THIS WEEK’S ARTICLES
Issue 11 23 Apr 2021
Dragging incorporated societies into the 21st century p1
Collateral damage from govt’s new housing rules p7
How stock-picking monkeys can help you retire early pages 8 & 9
LawNews adls.org.nz
GOVERNANCE
Big law changes afoot for incorporated societies In the first of a two-part series, Rod Vaughan runs the rule over the new Incorporated Societies Bill now before Parliament and asks how it will change the way more than 24,000 New Zealand organisations go about their business It has been long time coming – 113 years to be exact. One of New Zealand’s most outdated and deficient pieces of legislation is getting a much-needed overhaul. Eight years after the Law Commission recommended changes and updates to drag the legislation into the 21st century, the long-awaited Incorporated Societies Bill was introduced to Parliament on 17 March. It will replace a statute that has been in force since 1908.
In broad terms, the new bill recognises deficiencies the Law Commission pointed out in its 2013 review of the legislation: that the 1908 law is incomplete, inaccessible and unclear; that it is inconsistent with incorporated society and governance principles; that it is difficult to enforce; and that there is no process for amalgamation. In particular, the 1908 Act is silent on several important governance duties such as dealing with conflicts of interest. The new bill imposes duties on incorporated society officers that are similar to those laid out in the Companies Act 1993 for directors: a requirement to act in good faith and in the best interest of the society; the need to exercise power for a proper purpose; a requirement not to act, or agree to the society Continued on page 2
Photo by Manu Vega / Getty Images
In its preamble to the bill, the government notes the contribution that incorporated societies make to civil society in New Zealand. There are more than 24,000 entitles on the incorporated societies register in areas such as culture, sports, recreation, education, health, social services, philanthropy, emergency relief, environmental protection, animal welfare and religion.
Animal welfare organisations are often incorporated societies
Those governing incorporated societies will be required to adopt far more formal and methodical methods of governance, akin to those expected of registered companies. That will be immensely challenging for many incorporated societies and many will fail to meet those challenges
GOVERNANCE
Big law changes afoot for incorporated societies Continued from page 1
It has nearly found its way onto the parliamentary schedule twice, only to be thwarted by a general election and hence bumped down the pecking order and put on hold.
acting, in a way that contravenes the bill or the society’s constitution; a requirement to show the care and diligence that a reasonable person with the same responsibilities would exercise in the same circumstances; a requirement not to act in a way that would cause loss to creditors; and a requirement not to agree to obligations unless they believe the society can perform them.
Scott Moran Where do we begin? With s 23(3), that provides that the penalty for failing to lodge financial statements is a shilling per day or the fact a society needs to find and attach its common seal to any deed to make it legally binding?
Officers will also have a fiduciary duty to their society.
More seriously, the inability to merge, amalgamate societies and easily wind up a society has been the biggest frustration in my experience. It has often been either too hard or too expensive to restructure societies. This has contributed to inefficient duplication in many parts of the not-forprofit sector in my view.
For an in-depth assessment of what the new Act will mean, LawNews spoke to three of the country’s top experts in this field. They were Craig Fisher, a consultant with RSM New Zealand, a member of the ADLS council and an associate of Boardworks; Scott Moran, a partner with Duncan Cotterill; and Mark von Dadelszen, who was a member of the Reference Group that advised the Law Commission on the proposed reforms. The current Act is more than 100 years old. To what extent is it not fit for purpose, how has this impacted on the 24,000 incorporated societies in New Zealand and why has it taken so long to update it? Craig Fisher The Law Commission’s review, a very good, objective, well-balanced and well-researched review in my opinion, delightfully described the 1908 Act as “uncomfortably old”. It has done very well lasting this long, essentially unchanged. However, the world has moved on significantly in technology, sophistication, expectations, and liability and overall is somewhat more complex than it was in 1908. Hence the need for a major legislative overhaul. The 1908 Act could be described as providing a frame for establishing an incorporated society and some detail on how to close one, but it didn’t provide much assistance about what happens in the middle – ie, the important part about how to operate one. In essence, the 1908 Act is pretty short and pretty simple and, as such, does not adequately cover some of the complexities found in some of our
Craig Fisher
As to why it has not been updated until now, I guess societies have come second over the years to company and financial market law reform.
Most legal firms can expect an avalanche of requests for help from their pro bono and fee-paying incorporated societies. They need to be prepared larger, more complex incorporated societies. We have some big, complex entities structured as incorporated societies in New Zealand such as the Automobile Association and Southern Cross. As a former audit partner of nearly 25 years, I have unfortunately seen quite a lot of bad behaviour in incorporated societies, mainly from there not being good governance structure and controls in place. In my view, the bill will address some of these issues. It has taken so long to update as it relates to the not-for-profit sector which is, sadly, a poor cousin of commercial enterprises even though they are, in my view, essential to the social fabric of our nation.
