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

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Corporations Act or that it was involved in the contravention forthe purposes of section 79 of the Corporations Act (see above).Another area of risk for dealers is that by innocently distributinga defective information memorandum, notwithstanding thedisclaimer referred to above, they will incur liability for acontravention of sections 1041H and 12DA.The difficulty for dealers in this area is highlighted by thedecision in John G Glass Real Estate Pty. Limited v KarawiConstructions Pty. Limited [1993] ATPR 41–249. There, a realestate agent, acting for the vendor in the sale of an officebuilding, passed on an incorrect figure for the net lettable area ofthe building. The figure was included in a brochure indicatingthat the source was a consultant acting for the vendor. The frontpage of the brochure contained the name of the real estateagent. The brochure also contained a disclaimer stating, amongstother things, that the information in the brochure had beenprepared with care by the real estate agent or had beensupplied to it by apparently reliable sources and that the realestate agent had no reason to doubt its completeness oraccuracy. The disclaimer went on to state that the real estateagent did not guarantee the information and that all interestedparties should make their own inquiries to verify the informationand that it was the responsibility of interested parties to satisfythemselves in all respects regarding the property.The Full Federal Court held that the real estate agent was liableunder section 52 of the TPA for damages to the purchaser for theincorrect figure. The court stated:“In our opinion an estate agent which holds itself out as,amongst other things, consultants to institutional investors andto developers of major properties would not be regarded bypotential purchasers of properties as merely passing oninformation about the property “for what it is worth and withoutany belief in its truth or falsity ... In the present case the [realestate agent] adopted the information in question andincorporated it as an essential and prominent feature of theirselling effort on behalf of the vendor. There was certainly noexpressed disclaimer of the [real estate agent’s] belief in thetruth of the information in the brochure – indeed there was anexpress assertion of such belief. As part of its ordinary businessthe agent was providing the information in a persuasive formwith a view to achieving a sale of its principal’s property and ofcourse earning commission. It was this conduct which the learnedtrial judge, correctly in our opinion, held to be misleading anddeceptive. Once the falsity of the figure was demonstrated, itseems to us that no other conclusion could follow.”In December 2004, the High Court of Australia handed down itsjudgment in Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA260, in which it considered some of the issues raised in John GGlass Real Estate. In Butcher, the appellants had purchased avaluable waterfront property in Sydney and the respondent wasthe real estate agent that had acted for the vendor in that sale.The appellant had sued the real estate agent because, it claimed(among other things), a brochure issued by the real estate agentin connection with the property was misleading because itmisrepresented the location of one of the boundaries to theproperty.In denying the appellants’ claim, the majority of the High Courtfound that:“...it would have been plain to a reasonable purchaser that theagent was not the source of the information which was said tobe misleading. The agent did not purport to do anything morethan pass on information supplied by another or others. It bothexpressly and implicitly disclaimed any belief in the truth orfalsity of that information. It did no more than state a belief inthe reliability of the sources.”The majority then distinguished these circumstances from thecircumstances in the John G Glass Real Estate case on twogrounds. First, as noted above, the estate agent in John G GlassReal Estate would not have been regarded as merely passing oninformation to potential purchasers of property. Secondly, in JohnG Glass Real Estate, the net lettable area figure was one of hardphysical fact and essential to determining the profitability andvalue of the building, whereas in Butcher the correspondencebetween the property boundary and the survey diagram in thereal estate agent’s brochure was not a matter of hard physicalfact (although this seems to be a tenuous distinction). Further, inJohn G Glass Real Estate there was nothing to indicate that thenet lettable area figure had not been calculated by John G GlassReal Estate itself, whereas in Butcher the real estate agent hadobviously not prepared the survey diagram in the brochure. Themajority summarised this by endorsing the Court of Appealsstatement in its decision in respect of Butcher that in John GGlass Real Estate:“...the agents claimed relevant expertise, adopted the figures astheir own, and put them forward without any reference to theirsource. In [Butcher], the agents claimed no relevant expertise,and the diagram itself indicated that it was the work of aprofessional surveyor.”21
