CHAPTER 3
Changes between the exposure draft and the 2009 Bill
Introduction
3.1
The government's acceptance and implementation of the committee's
recommendations of March 2009 required the government to make substantial
alterations to the exposure draft bill, and to undertake a number of processes.
These included major changes such as such as simplifying the language and
structure of the nearly 300 page draft, undertaking a Privacy Impact
Assessment, and reviewing the scope and content of the enforcement provisions.
3.2
The provisions of the 2009 Bill considered by the committee reflect
these changes and processes. Because the amendments include substantial
restructuring of the Bill, it is not easy to readily identify the substantive
changes made to the Bill simply by looking at the new version of the Bill.
Changes
3.3
The department has made a submission to the inquiry which outlines the
changes made since the release of the exposure draft bill. The submission and
the attachments are clear and relatively brief and they are commended to
Senators.
3.4
In its submission the department states that the new Bill reflects:
- the recommendations made by the senate committee in its March
2009 report on the Exposure Draft of the Bill;
- the concerns of the States and Territories, and of other
stakeholders; and
- the establishment of the offices of Registrar and Deputy-Registrar
of Personal Property Securities.[1]
3.5
As an overview of the changes incorporated into the new Bill in response
to the committee's March 2009 report, the department has summarised the changes
as follows:
(a) the substantial restructuring of the Bill (significantly
to relocate formal provisions previously at the beginning of the Bill, so that
the Bill gets to the substantive provisions much more quickly);
(b) the re-writing of many provisions in the style used in
overseas counterparts of the PPS Bill, without any change to their legal effect
(principally in the style used in the Saskatchewan Act);
(c) the inclusion of conflict of laws and privacy protection
provisions; and
(d) policy changes (principally designed to more closely
align the Bill with its overseas counterparts).[2]
Structural changes
3.6
In response to criticisms of the exposure draft, the structure of the Bill
has been changed considerably. By reorganising the provisions, altering the
language and making it shorter the Bill is now more readily comprehensible. The
key amendments are:
- there has been a philosophical change to the drafting style and
this incorporates harmonisation with overseas provisions where possible – in
the new Bill many provisions have been written differently to say the same
thing in a simpler style and using simpler language;
- chapter and part guides have been introduced;
- technical provisions, particularly about the constitutional
aspects of the Bill, have been moved towards the end of the Bill;
- as a result of the new drafting style numerous definitions have
become redundant, and where appropriate remaining definitions have been moved
closer to the sections to which they are relevant, for example the provisions
relating to possession and control; and
- Part 3.5 Intellectual Property has been created to unite related
sections that were previously in separate areas of the Bill.
3.7
Overall, the proposed legislation remains lengthy and complex in parts.
However, the changes make it markedly easier to understand the intent of the
proposed legislation compared to the exposure draft.
Substantive changes
3.8
A number of substantive changes have also been made to the Bill,
including in response to the committee's March 2009 report.
Privacy Issues
3.9
The previous inquiry highlighted significant concerns about the
operation of the register and whether the proposal adequately protected
individual privacy. The department advised that it was undertaking a Privacy
Impact Assessment of the proposal. The committee made a number of
recommendations in relation to privacy, including that the assessment be
undertaken by a suitably qualified, independent person or organisation.
3.10
The government accepted this recommendation and a comprehensive Privacy
Impact Assessment was completed by Information Integrity Solutions. The
principal of this firm is Mr Malcolm Compton, the former Privacy Commissioner.
3.11
The Assessment made recommendations for a couple of immediate changes to
the provisions and quite a number of 'future action' recommendations. The
future action recommendations essentially agree with the current approach, but
recommend that they be reviewed after the scheme has been in place for a period
of time to check if the provisions are effective.
3.12
The government provided a formal response to the Privacy Impact
Assessment on 5 August 2009. A copy of the response is available on the
committee's web page at: https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=90df11ec-ada3-4e40-9f9a-7aef2a32df44
3.13
The government response indicated that the government accepted all but
one of the 14 recommendations made in the Privacy Impact Statement. Recommendation
3 was rejected on the grounds that such a requirement would impose an unwelcome
administrative burden on small businesses adapting to the new PPS regime, and would
also impose different obligations on small businesses than the Privacy Act
does in similar circumstances. [3]
3.14
The specific changes made in response to issues arising from the
previous committee inquiry and the work done for the PIA include:
- confirming that a consumer's address details will not be recorded
on the register (see Item 2 of the table in clause 153);
- the Registrar now has improved powers to remove inappropriate
data from the register;
- clause 151 now requires that a person registering a matter on the
register must have a belief on reasonable grounds that the security arrangement
between the parties does, or will exist. If a matter is registered without a
belief on reasonable grounds a civil penalty can be imposed;
- verification statements - the positive obligation on a lender to
provide a debtor with notification of arrangements placed on the register is
now bolstered because there are consequences available if the notification
requirements are not met: the federal privacy commissioner's complaints
jurisdiction can be invoked; and
- unauthorised searches will now enliven either the jurisdiction of
the privacy commissioner or the civil penalty regime. The department is
apparently still resolving the details, but the aim is to allow flexibility for
the most appropriate response to be available in different circumstances.