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I think as most societies are built around goodwill and a purpose, those running societies have just got on with it and made it work, and the 1908 Act has therefore flown under the radar somewhat in terms of being an area that needed the update. Mark von Dadelszen Since the Joint Stock Companies Act 1860, New Zealand’s companies’ legislation has been totally re-enacted six times in the past 152 years (in 1868, 1882, 1901, 1903, 1933 and 1993), all with regular amending Acts. In contrast, the Incorporated Societies Act 1908 has changed little since it was enacted, and for decades it has not reflected good governance practices. It has now been overtaken by technological advances, does not reflect modern legislative drafting and is well past its use-by date. Why has it taken so long to update it? There has been a lack of any sense of urgency within political parties or governments, but we should see the new Act passed this year. The new Act overhauls governance structures and arrangements for societies. What are the key changes and how will they impact on societies? Continued on page 10
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LawNews Issue 11 | 23 Apr 2021
TRUST LAW
Govt ups the ante on trustee tax disclosure By Anthony Grant
Last December, the government enacted some important changes to the tax legislation which took effect on 1 April. The changes empower the IRD to obtain extensive information about trusts including profit and loss statements, balance sheets, loans, distributions, settlements, people who have powers of appointments and the names, IRD numbers and dates of birth of settlors. It’s a sea-change in the government’s approach to trusts. The legislation has ostensibly arisen from its decision to increase the top rate of income tax to 39% on income above $180,000 on 1 April. The government wants to know if the increase in the top tax rate is being circumvented by using trusts. Critics say the government is seeking much more information than is needed to answer that simple question and they’re right. Of course the government is seeking more information than is needed to answer that question. But should the government be going down this path? My response is that like it or not, the days of ‘soft’ regulation of trusts and companies are coming to an end. We are now in a new era that is called by those who don’t like it ‘the transparency bandwagon’. Here are some of the arrangements that have been, and are being, implemented internationally, most of which are known by unpronounceable acronyms. FATCA New Zealand has entered into a FATCA (Foreign Account Tax Compliance Act) Intergovernmental Agreement with the USA under which information must be provided to the IRD. The purpose is to detect the assets of American individuals. Senator Carl Levin, who was a strong promoter of the legislation in the USA, believes the US Treasury was losing as much as US$100 billion annually as a result of ‘offshore tax non-compliance’. FATF Both the OECD and the World Bank are involved with FATF (Financial Action Task Force) which tries to increase the transparency of beneficial ownership. The G20 principles In 2014, members of the G20 endorsed a number of principles to counter money-laundering and counter-terrorism, focusing on companies. They state that companies should ensure competent authorities have timely access to adequate, accurate and current information about the beneficial ownership of legal persons. AUSTRAC This is an Australian regime that can obtain information about the beneficial ownership of trusts. The AML/CFT regime The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 in New Zealand requires information about beneficial ownership to be disclosed. Australia enacted its AML legislation in 2006. PSC The UK is establishing registers of beneficial owners of companies, landowning entities and trusts. A register of People with Significant Control (its acronym is PSC) has been available since 2016. All British overseas territories and Crown dependencies were supposed to have introduced Public Company Beneficial Ownership Registers but this has been delayed until 2022-2023.
Anthony Grant
Member states of the EU were required to introduce public company beneficial ownership registers by January 2020 but as of March 2020 most countries had not done so. 4MLD and 5MLD The EU published a ‘Fourth Money Laundering Directive’ (its acronym is 4MLD) which came into effect in 2017. This requires all trusts with a UK tax liability to register, whether the trustees are resident in the UK or not. The EU has since implemented a ‘Fifth Money Laundering Directive’ (5MLD) requiring all UK trusts to register, whether or not they have tax liabilities; to provide information about their beneficial owners; to register if they enter into a business relationship with a UK service provider and to report if they have acquired UK real estate. Non-UK/EU trusts with UK tax liabilities will be required to register, as will non-UK/EU trusts which acquire UK real estate. The trustees must provide information about the trust assets, including their value, the place where the trust is resident/administered and information about each of the ‘beneficial owners of the trust’, together with other information. And look how widely the authorities have defined the term ‘beneficial owner’. It includes settlors, trustees, beneficiaries and people who hold certain powers of appointment in the trust and even people who are named in a letter of wishes as a potential beneficiary. Why are all these initiatives and others being implemented? The answer the regulators give is that the information is needed to suppress crime, moneylaundering, bribery, insider dealing, tax fraud, terrorism funding and corruption. Even the most sceptical observer would conclude that centuries of trust secrecy are coming to an end. Governments everywhere are testing the boundaries of information that they can require people to disclose. Anthony Grant is an Auckland barrister specialising in trusts and estates and is a presenter at the Cradle to GraveTM Conference 3
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LawNews Issue 11 | 23 Apr 2021
COMPETITION LAW
How bid rigging works and why it is a crime By Gary Hughes
suppress the degree of fierce auction contests involving members. The High Court confirmed that cartel behaviour applies to the buyer side of markets as well.
This is the last of a series of five articles looking at the nuts and bolts of recent cartel criminalisation law reforms (in force from 8 April 2021), and ramifications of the increased scrutiny it brings upon the actions of individual directors and managers.
Even rigging a single sale/purchase process is enough to trigger problems. A tender process for sale of a mining industry business, run by financial broker UBS, went badly off the rails. The vendor (Norcast) had a poor relationship with a competitor (Bradken) and specifically did not want to sell the assets to them. Using a private equity intermediary, Bradken got involved anyway, arranging a same-day, undisclosed on-sale process if the private equity bid succeeded.
