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Binding Rulings on Securities Law
A Discussion Paper

CHAPTER 7    PUBLICATION

7.1

The Commission is of the view that, if it were to take on a rulings function, all rulings should be published in an accessible medium to ensure that they are publicly available. This not only ties with the efficiency and compliance purposes behind a rulings regime, but also ties with the constitutional principle that people should have ready access to the laws and rules that govern their activities. Publication would probably be made in respect of rulings which endorsed the interpretation promoted by the applicant as well as those which did not.

7.2

A further important argument in favour of publication is that it enables the public to scrutinise a public body's application of the law to particular persons or transactions. Public scrutiny is one of the most powerful tools for ensuring that the use of discretionary powers is transparent and therefore less amenable to abuse.

7.3

If a ruling had been made in the case discussed earlier in relation to the leveraging of securities by ABC Ltd, the factual basis of the complex series of transactions involved would need to have been described sufficiently clearly so that others who came after were able to rely on the clarification to the law provided by ABC Ltd's ruling. The ruling itself would indicate that, on the assumed facts set out in the ruling, the offer did not constitute an offer of securities to the public. The reasons given by the Commission for the ruling would, in that case, have drawn on the opinion provided by the barrister.

7.4

Meanwhile, ABC Ltd would probably have disclosed the nature and effect of the ruling in its offer documents. Indeed, it should be necessary for it to do so if it wished to rely on the safe harbour provisions that would be available in respect of rulings. This returns us to one of the questions referred to at the beginning of this paper, namely, how and in what circumstances the offeror would be expected to give notice of a ruling that securities law did not apply to the transaction.

7.5

It seems clear, on the other hand, that rulings on the meaning or application of the securities law to an offer of securities to the public should be disclosed in the offer documents by the issuer. This raises the question as to whether it should be an offence to fail to disclose accurate, or indeed any, information regarding a ruling.

19. Should all rulings be published?

20. Should the parties who sought the ruling be named in the published ruling?

21. Should any legal opinion referred to by the Commission in coming to its decision for the ruling be published in conjunction with, or as part of, the ruling?

22. What would be the legal status of such opinions, especially if the Commission stated in the ruling that it had had regard to, or had drawn upon, the opinion?

23. Should it be an offence for an issuer to fail to disclose or accurately refer to a ruling it has obtained in respect of its offer?

CHAPTER 8    A POSSIBLE ALTERNATIVE: EXEMPTIONS WHERE THE LAW IS IN DOUBT

8.1

Most of the enquiries received by the Commission in respect of which a ruling, of the type described in this paper, could be made turn on the question as to whether or to what extent the law applies to a proposed transaction. A possible alternative, therefore, to a new statutory rulings power for the Commission would be to expand on its current exemption function by empowering it explicitly to approve exemptions where it was of the opinion that there was reasonable doubt about the application of the securities law to the offeror or transaction or to a particular aspect of a transaction.

Advantages

8.2

If a new section 5(6) of the Securities Act were to provide something along the following lines, the Commission would have the power to approve exemptions from the law where there was genuine doubt as to its application:

5(6)    Where the Commission is of the opinion that there is reasonable doubt as to the meaning or application of the securities law, the Commission may, in its discretion and upon such terms and conditions (if any) as it thinks fit, by notice in the Gazette, exempt any person or class of persons from compliance with any of the provisions referred to in subsection 5(5) of this section.

8.3

Such an extension to its exemption power would enable the Commission to provide the comfort of an exemption for the avoidance of doubt. This type of exemption could have been granted in the credit unions case discussed earlier in this paper.

8.4

If a court later determined that the law did not in fact apply to the situation, the offeror would be in the position of finding that it had not needed an exemption from the law after all. If a court were to find, however, that the law did apply, the offeror would have the exemption to rely on for not having complied with the provisions of the securities legislation, to the extent of the exemption.

8.5

Procedurally, there would be the advantage that the Commission's practice in respect of exemptions is well-established and well-understood by Government agencies, practitioners and financial market participants. Exemptions can be processed at moderate cost and relatively speedily. There would be no 'down-time' while Commission staff and Members ironed out any rough patches in establishing a new procedure, as would be likely to arise with a new rulings function. There would be no implicit challenge to the authority of the court. There would be no requirement for the Commission with its mixed membership of accountants, brokers, company directors and lawyers to become a tribunal to determine purely legal questions. It would be less likely that there would be the legal challenges often associated with completely new statutory powers.

8.6

Furthermore, the level of legislative change necessary to achieve a small extension to the Commission's existing exemption function appears to be relatively minor. It may even be achievable through a Business Law Reform Bill.

Disadvantages

8.7

The most obvious disadvantage to a power to exempt where the law was in doubt would be that situations similar to that discussed above in respect of ABC Ltd's leveraging of securities might fall outside of this category of exemptions. ABC Ltd would have benefited from the exemption if the Commission had accepted that the application of the law to the transactions was in doubt. ABC would have obtained the certainty it was seeking that even if the law applied to the transactions concerned, ABC was exempted from the law in respect of them. However, the Commission might not always accept the view of the applicant that there was a reasonable doubt about the meaning or application of the law. Moreover, the Commission might consider that the decision to grant an exemption might create doubts about compliance with securities law for other market participants who had offered similar transactions.

8.8

Whenever it granted such exemptions, the Commission would appear to be making an authoritative statement that the law was, in its opinion, in doubt.

8.9

A ruling, meanwhile would have given some added certainty to ABC Ltd that, in the Commission's view, the law did not apply to the situation. Other market participants might also have found such a ruling useful for clarifying how the Commission might view their own rights and obligations, or they might seek the assurance of an individual ruling on their specific transactions. In any event, a ruling for ABC Ltd would not have had negative downstream effects for other market participants. (However, a ruling could be declined on the grounds of being trivial or unimportant if it might produce negative downstream effects outweighing the certainty to be gained by the applicant).

24. Should the Commission have an explicit power to grant exemptions for the avoidance of doubt?

25. Would such an exemption power achieve the benefits of a ruling power as described in this paper?

26. Are there any other matters that should be taken into account in considering whether the Commission should have a power to make binding rulings?