3.15
In particular, the committee previously recommended that the primary
legislation for the PPS reform include the key privacy protections for
individuals, including a prohibition on making the address details of any
individual public.
3.16
The government substantially accepted the recommendation and amended the
Bill to clarify information about individuals that may be included on the
register and to better describe the key privacy protections provided to individuals.
3.17
The Bill makes it clear that address details of individual grantors will
not be included on the register, rendering a prohibition on making address
details public unnecessary.
3.18
Item 2 of the table in clause 153 of the PPS Bill provides that if the
relevant collateral is consumer property and is required to be described by a
serial number, then no personal information is collected. Where an item is not
required to be described by a serial number the only details that can be
collected about the grantor are his or her name and date of birth.
International Conflict of Laws
3.19
The committee's March 2009 majority recommendation 8 was that:
...the bill adopt existing international personal property
security conflict of laws provisions, such as the New Zealand conflict of laws
model, unless there is a particular reason to depart from those provisions.
3.20
The government accepted this recommendation. However, the government has
not adopted the exact wording of existing international personal property
securities conflict of laws provisions. The Explanatory Memorandum notes that
the provisions included in the 2009 Bill (Chapter 7 – Operation of Australian
and other laws) are 'based on international conflict-of-laws rules. The
provisions are based on similar provisions in the New Zealand and Saskatchewan
PPS Acts and the UNCITRAL [Legislative Guide on Secured Transactions].'[4]
3.21
Specifically, Part 7.2 of the Bill, entitled Australian laws and
those of other jurisdictions, includes conflict of law provisions setting
out which law, in court proceedings, will govern the validity, perfection and effect
of perfection or non-perfection of a security interest. Clause 234(2) makes it
clear that Part 7.2 does not affect the law that governs contractual
obligations (including any obligations arising under a security agreement).
3.22
The proposed conflict of laws regime does not have the benefit of being
identical to existing international models. The government explains that the
New Zealand conflict of laws provisions have been criticised as being
uncertain.[5]
Enforcement
3.23
The committee recommended that the scope and content of the enforcement
provisions of the exposure draft bill be reviewed by the department with
particular attention to ensuring that the provisions are comprehensive and
adequate. The new Bill includes an enhanced approach to enforcement (in Chapter
4 of the Bill). There are now consequences for not complying with the Bill's
requirements: depending on the particular provision the Federal Court can order
the payment of a civil penalty or the Privacy Commissioner's complaints
jurisdiction can be invoked.[6]
3.24
The Bill was amended to provide enhanced sanctions for improper use of
the register and to ensure the registrar can monitor and investigate suspicious
register activity. Specifically, Part 6.3 of the PPS Bill would establish a
regime for applying civil penalties under the Bill. On application by the PPS
Registrar, the Federal Court could order the payment of a civil penalty for a serious
breach of a civil penalty provision. The civil penalty provisions are:
- applying to register, or failing to amend an existing registration,
where the registrant does not have a reasonable belief that the collateral
secures, or will secure, an obligation; and
- searching the register other than for an authorised purpose.
3.25
The Registrar would also have the power to investigate a suspected search
of the register other than for an authorised purpose.
3.26
The new provisions are welcome additions to the scheme, but are the
subject of discussion in some submissions which question whether there need to
be some amendments to ensure the approach is as effective as possible.[7]
Commercially reasonable manner
3.27
The committee recommended retention of the requirement for rights and
duties to be exercised honestly and in a commercially reasonable manner, and
that the intended scope of these requirements be explained in detail in the Bill’s
explanatory memorandum.
3.28
The Bill was amended to make clear that the duty to act in a reasonably
commercial manner applies only in relation to Chapter 4 of the Bill concerning
the enforcement of security interests. The duty to act in a commercially reasonable
manner would not apply to the extent that the parties have contracted out of
the enforcement provisions of the Bill under proposed section 154.
Review
3.29
The committee recommended that the Bill include a requirement that the
operation of the Bill be reviewed three years after it commences in a process
that includes extensive consultation with industry, governments, lawyers,
consumers and academics.
3.30
The Bill now includes clause 343, which would require the Minister to
instigate a review of the operation of the Bill, which must be completed within
three years of the new PPS scheme commencing.
State & Territory concerns
3.31
The department's submission advises that the states and territories have
raised a number of issues since the exposure draft was considered by the
committee. The changes that the government has made to the Bill in response to
these matters are outlined in paragraphs 27 to 30 of Attachment A to the
department's submission to this inquiry.[8]
Registrar
3.32
Also new in this Bill, there are provisions that establish the
legislative foundation for the offices of the Registrar of Personal Property
Securities and the Deputy Registrar of Personal Property Securities. See
paragraph 31 of Attachment A to the department's submission to this inquiry and
Part 5.9 of the Bill.[9]
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