This has included a dive into each of the main forms of cartel conduct: price fixing, market allocating and output restricting, and the key exemptions that might retrieve many commercial collaboration clauses from being consigned to an unsavoury bin labelled “cartel provisions”. This week’s concluding focus is on bid rigging. Not defined? Bid rigging is a descriptive, readily understood label and, in the past, has been central to many Commerce Commission investigations. The commission website retains a helpful factsheet addressing warning signs to look for in procurement departments. But OECD guidance and the equivalent criminal cartel law in Australia’s Competition and Consumer Act 2010 explicitly define bid rigging as one of the forms of cartel conduct. Proposals to change our Commerce Act originally included a definition of bid rigging, by “restraining one or more parties to a contract, arrangement, or understanding from making a bid, or requiring a bid to be in accordance with a contract, arrangement, or understanding…” where: ‘bid’ includes a tender, expression of interest or any step preliminary to making a bid; and the features of the side arrangement are not disclosed to the person running the bid. However, in the parliamentary submission process, MBIE officials decided that defining it was too hard, and all forms of bid rigging would likely fall under one of the market allocation, output restriction or price fixing definitions anyway. Technically, that may be right. But it feels like a triumph of economic theory over accessibility of the law. People have a ready feel for bid rigging as a concept and, given the primary importance of tenders and auctions to procurement processes in many industries, it still deserves its own attention. Nuts and bolts Defined or not, collusive tendering is squarely in the commission’s sights. A variety of practices can take place around bidding behaviour, short of submitting fixed prices. Companies may agree not to bid on this occasion, thereby allowing a rival to take the lead (bid suppression). They
Gary Hughes
may communicate about plans to pull out of negotiations after a first-round bid (bid withdrawal) or take turns at winning/leading for different customers at different times (bid rotation). To keep the buyer/tenderee from suspecting, they may inflate prices to make an unattractive offer (cover bidding) which helps ensure another designated player wins the contract, as planned. A quid pro quo benefit from another colluding party later going softly in a future tender round is usually essential to the arrangement. Buyers, sellers, end-customers, and the taxpayer (in public procurement) end up suffering as a result. Brokers, agents, industry standard-setting bodies, and consultants involved in tender process can sometimes act as a hub for this type of communication or co-ordination. The regulator often eyes those intermediaries suspiciously as fostering poor transparency or loose practices. Case examples Some cases are simple, deriving from ignorance of the law or perceived low risk of getting caught. In 2018 the commission took a pipeline supplier in the construction industry to task. Its employees communicated via WhatsApp with a rival about pricing for pipeline maintenance service tenders in Christchurch. A warning letter was issued. Postcriminalisation, it is doubtful the commission will be so gentle. Other scenarios are more elaborate and complex. In 2019, Auckland residential property investment expert Ron Fong found his mentoring business Ronovationz in court, penalised $400,000 plus costs for developing rules through which his members/mentees would send notification of houses they were intending to bid for. In a bubbly Auckland real estate market, the aim was to
When that all tumbled out, the vendor sued, cartel conduct was upheld in court and sums approaching $US25 million were awarded to the vendor. Joint bids, co-suppliers, subcontracting A regular source of uncertainty surrounds joint bids made as part of collaborative JVs, or shared resources, to increase the chances each competitor will get at least a share of the spoils rather than miss out. Did the party calling for tenders expect they would each bid separately? Was some contestability in the process lost as a result? And do the justifications for a shared bid stack up? Often the collaborative activity exemption will apply but some analysis and evidence should be explored before the bid proceeds. Sometimes a joint bid is dressed up as sub-contracting to a rival. Concluding thoughts Issue-spotting and recognising potentially risky scenarios is the first step for busy corporate lawyers. Beyond that, the nuances of competition law often derive from case-law developments rather than general wording in the statutory prohibitions. And unexpected extensions of the law arise, such as for a travel agent found to be in cartel relations with its airline principal, or property coach guru acting as a cartel hub for individual investors. Staff training and working through scenarios is important. These introductory articles sprang from a cartel training series the author offers for SME law firms and in-house teams. Working through specific fact situations tailored to each industry is the best way to help clients develop better instincts for where the (now criminal) boundaries lie. Gary Hughes, barrister at Akarana Chambers, has 25 years’ experience in regulatory investigations and Commerce Commission cases, including major cartel matters in air cargo, electrical switchgear, healthcare, vehicle shipping and real estate sectors. gary@garyhughes.nz and www.law-strategy.nz
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LawNews Issue 11 | 23 Apr 2021
PROPERTY LAW
Collateral damage from govt’s new housing rules By Diana Clement
The government’s plan to remove investors’ ability to deduct mortgage interest from their income is emerging as a critical issue among home owners who want to rent out part of their property to pay the bills. Traditional landlords are not the only ones affected. In some instances, first-home buyers – the very group the government claims to be trying to help – will be caught in the government’s tax net.
