating to delivery. Where a supplier is 

responsible for delivering or arranging for the delivery of goods to the consumer, the supplier guarantees that 

the consumer will receive the goods at a time or within a period agreed by the supplier and the consumer, or, 

if no time has been agreed, within a reasonable time. Where the guarantee is breached, the consumer may, 

depending on how substantial the breach is, either reject the goods, or obtain damages for the loss. 

Timeline 

The Consumer Law Reform Bill is currently at the committee of the whole House stage of the Bill (where the final 

form of the Bill is agreed by the House) and is still on track to be passed into law by the end of the year. The Bill 

will be passed as six separate bills (as set out in SOP 218): the Fair Trading Amendment Bill, the Consumer 


Guarantees Amendment Bill, the Weights and Measures Amendment Bill, the Secondhand Dealers and 

Pawnbrokers Amendment Bill, the Carriage of Goods Amendment Bill and the Auctioneers Bill. 

The Bill will come into force on the day after it is enacted. However, there are transitional periods built into the Bill 

to allow time to implement various changes. In addition to the six-month extension given for the contracting out 

provisions and the 15-month extension for the unfair contract term provisions noted above, there are also sixmonth 

transitional periods relating to: 

• 'unsubstantiated representations' in trade; 

• layby sales, uninvited direct sales and extended warranty agreements; 

• infringement offences; 

• auctions and auctioneers; 

• the Carriage of Goods Act; 

• the guarantee as to delivery provisions in the CGA; and 

• the CGA's application to gas and electricity. 

For further information on the Consumer Law Reform Bill see our earlier client update here. 

Commerce Commission releases revised authorisation, and mergers and 

acquisitions guidelines 

The Commerce Commission has released revised guidelines that outline its approach to assessing businesses’ 

authorisation and merger clearance applications. The guidelines were finalised after a public consultation period 

in March. 

The revised guidelines are available here. 

New Zealand Commerce Commission (NZCC) 

Media releases 

The NZCC has issued the following media releases: 

Mergers and acquisitions 

SkyCity granted clearance to acquire Otago Casinos 

The NZCC has cleared SkyCity Entertainment Group Limited to acquire Otago Casinos Ltd. The proposed 

acquisition would result in SkyCity owning both casinos in Queenstown, SkyCity in the CBD and Otago Casinos at 

the Queenstown wharf. 

Click here for more 

PropertyIQ seeks clearance to acquire Terralink 

The NZCC has received an application from PropertyIQ NZ Limited seeking clearance to acquire the business 

and assets of Terralink International Limited. 


NZCC opens investigation into Wilson Parking’s acquisition of assets of Tournament Parking 

The NZCC has opened an investigation into Wilson Parking New Zealand Limited’s acquisition of Tournament 


Parking Limited’s parking assets. The NZCC will consider whether the acquisition is likely to have resulted in a 

substantial lessening competition in any relevant market. 


Telecommunications 

NZCC determines 26 companies liable for telecommunications levy 

The NZCC has released its determination of the amounts 26 telecommunications providers will pay towards the 

$50 million Telecommunications Development Levy (TDL) for 2011/12. The government uses the annual levy to 

pay for telecommunications infrastructure including the relay service for the deaf and hearing-impaired, 

broadband for rural areas, and improvements to the 111 emergency service. 


Consumer issues 

Money lending car dealer fined $22,000 

An Auckland-based car dealer has been fined $22,000 and ordered to pay $2,000 reparation in the Auckland 

District Court after admitting to a number of charges including misleading customers, selling unnecessary 

warranties, and charging higher interest rates than those agreed. In one case, he charged a customer over 60% 

interest on a car loan – 35% higher than the rate agreed. 


Australian Competition and Consumer Commission (ACCC) 

Selected media releases 

The ACCC has issued the following media releases: 

Mergers and acquisitions 

ACCC proposes to conditionally reauthorise Virgin and Air New Zealand trans-Tasman alliance 

The ACCC has issued a draft decision proposing to grant conditional authorisation for three years for Virgin 

Australia and Air New Zealand Limited to continue their trans-Tasman alliance. 


ACCC to not oppose the proposed acquisition of Hawker Supa IGA by Woolworths 

The ACCC announced it will not oppose the proposed acquisition by Woolworths Limited of the Supa IGA 

supermarket in Hawker, Australian Capital Territory. 


Market behaviour 

ACCC grants interim approval to concrete carrier allocation system 

The ACCC has granted interim authorisation to Holcim (Australia) Pty Ltd to extend the operation of its cartage 

allocation system for concrete carriers in Western Australia. An authorisation previously granted in 2008 was due 

to expire on 30 June 2013. On 19 June 2013, Holcim lodged an application for reauthorisation to continue the 

operation of their cartage allocation system, and also requested interim authorisation. 



Telecommunications 

ACCC commences a review of the Domestic Transmission Capacity Service and fixed line services 

The ACCC has commenced declaration inquiries for the Domestic Transmission Capacity Service (DTCS) and six 

fixed line services. The DTCS is a type of transmission service, often referred to as backhaul. Transmission 

services are high capacity wholesale services that carry large volumes of voice, data and video traffic. The DTCS 

is often used by telecommunications companies to carry the combined traffic of separate services across long 

distances. 


Access 

ACCC releases revised airport quality of service monitoring guidelines 

The ACCC has issued revised guidelines setting out changes to the way the ACCC monitors service quality at 

Australia’s four largest airports. As an important complement to the ACCC’s price monitoring role, checking the 

quality of service at Australia’s four largest airports allows the ACCC to detect any significant movement in quality 

of service over time and compare the performance of the monitored airports where appropriate. 


Consumer issues 

HP to pay $3 million for misleading consumers and retailers 

The Federal Court ordered Hewlett-Packard Australia (HP) to pay a $3 million civil pecuniary penalty for making 

false or misleading representations to customers and retailers regarding consumer guarantee rights. The ACCC 

instituted proceedings against HP on 16 October 2012. Subsequently, the ACCC and HP came to an agreed 

settlement on the matter. 


NEED MORE INFORMATION? 

Contact us 

For more information on any of the items in the Corporate Reporter, please contact your usual Bell Gully adviser 

or any member of Bell Gully’s Corporate, Commercial or M&A teams. Alternatively, you can contact the editor 

Diane Graham by email or call her on 64 9 916 8849. 

Disclaimer 

This publication is necessarily brief and general in nature. You should seek professional advice before taking any 

action in relation to the matters dealt with in this publication. 

Links to third party websites in this document are not monitored or maintained by Bell Gully. We do not endorse 

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