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Costs disclosure obligations and consequences of not complying: part 3

February 4th, 2011 · No Comments

This is part 3 of a serialisation of a paper I gave on about costs disclosure obligations and the consequences of not complying.  Parts 1 and 2 are here and here.  This post continues the answers to the question ‘To whom need disclosures not be given?’  Anyone who has any insights into the interpretation of the various definitions which refer back to the Corporations Law is invited to provide them by commenting on this post.

Classes of clients

By virtue of s. 3.4.12(1)(c), and of sub-section (f) read with r. 3.4.2 of the Legal Profession Regulations 2005, in the case of costs disclosures only, they need not be made to clients who are:

(c)(i) A law practice or an Australian legal practitioner. ‘Australian legal practitioners’ are lawyers who hold an Australian practising certificate: s. 1.2.1.  A ‘law practice’ is:

(a) such a lawyer in sole practice as a solicitor or a barrister;

(b) a law firm (that is, a partnership of Australian practising certificate holders, certain foreign lawyers, and/or incorporated legal practices);

(c) a multi-disciplinary partnership (a partnership of lawyers and others provided for by the 2004 Act);

(d) an incorporated legal practice (such as Slater & Gordon Ltd); or

(e) a community legal centre (such as the Fitzroy Legal Service).

(f) An overseas-registered foreign lawyer or a foreign law practice.

(c)(ii) A public company within the meaning of the Corporations Act, 2001. Section 9 of that Act is its definitions section.  That says ‘“public company” means a company other than a proprietary company,’ and ‘“proprietary company” has the meaning given by subsection 45A(1)’. That section provides:

‘A proprietary company is a company that is registered as, or converts to, a proprietary company under this Act.

Note 1:       A proprietary company can be registered under section 118 or 601BD. A company can convert to a proprietary company under Part 2B.7.

Note 2:       A proprietary company must:

* be limited by shares or be an unlimited company with a share capital

* have no more than 50 non‑employee shareholders

* not do anything that would require disclosure to investors under Chapter 6D (except in limited circumstances). (see section 113).

(c)(ii) A subsidiary of a public company within the meaning of the Corporations Act, 2001. By s. 9, it defines ‘subsidiary’ to mean ‘in relation to a body corporate, … a body corporate that is a subsidiary of the first-mentioned body by virtue of Division 6 [of Part 1.2].’  Division 6 comprises ss. 46 – 50AA.  Section 46 (‘What is a subsidiary?’) says:

‘A body corporate (in this section called the first body ) is a subsidiary of another body corporate if, and only if:

(a)  the other body:

(i)              controls the composition of the first body‘s board; or

(ii)              is in a position to cast, or control the casting of, more than one‑half of the maximum number of votes that might be cast at a general meeting of the first body; or

(iii)              holds more than one‑half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or

(b)  the first body is a subsidiary of a subsidiary of the other body.’

(c)(ii) A large proprietary company within the meaning of the Corporations Act.  A company may vary between large and small proprietary company status from financial year to financial year. Presumably it is the financial year in which the disclosure is given that is determinative. It may not be possible, with some companies, accurately to predict whether the company will be a small proprietary company in the relevant financial year.  The Corporations Act’s definition is in s. 45A(3):

‘(3)  A proprietary company is a large proprietary company for a financial year if it satisfies at least 2 of the following paragraphs:

(a) the consolidated revenue for the financial year of the company and the entities it controls (if any) is $25 million, or any other amount prescribed by the regulations for the purposes of paragraph (2)(a), or more;

(b)  the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is $12.5 million, or any other amount prescribed by the regulations for the purposes of paragraph (2)(b), or more;

(c)  the company and the entities it controls (if any) have 50, or any other number prescribed by the regulations for the purposes of paragraph (2)(c), or more employees at the end of the financial year.’

(c)(ii) A foreign company within the meaning of the Corporations Act.  The definition is in that Act’s s. 9:

‘(a)            a body corporate that is incorporated in an external Territory, or outside Australia and the external Territories, and is not:

(i)            a corporation sole; or

(ii)             an exempt public authority; or

(b)             an unincorporated body that:

(i)              is formed in an external Territory or outside Australia and the external Territories; and

(ii)              under the law of its place of formation, may sue or be sued, or may hold property in the name of its secretary or of an officer of the body duly appointed for that purpose; and

(iii)             does not have its head office or principal place of business in Australia.’

(c)(ii) A subsidiary of a foreign company within the meaning of the Corporations Act. See above for the definition of ‘subsidiary’.

(c)(ii) A registered Australian body within the meaning of the Corporations Act. Section 9’s definition is ‘a registrable Australian body that is registered under Division 1 of Part 5B.2.’  ASIC’s website says:

‘These are bodies not registered under the Corporations Act 2001. They can be either:

  • a registered body that is not a company, recognised company, exempt public authority or corporation sole, or
  • an unregistered body having certain rights and obligations (may sue or be sued, or may hold property in the name of its secretary or of an officer of the body duly appointed for that purpose). Examples include trading co-operatives and incorporated associations.

Registrable Australian bodies carrying on or wishing to carry on business outside their state of registration are registered on a national basis and each is allotted an Australian Registered Body Number (ARBN).

Registrable Australian bodies do not include foreign companies.’

(c)(iii) A financial services licensee within the meaning of the Corporations Act.  Apart from certain exempt persons (see s. 911A(2)), ‘a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services’: s. 911A. Division 4 of Part 7.1 deals with financial services.  It commences at s. 766A, which says that a person provides a financial service if they provide financial product advice, deal in a financial product, make a market for a financial product, operate a registered scheme, provide a custodial or depository service, or engage in conduct prescribed by regulation, the meaning of which concepts is set out in ss. 766B – 766E.

(c)(iv) A liquidator, administrator or receiver ‘as referred to in’ the Corporations Act.

(c)(v) A partnership that carries on the business of providing professional services if the partnership consists of more than 20 members or if the partnership would be a large proprietary company (within the meaning of the Corporations Act) if it were a company.  ‘Partnership’ is not defined by the 2004 Act, but see s. 5, Partnership Act, 1958 and Fletcher, The Law of Partnership in Australia (Thomson, 9th ed., 2007), ch. 2.

(c)(vi) A proprietary company within the meaning of the Corporations Act formed for the purpose of carrying out a joint venture, if any shareholder of the company is a person to whom disclosure of costs is not required.  See above for the definition of ‘proprietary company’.

(c)(vii) An unincorporated group of participants in a joint venture, if any member of the group is a person to whom disclosure of costs is not required and if any other members of the group who are not such persons have indicated that they waive their right to disclosure.

(c)(viii) A Minister of the Crown in right of a jurisdiction or the Commonwealth acting in his or her capacity as such, or a government department or public authority of a jurisdiction or the Commonwealth. ‘Public authority’ is not defined in the 2004 Act.

(f) A corporation that has a share capital and whose shares or the majority of whose shares are held beneficially for an Australian government.

See also:

Tags: costs disclosure defaults · Professional fees and disbursements