Nick Kearney
Owner-occupiers who earn rent from tenants, flatmates, boarders and holidaymakers may find it difficult to service their mortgages once the new rules come into effect in October. And investors and some owner-occupiers may find they are caught by the new 10-year bright-line test once the definitions of “own home” and “new build” are clarified. Others, including first-home buyers, may not be able to proceed with intended property purchases or will be forced to sell. Former ADLS President Joanna Pidgeon, of Pidgeon Judd, says a member of her staff is among those caught by the new rules. A first-home owner, the staffer bought a home off the plan but is yet to settle and had intended to rent out two rooms to housemates to help service the mortgage. “They are affected by the impact on tax deductibility of interest and that will actually mean they can borrow probably $100,000 less than they originally thought,” Pidgeon says. The rules prior to March 27 would have enabled the buyer to deduct interest payments from the income. Likewise, if home-and-income buyers can no longer claim the portion of interest servicing standalone tenancies on their properties, the numbers may no longer stack up for them, says property lawyer Nick Kearney of Schnauer & Co. In the week of the government’s announcement, Kearney had a client withdraw from a home-and-income property purchase for exactly that reason. As another example of potential collateral damage, Pidgeon cites a husband and wife who had purchased their dream first home but rented it to tenants until they could afford to live in it themselves. Without interest deductibility, the couple will likely have to sell their home. Sometimes, says Pidgeon, people have intentions, then life events take over. “If someone gets transferred to another city for work and then needs to rent out their home, these owners may end up having to pay tax on the sale of their home, and this may affect their ability to purchase a replacement home should they look to stay in the city they have moved to.” Tax consultant Terry Baucher says inevitably banks will pull the pin on mortgage preapprovals for some people because of reduced serviceability. Banks are said to be reviewing their affordability equations in light of the new rules. Baucher says one of the many examples of uncertainty thrown up by the package was a client with a big section who planned to demolish and build two houses, living in one and renting out the other. Where does that sit? When tax law changes, there are always people who fall on the wrong side of
Joanna Pidgeon
Terry Baucher
Unlike many tax changes where legislation is available immediately, the tax community and lawyers must wait until after consultation the line, he says. “There are always going to be [unfortunate] circumstances. That sounds a bit brutal, but that is a fact of life. [Legislators] get to the point of ‘where do we draw the line around something that is fair, but not overly complex and meets policy objectives?’” Another potential unintended consequence is the effect of the new package on the conversion of existing commercial buildings into apartments. Builds such as that at the Hereford Residences and the former Baycorp HQ, both in Auckland’s Freemans Bay, incorporate brand new apartments in the bare-bones structure of old office blocks. Baucher says questions have arisen over whether such conversions will in the future be classed as new builds. If not, they could become less desirable to buyers because of the changes to interest deductibility and the bright-line test. New builds also have favourable loan-to-value ratios (LVRs) and first-home grants available under KiwiSaver. The question has stopped more than one developer in their tracks in the meantime. One of the issues driving uncertainty, says Baucher, is that unlike many tax changes where legislation is available immediately, the tax community (and lawyers) must wait until after consultation. “So, we are flying blind,” he says. Developers are watching the rules unfold. With new builds, there could be issues where developers have old, unsold housing stock six months after completion, Pidgeon says. Will the government’s changes make this stock nigh impossible to sell because the units are no longer classified as new builds? Pidgeon says some of her developer clients are pausing to think. “In terms of new projects, people want certainty. I think we will see banks increasing their requirements for presales before they will fund development.” Developers have in the past had to abandon developments when presales were too slow. Meanwhile, construction costs keep rising, making the contingency too low for banks to allow funding to proceed. The uncertainty may well cause that to happen in the current market unless these issues are addressed through the consultation period. 7
INVESTMENT/PERSONAL FINANCE
What do monkeys have to do with stock market returns? By Patrick Fogarty
standing at the edge of the parade circle looking at the thoroughbreds. The first horse you see is Lightning, the favourite to win, an obvious competitor with a stellar track record. She looks healthy, has a glint in her eye, and you can see beads of sweat falling off the fast-twitch leg muscles that are firing with anticipation. Behind her is Steve. Yet to place in a single race, Steve appears to be ever-so-slightly cross-eyed. He was born with one leg shorter than the others and appears more interested in the parade ground flowers than the pending race.
A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts – Burton Malkiel, economist Malkiel makes this startling statement in his seminal 1973 book A Random Walk Down Wall Street. The idea that a simple-minded simian might possess the necessary mental faculties to produce superior investment returns to well-educated and highly-paid investment professionals was introduced to me during my formative years in investment management. This came as a shock as I had, up until that point, intended to become one of those well-paid monkeys! While Malkiel’s idea was initially deployed as a conceptual thought-experiment, it has since become the catalyst for a host of real-world, real-monkey experiments. Around 20 years ago, an industrious chimpanzee named Raven threw 10 darts at a dartboard showing 133 internet-related companies. After six days of trading, her picks had delivered a healthy 95% return. By year’s end, her portfolio had outperformed more than 6,000 internet and technology money managers. Astounding, considering her remuneration package consisted exclusively of bananas. In 2010, The Daily Mail reported on Lusha, a Russian circus monkey who managed to treble her one-million-rouble investment, outperforming 94% of Russia’s mutual funds. Pavel Trunin, of the Institute for the Economy in Transition in Moscow, would later say, “It shows that financial knowledge does not play a great role in giving forecasts to how the market will change.” Perhaps the most famous of the primate investors is Adam Monk, resident stock-picking monkey (Brazilian Cinnamon-Ringtail Cebus, to be precise) at The Chicago Sun-Times. Between 2003 and
Imagine you have $100 to bet. The question I put to you is this: “which horse is the better investment?” Let’s take a moment to consider this. Patrick Fogarty
2006, armed with a red pen and appropriately dressed in a custom pinstripe suit, Adam circled his top picks for the year ahead. In addition to outperforming the market in each of the four years, Adam shocked the investment world during the 2008 crash when he managed to ‘protect investor downside’ by losing just 14%, a stellar result when compared to the 35% lost by most fund managers. Comparing primates to investment professionals is clearly a facetious exercise and an obvious attempt to rattle cages and sell newspapers. The irony of this is not lost on me as I am summoning all this monkey business in a bid to persuade you to read this article. The difference, however, lies in the motivation. My intention is not to marinate in the absurd but, rather, to draw to your attention the significance of what Malkiel was saying in 1973 and to show you that understanding the implications of his conclusion will almost certainly help you retire earlier. The key idea espoused in A Random Walk Down Wall Street was simply that stock prices are unpredictable – a seemingly innocuous position to take, but one with huge practical implications. If prices are unpredictable, then the lucrative business of forecasting is ultimately built on a bogus premise: that there is value in paying experts to predict the direction of the markets. To agree with Malkiel is to conclude that analysing stocks is a pointless endeavour and that no amount of research into a listed company will give you an advantage over a monkey with a dart.
