A Guide to the Law of Securitisation in Australia - Clayton Utz

18The statutory source for this stems from (depending on thecircumstances) section 1041H of the Corporations Act, section12DA(1) of the ASIC Act or, if these previous provisions do notapply, section 52 of the TPA.Section 1041H provides:“A person must not, in this jurisdiction, engage in conduct inrelation to a financial product or a financial service, that ismisleading or deceptive or is likely to mislead or deceive.”Section 12DA(1) of the ASIC Act provides:“A person must not, in trade or commerce, engage in conduct inrelation to financial services that is misleading or deceptive or islikely to mislead or deceive.”Whilst the sections substantially overlap and proscribe the sameconduct, there are some important differences, including:• section 1041H applies to conduct “in this jurisdiction”, whilstsection 12DA(1) has extra-territorial application;• standing is required to bring an injunction in relation to abreach of section 1041H whilst this is not required in relationto a breach of section 12DA(1); and• while a breach of both sections give rise to civil liabilities, theregimes for this are different for each.Section 1041H and section 12DA(1) are borrowed from section52 of the TPA. The approach taken by most commentators whenanalysing section 995(2) (the predecessor to section 1041H) wasto conclude that by adopting the language of section 52 of theTPA, the legislature intended to import the interpretation thatthe courts have placed on section 52. This approach is supportedby Fraser v NRMA Holdings Limited (1995) 13 ACLC 132, a casebrought under section 52, but where the court stated that hadthe applicants sought to rely on section 995(2), the issues fordetermination would have been substantially the same. Such anapproach is likely to also apply in relation to sections 1041H and12DA(1).3.3.2 Misleading or deceptive conductThe touchstone for liability for a breach of sections 1041H and12DA(1) is that the effect of the misstatement in, or omissionfrom, the information memorandum must be misleading ordeceptive. The meaning attributed to these words is to “lead intoerror”. A court will take a practical and realistic view of theeffect of the relevant conduct. Evidence that a particular personhas been misled, whilst persuasive, is neither conclusive noressential, as a court will determine the question for itself.While the test is objective, the likely effect of the relevantconduct is not assessed in isolation. Instead, the court identifiesthe relevant section of the public exposed to the conduct inquestion and attributes to the audience a standard ofsophistication against which the court decides whether theconduct was misleading or deceptive or was likely to mislead ordeceive. The audience may be as wide as the public at large ormay be confined to a segment of it, such as the investing public.It is likely that a court will attribute a relatively high level ofsophistication to investors in the wholesale capital markets. As aresult, unlike where the recipients are ordinary members of thepublic or are relatively unsophisticated, a court will probably beless willing to construe half truths and ambiguities in aninformation memorandum as constituting misleading or deceptiveconduct.3.3.3 Omissions from an information memorandumTraditionally, the greatest concern of those involved in thepreparation of an information memorandum is that despite theprecautions that may be taken to ensure that all relevantinformation is disclosed, an omission may nevertheless occurwhich could be regarded by a court as constituting misleading ordeceptive conduct.The extent to which silence can amount to misleading ordeceptive conduct has been, and continues to be, one of the morecontentious areas of the case law in relation to section 52 (andhence, also, sections 1041H and 12DA(1)).The current approach of the courts is to assess whether thecircumstances are such as to give rise to a “reasonableexpectation” of full disclosure. In determining this, the courtstake into account factors such as the relationship between theparties, their knowledge and expertise, previous communicationsand any other relevant factors.Where there is a “reasonable expectation “ that certain materialwill be disclosed, the failure to do so is misleading or deceptiveas it implies that the material does not exist.The test of whether an omission from an informationmemorandum constitutes a breach of sections 1041H and12DA(1) depends, therefore, upon whether an investor had a“reasonable expectation “ that the omitted material would bedisclosed. Although the sections do not create an independentduty of disclosure, in practice they have this result through the“reasonable expectation “ test. If the test is not satisfied, thenthose responsible are exposed to potential liability for a breachof these sections. It is therefore important for those involved inthe preparation of an information memorandum to be able to