Interestingly, the majority then went on to question theconclusion in the John G Glass Real Estate case that, as notedabove, the agent expressly asserted the truth of the informationin the brochure: “It does not seem quite correct to describe anestate agent which says it has no reason to doubt the accuracyof information but says it does not guarantee it, advisesinterested parties to make their own inquiries, and saysinterested parties have the responsibility of satisfyingthemselves in all respects, as making an “express assertion”of belief in the information.” It is possible to infer from this thatthe majority of the High Court may not have reached the samedecision in John G Glass Real Estate as the Full Federal Court.The majority were of the view that if an agent presentsinformation provided to it by its principal, whether the agent ismaking a representation about the truth of such information willdepend upon the circumstances in the particular context:“There could be cases where the presentation by an agent of aprincipal’s document to a plaintiff does not involve the agent inmaking a representation about the objective truth of thedocument’s contents; and there could be cases where theincorporation of a principal’s document into another documentprepared by an agent will not involve the agent in making arepresentation about any matter of objective truth, whether theprincipal’s document is considered by itself or in conjunction withother material in the agent’s document.”Further, the majority noted that the relevant authorities do notsay that disclaimers cannot make clear who is and who is not theauthor of misleading and deceptive conduct.On a related point, the majority of the High Court in Butcherconsidered what level of examination of the language andstructure of the brochure is appropriate in considering whetherthe agent had made a representation in the brochure. The HighCourt was of the view that a close, detailed examination of thebrochure was appropriate, since the purchasers had 12 days toreview the document prior to the relevant auction and hadinstructed professional advisers in connection with thetransaction.Butcher is also noteworthy for the strongly reasoned dissentingjudgments of Justices McHugh and Kirby. Justice McHugh notedthat for the purposes of interpreting section 52 “conduct” (whichis broadly defined, as noted above), is not confined torepresentations - section 52 may operate whether or not therelevant conduct constitutes a representation. What is requiredis merely that conduct is engaged in, and that the conduct ismisleading or deceptive (or likely to mislead or deceive) which isa broader concept than a misleading representation. Accordingly,rather than considering whether the estate agent had made amisleading representation to the purchaser, Justice McHugh inhis decision to allow the appeal considered whether conduct hadbeen engaged in (distributing the brochure) and whether thatconduct had been misleading or deceptive (misrepresenting thelocation of one of the property boundaries). Publishing erroneousinformation received from others may be misleading or deceptiveconduct, depending upon whether the relevant company hasassumed responsibility for that information (or endorsed or usedits name in associations with it) so that it would be reasonablefor a recipient to rely on the information, and whether therelevant company has disclaimed any belief in the truth or falsityof the information or disclaimed any personal responsibility for it.The decision in Butcher makes it clear that in order to avoidpotential liability in respect of an information memorandum,dealers need to continue to insist that the informationmemorandum make it clear that the dealers are not the author ofthat document (other than any information in respect ofthemselves) - that is, that they are merely passing on theinformation contained in the information memorandum topotential investors, and that they do not accept any responsibilityas to is accuracy or completeness. Although, as discussed below,a disclaimer cannot remove liability for misleading and deceptiveconduct, judicial authority supports the position of dealers beingable to avoid liability for an information memorandum by makingit clear who is responsible for the relevant information.Another area of risk for dealers is that by merely beingassociated with the issue of the relevant securities, an erroneousimplication may be drawn by investors regarding the veracity ofthe material contained in the information memorandum. Anexample of this is the Dutch decision of Association ofBondholders Coopag Finance BV v ABN AMRO Bank NV. There,ABN AMRO, who was the lead manager in a euro-bond issue,was held liable under the Dutch Civil Code (which is analogous inits relevant terms to section 1041H) in relation to a defectiveinformation memorandum. This was on the basis that itsparticipation implied that it had engaged in due diligence ofcertain materials contained in the information memorandum,when in fact it had not undertaken this.22
Page 6: 12.7.3 Euroentitlements............
Page 9 and 10: 1 General overview of the nature of
Page 12: An interest in a managed investment
Page 15 and 16: 142.3.4 Provision of a financial se
Page 17 and 18: 3 The disclosure and civil liabilit
Page 19 and 20: 18The statutory source for this ste
Page 21: The implication of this approach in
Page 25 and 26: 4 Stamp duty and securitisation244.
Page 27 and 28: 264.8 Relief for mortgage-backed se
Page 29 and 30: 4.10 ConclusionStamp duty is a very
Page 31 and 32: Despite the absence of an express a
Page 33 and 34: 32share of the profits of the compa
Page 35 and 36: (d) before the issue:(i) the compan
Page 37 and 38: 365.4 Debt/equity rulesDivision 974
Page 39 and 40: Entities that make GST-free supplie
Page 41 and 42: • “ enterprise” is defined in
Page 43 and 44: 6 The Consumer Credit Code andsecur
Page 45 and 46: 7 The regulation of the participati
Page 47 and 48: inclusion within the ELE depends on
Page 49 and 50: 8 Set-off and securitisation8.1 Int
Page 51 and 52: 50However, this result and the prin
Page 53 and 54: 9 Insolvency and securitisation529.
Page 55 and 56: 54• if the trustee has not limite
Page 57 and 58: Section 588FG provides a measure of
Page 59 and 60: 10 Issues relating to debt securiti
Page 61 and 62: 60indemnity existed) and had no han
Page 63 and 64: The effect of the decision has been
Page 65 and 66: the ASX has discretion to ask the e
Page 67 and 68: • Public Trustee Members - for pr
Page 69 and 70: When Austraclear receives notificat
Page 71 and 72: have been completed in relation to
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Some CMBS transactions allow the is
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14.3 GamingIn the past, another con
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16 Clayton UtzOur securitisation te
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