Adam Monk
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Hopefully, you have concluded that the question itself makes no sense, as the odds applied to each horse essentially level the playing field. Predicting that Lighting is likely to win the race will not net you a significant pay-out as the odds already reflect this forward-looking assumption. To win big, one needs to successfully bet against the odds. You need to make a prediction that is better than the aggregate opinion of all the experts and punters that set the odds in the first place. This, as it turns out, is very similar to how the stock market works, only instead of odds, stocks use prices. Stock prices, like odds, reflect the information available at any point in time. This idea was first proposed in 1963 by economist Eugene Fama whose Efficient Market Hypothesis would eventually win him the Nobel Prize in 2013. The capital markets contain millions of participants, individual and institutional investors analysing information and making buy and sell decisions in real time. Companies with a bright future will attract capital, while companies with a less-favourable outlook will struggle. Either way, an equilibrium price will be set between the forces of supply and demand based on the information at hand. The key point here is that for stock pickers to add value, they don’t just need to identify which companies will do well; they also need to identify which companies will exceed the market’s expectations. The need, essentially, to bet against the odds. This, as it turns out, is extremely hard to do. As a collective, the money managers who believe in the value of forecasting are referred to as ‘active’ managers. Their success is typically measured by their ability to outperform the ‘passive’ market, typically represented by an index.
If all this sounds counterintuitive it might be because there is a missing piece of the puzzle – the idea of market efficiency. An easy way to understand this idea is to consider the odds system that governs betting on horses.
Think of the NZX 50, S&P 500, ASX 300 etc. The index, or market, can be accessed very cheaply and should be viewed as the starting point, the base level of return we can be guaranteed to achieve at a low cost. From here we can consider if
Imagine for a moment that you are at the track,
Continued on page 9
LawNews Issue 11 | 23 Apr 2021
Continued from page 8 it makes sense to pay a professional to predict the future in a bid to exceed this return. The obvious starting point in considering this is to assess how active fund managers typically perform relative to the market. According to the Standard & Poor’s SPIVA (S&P Index vs Active) website, a database that tracks the performance of more than 10,000 active fund managers against the market, the results, to put it mildly, are terrible. Over a five-year period, the percentage of managers underperforming their respective markets in most cases exceeds 75%. As at 31 December 2020, 75.27% of US-based managers failed to beat the market, a slightly better result than the 81.70% of Australian managers who fell short. But perhaps most shocking of all were the results from Canada where 98.63% of managers underperformed. Although shocking, these results are expected if you believe the huge body of academic evidence that since the 1960s has overwhelmingly supported the idea that trying to beat the market over time is a fool’s game. If, despite the evidence, you still intend to pursue
In 2010, The Daily Mail reported on Lusha, a Russian circus monkey who managed to treble her one-million-rouble investment, outperforming 94% of Russia’s mutual funds
would reduce your total to $3,207,135, meaning you are $1,120,448 worse off from the impact of fees alone. This is before accounting for the statistically significant probability that your returns will also be consistently below the market based on the SPIVA results.
a stock-picking strategy you are likely to pay as much as 2% per annum for the pleasure, after accounting for brokerage and performance fees.
I once asked a colleague why he felt so many investors ignored the evidence, why people consistently pursued a strategy that is statistically more likely to destroy value than create it. His response summoned Alexander Pope’s An Essay on Man, and has always stuck with me. “Hope springs eternal.”
An investment of $1 million over 20 years, growing at a rate of 8% per annum (a conservative estimate based on historical returns), would see your investment grow to $4,660,957 after compounding. Reducing the annual growth rate by 0.40%, to account for typical passive management fees, reduces your return to $4,327,583. Not a huge impact. A 2% reduction in annual returns, however,
Shedding light on this topic can often feel like swimming upstream. Years of conditioning have engrained in us the image of the shrewd investor, the pinstriped Gordon Gekko whose intuition can outwit the market. Frustratingly, this archetype has distracted us from the characteristics that genuinely make for a successful investment experience, ideas that I intend to discuss in my next article.
Patrick Fogarty is a personal wealth advisor at The Private Office. He is presenting a CPD seminar on Investing vs Speculating on 20 May
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Continued from pages 1, 2 Craig Fisher One of the aims of the bill seems to be helping define what is a basic level of expected governance and operating process that should be followed in an incorporated society. Basic expectations are made clearer. From my reading, it also aims to provide more protection for when things go wrong – ie, expectations for operating rather than leaving it to warring parties to sort it out without much of a legislative framework. It appears to have picked up some of what works in the companies space. Most companies do not need to refer to the Companies Act on a daily basis but if there are major disputes or things go wrong, then the Companies Act provides a good fallback frame of reference about how things should be dealt with. You could say it provides a better legislative framework for when the sun doesn’t shine. Many well-structured and well-governed and run incorporated societies should not expect to see much change. However, for some currently operating without much sophistication, this new bill being passed into law is likely to force them to put some more processes in place. Scott Moran Most governance committee structures will likely remain the same, but what is changing is the clear articulation of officer duties and conflict obligations. While these duties exist in a similar form in common law, they have not been set out in black and white in legislation. The other major change is the application of the duties on officers that not only include committee members but also people occupying a position in the society that allows them to exercise ‘significant influence over the management or administration of the society’. This is likely to include the chief executive and, depending upon the organisation, other executive leadership team members.
Scott Moran
Mark von Dadelszen
In light of the new committee-member and officer duties, I would strongly recommend incorporated societies ensure they have director and officer insurance cover in place
Case law has been few and far between. Any alleged breach will now be one of legislation that will be perceived to be easier to claim under. Hopefully, the new compulsory dispute provisions that must be included in society constitutions will offset the risk of more regular disputes.
The codification of these duties will undoubtedly, in my view, result in an increase in breach of duty claims and related litigation. It has to date been considered very difficult to be found in breach of your common law duties as a committee member of a society.
Mark von Dadelszen Those governing incorporated societies will be required to adopt far more formal and methodical methods of governance, akin to those expected of registered companies. That will be immensely challenging for many incorporated societies and many will fail to meet those challenges. The key changes include the following: No-one can hold office as a committee member (or, if already an officer, will be disqualified from holding office) of an incorporated society if, for instance, he/she is under the age of 16, is an undischarged bankrupt, is prohibited or banned from being an officer of an
Continued on page 11
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and students studying the Act. The 2021 edition is generally current to 1 November 2020. Price: $102.00 plus GST* Price for ADLS members: $91.80 plus GST* To purchase this book please visit adls.org.nz/bookstore or contact the ADLS bookstore by phone: 09 306 5740 or email: thestore@adls.org.nz * + Postage and Packaging
LawNews Issue 11 | 23 Apr 2021
Continued from page 10
incorporated society under the new Act, is prohibited from being a director or taking part in management of an incorporated or unincorporated body under the Companies Act, the Securities Act, the Securities Markets Act, or the Takeovers Act, is subject to a property order under the Protection of Personal and Property Rights Act 1988, or does not comply with any qualifications for officers in the society’s constitution.
Every incorporated society will need a contact person with whom the registrar can communicate. Committee conflicts of interest must be declared and entered in a conflicts register, with a summary presented to annual general meetings.
Every society constitution must include fair, efficient, and effective procedures to deal with internal disputes, including complaints about the misconduct or discipline of members, and grievances brought by members about their rights or interests as members. They will be free to continue, develop or adopt disputes procedures to meet their needs, but their procedures and practices must satisfy the requirements for natural justice defined in the Act – for example, the right to be heard and to prepare a defence.
The new Act will provide that a society, a member or a former member may apply to a court for orders to enforce the constitution. It will also empower the registrar to apply to a court for orders to enforce the constitution if it’s in the society’s interest and the public interest. How long will societies have to meet all the requirements of the new legislation? Will they face increased compliance costs and could this cause them undue hardship?
Most governance committee structures will likely remain the same, but what is changing is the clear articulation of officer duties and conflict obligations Craig Fisher The timing of implementation could still be subject to change as the bill goes through the House. However, my understanding is that it was intended to be relatively generous as regards the period of time before changes were mandatory. This was based on the logic that many incorporated societies are not large, wellresourced or sophisticated. There will undoubtedly be increased compliance costs. However, in my experience as a former audit partner who dealt with a lot of incorporated societies, I would suggest some of the increased compliance cost in many cases could best be looked at as an investment in appropriate governance and processes. Whether this will cause undue hardship seems to be a rather emotive question. It also perhaps masks some of the real issues – organisations not operating in a competent manner. I tend to think of adopting good practice as more akin to buying insurance – yes, it costs but the benefits of risk mitigation far out-weigh this cost. Scott Moran A society must reregister as a society before 25
December 2025, or two and a half years after the legislation comes into force, whichever is the later. For some societies, re-registration will require a few tweaks to their constitution. For many it will trigger a good look at their constitution. I do not see the obligations to re-registering and additional compliance requirements (such as having a contact officer and making information available to members) as creating any undue hardship. In light of the new committee-member and officer duties, I would strongly recommend incorporated societies ensure they have director and officer insurance cover in place, if not in place already. This may be an unbudgeted expense for many societies. Mark von Dadelszen The new Act will provide for a transitional period ending on the later of 1 December 2025 and the date that is two years and six months after the start of certain transitional provisions. During the transitional period:
Every existing society must check that its constitution complies with the new requirements. Some existing constitutions may comply with the new requirements, but where a constitution lacks a rule required by the new statute or does not comply with the new constitution content requirements, societies will need to amend their constitutions.
Any dissolution or liquidation will deal with the distribution of assets as if the 1908 Act had not been repealed.
Most legal firms can expect an avalanche of requests for help from their pro bono and feepaying incorporated societies. They need to be prepared.
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To view all ADLS CPD & register: adls.org.nz/cpd Email us: cpd@adls.org.nz Phone us: 09 303 5278
Featured CPD Current Contractual Issues: Pre-contractual Misrepresentation This next seminar in the series will address the framework for analysing pre-contractual misrepresentation; what constitutes misrepresentation; the primacy of the written agreement and the judicial mindset; s 50 of the Contract and Commercial Law Act and “no representations” clauses; the significance of legal advice; and relief.
Learning outcomes: • • • • • •
Get to grips with the framework for analysing pre-contractual misrepresentation – the relationship between the law of contract and the law of negligent misstatement. Receive a refresher on what constitutes mispresentation. Delve into the primacy of the written agreement and the judicial mindset, including looking at recent caselaw. Gain a better understanding of s 50 of the Contract and Commercial Law Act 2017 and “no representations” clauses. With reference to the Bushline case, examine the significance of legal advice. In respect of relief, revisit the approach under s 35 of the Contract and Commercial Law Act in light of the Court of Appeal’s decision in Southern Response v Dodds.
Debts, Disputes and Retentions: Recent Construction Case Law Deconstructed In person | Live Stream A recent spate of cases has brought into sharp focus a number of issues and key principles of interest and importance to all practitioners advising clients in the building and construction industry. Some of these issues include, inter-alia, the validity of payment claims and payment schedules; the scope of an adjudicator’s powers in determining a dispute; letters of intent and the importance of contract formation; and issues surrounding the retentions regime. This seminar will provide a summary of industry noteworthy cases and key takeaways, and unpack the issues surrounding the retentions regime in the context of recent case law and Government announced changes to the Construction Contracts Act 2002. Learning outcomes: Cases to be covered, include: • Hanlon Plumbing Ltd v Downey Construction Ltd: Interim injunction requiring retentions to be held in a separate trust account. • Bennet & Ors v Ebert Construction Limited and Oorschot v Corbel Construction. • KME Services v CPB Contractors: Whether the default rule re exercise of a contractual discretion should be implied in the context of Extensions of Time. • Jade Residential Ltd v Paul: The right to cancel a contract for partial repudiation; Whether an aggrieved party is required to follow each step in a dispute resolution clause before cancelling a contract. • Electrix v Fletcher Construction: Issues surrounding the common practice of issuing letters of intent prior to a full construction contract being entered into. • Poly Wealth Trustee Ltd v Van Vlerken: The validity of a payment claim not in “substantial compliance” with the requirement to include Form 1. • Fletcher Construction Company Ltd v Spotless Facility Services (NZ) Ltd: Payment schedule requirements under the CCA. • Alaska Construction + Interiors Auckland Limited v Lahatte: How is an adjudicator’s jurisdiction set? Can grounds of dispute in a notice of adjudication be superseded by an adjudication claim? • C&R Property Development Ltd v MR Civil Ltd: Threshold to set aside a statutory demand issued to recover amounts awarded in an adjudication determination. • Haskell Construction Ltd v Ashcroft and Alpine Prime Properties Ltd: The ability of an adjudicator to award statutory damages in an adjudication; The doctrine of issue estoppel.
Livestream CPD 1.5 hrs
Tue, 4 May 4pm – 5.30pm
Presenters Stephen Hunter QC, Shortland Chambers Mike French, Director Law Undergraduate Programmes, Auckland University of Technology
Seminar
Livestream
CPD 2 hrs
Wed, 19 May 4pm – 6.15pm
Presenters Geoff Hardy, Partner, Martelli McKegg Shanti Frater, Partner, Simpson Grierson
Leading in Law – What is Leading? (Workshop 1)
Workshop
A series of three half-day workshops, this distilled leadership development programme provides participants with a range of practical leadership insights, behaviours and tools. Framed in contemporary leadership bestpractice, where the primary role of a leader is to empower people to perform and grow, this is an engaging, sometimes challenging, leadership development experience. Learning outcomes
CPD 4 hrs
Feedback from previous sessions: • • •
Created a good initiative environment with a very good presenter who knew his topic well and was passionate about teaching other to lead. Thoroughly enjoyable and highly valuable. This really is a great course and should be encouraged right across the profession and at all levels A+.
Thu, 13 May 9am – 1.15pm
Facilitator Tony Gardner, Managing Director, Archetype Leadership + Teams
Conducting Effective Client Interviews
Workshop
The start of virtually every lawyer-client relationship is the initial interview. It is an opportunity to identify who the client is, understand the nature of the services required, clearly establish terms of the relationship, manage client expectations, and make a sound impression. Mistakes made during the initial interview can, therefore, have a lasting impact on the relationship and even hinder a lawyer’s ability to provide effective representation. Through a combination of coaching and learn-by-doing methods, this workshop will develop the skills required for conducting effective client interviews. Attendees will learn how to structure and guide the interview process to improve efficiency, enhance rapport and minimise common mistakes. Learning outcomes
CPD 3 hrs
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Sat, 15 May 9am – 12.15pm
Presenters/Facilitators Dr Stephanie Mead, Barrister Sole, and Instructor, Institute of Professional Legal Studies Seung Youn, Lawyer – Public Defence Service
LawNews Issue 11 | 23 Apr 2021
CPD in Brief Love Thy Neighbour? A guide to navigating common neighbour disputes In person | Live Stream Disputes between neighbours can escalate quickly and disproportionately. On occasion, tensions build until one neighbour explodes, like one who took a chainsaw to his neighbour’s fence. Often however, disputes make their way through our courts and tribunals, with some culminating in lengthy and costly litigation (such as in the case of Aitchison v Walmsley where a dispute over a play-fort led to 4 years of litigation). Knowing how to navigate and best resolve these often heated disputes may be beneficial to all lawyers advising clients in the area. This seminar provides a guide to navigating common neighbour disputes, in the context of recent and interesting case law, and will focus on restrictive covenants, cross-leases, rights of way, boundaries and actionable nuisances. Presenters: Andrew Peat, Barrister; David Broadmore, Partner, Buddle Findlay; Mitch Singh, Partner, Glaister Ennor; Wi Pere Mita, Manager Māori Legal Services, Community Law South Auckland Chair: Geoff Hardy, Partner, Martelli McKegg
The Taxation of Settlements and Awards: What Lawyers Need to Know In person | Live Stream Advocating for clients to achieve the best financial outcome is critical. Whether they receive a court award or settle out of court, in disputes involving money your client will ultimately be concerned with their bottom line. But what happens if they receive an unexpected tax bill and don’t pocket what they were expecting? Alternatively if your client is on the other side of the dispute and paying out, will a tax deduction be available to relieve some of the burden? The objective of this seminar is to familiarise you with key income tax and GST considerations you should keep in mind when negotiating settlements or pleading claims. While your client may not expect you to be a tax expert, you should understand the basic questions to ask, when to ask them, the potential ramifications to you and your client if tax considerations are overlooked, and when to recommend that your client seek specialist tax advice. Presenters: Katerina Wendt, Barrister, Richmond Chambers; Robert Grignon, Senior Legal Advisor, Chapman Tripp
Investing vs Speculating
Seminar Livestream CPD 2 hrs
Tue, 11 May 4pm – 6.15pm
Seminar Livestream CPD 1.5 hrs
Tue, 18 May 4pm – 5.30pm
Seminar
In person | Live Stream Do you wish (or need) to achieve your long-term financial objectives? There is a difference between investing and speculating. Patrick Fogarty is the Client Director at The Private Office, a boutique wealth management business specialising in providing tailored financial planning and investment management for senior members of the legal community. His evidenced-based talk will highlight key principles that underpin successful investment strategies, and show how understanding these (often simple) ideas can have a huge impact on your ability to create financial independence. Presenter: Patrick Fogarty, Client Director, The Private Office
Thu, 20 May
The Art of Communication – Be a Powerful Advocate
Workshop
As Spandau Ballet put it, “Communication let me down.” How often have you thought that you could, or should, have slowed down when addressing a room, used more eye contact, or come across as more confident? This workshop, led by an experienced advocate and an accomplished teacher/director, will arm you with the skills for developing the art of communication for your role as an advocate – so you won’t let yourself down, or your clients on behalf of whom you speak. Feedback from the previous sessions included the following comments: • “Interesting, lively workshop – well presented.” • “Great anecdotes, relevant stories and examples.” • “The presentation was relaxed, informative and encouraging.” Presenters: Marie Dyhrberg QC; Isabel Fish, Director, Producer and Educator
Livestream CPD 1.5 hrs 4pm – 5.30pm
CPD 3 hrs
Sat, 22 May 9am – 12.15pm
CPD Pricing Delivery Method
Member
Non-Member
Webinar (1 hour)
$80 + GST
$115 + GST
Webinar (1.25 hour)
$90 + GST
$130 + GST
Seminar (2 hour in person)
$130 + GST
$185 + GST
Seminar (2 hour live stream)
$130 + GST
$185 + GST
On Demand (1 hour recording)
$90 + GST
$130 + GST
On Demand (2 hour recording)
$145 + GST
$205 + GST
CPD On Demand Earn CPD hours by completing On Demand activities via your computer or smart device visit: adls.org.nz/cpd
For group bookings for webinars and seminars, contact cpd@adls.org.nz ADLS members and non-member lawyers who have registered their Airpoints™ membership with ADLS can earn Airpoints Dollars™ on eligible ADLS CPD purchases. Terms and conditions apply.
Love Thy Neighbour? Tuesday 11 May | Seminar | 2 CPD hours Visit adls.org.nz for more information.
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TM
Cradle to Grave Conference 2021 7 CPD hours
The interface between trust, property and family law Christchurch 3 May
Auckland 5 May
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Members $500 + GST | Non-members $610 + GST
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Conducting Effective Client Interviews Saturday 15 May | 3 CPD hours
This workshop will develop the skills required for conducting effective client interviews. Attendees will learn how to structure and guide the interview process to improve efficiency, enhance rapport and minimise common mistakes.
T 09 303 5278
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