How Labor dropped the ball on the rule of law

Federal Attorney-General Mark Dreyfus. Picture: Tamati Smith

Sixteen months ago, the Albanese government had the perfect opportunity to refute the argument that it has no appetite for reform. Instead, it dropped the ball.

In November 2023, a report landed on the desk of Attorney-General Mark Dreyfus that called for big changes because this country’s system of corporate and financial services regulation is “no longer fit for purpose”.

That report, by the Australian Law Reform Commission, cited judge after judge who had denounced parts of this body of law as “porridge”, “obscure and convoluted”, “shrouded in obfuscation” and “a maze”.

The commission had concluded that corporate and financial services law was so complex it was driving up costs for business, consumers, governments, regulators and the entire economy.

Businesses were finding it harder innovate because they needed legal advice more frequently and their compliance burden had been made more costly by unnecessarily complex legislation.

This is not just a problem for big business. The commission recognised the significant impact on small business which does not have deep pockets to pay for legal advice. Consumers are also suffering – finding it more difficult to identify and enforce their rights under the law.

The report that hit Dreyfus’s desk in 2023 was enormous. It runs to 356 pages, makes 58 recommendations and was the last instalment in a three-year project that had produced 12 background papers and three interim reports.

It says 13 of the commission’s interim recommendations had already been implemented in full or in part – but they only concerned technical issues. So what about everything else?

When the report was tabled in parliament on January 18 last year Dreyfus said the government would carefully consider its recommendations.

In a perfect world, it should have sparked a flurry of action.

Clarifying corporate and financial services law is one of the most effective ways of addressing the cost-of-living crisis and the regulatory malaise that is weighing down corporate Australia. If compliance costs for business are reduced, there will be fewer costs to pass on to consumers and that means fewer price rises and less inflationary pressure.

The problem outlined in that report was first identified years earlier by former High Court judge Ken Hayne who complained about it during his royal commission into misconduct in the banking and finance sectors. Hayne found that the legislative framework for corporations and financial services regulation is unnecessarily complex, fails to communicate fundamental norms and hinders compliance.

His call for a return to simplicity is in line with the views of the late Tom Bingham, a former Lord Chief Justice of England, who believed legislative bulk was not necessarily the path to better law. In Britain, just like Australia, the rule of law requires legislation to be known, clear, certain and prospective. But that principle can be undermined by “legislative hyperactivity” which is exactly what seems to have happened to corporate and financial services law in this country.

Hayne was part of the advisory committee that helped produce the ARLC report and so was Joe Longo, who chairs the Australian Securities and Investments Commission.

Had this report been implemented, the Albanese government could have gone into this election campaign in a much stronger position. Its credentials on reform would be beyond dispute.

Instead, responsibility for fixing this body of law now falls to whoever is able to form government after the coming election.

If that task falls to the Coalition, shadow treasurer Angus Taylor has pledged to move quickly. Taylor made that commitment last month in his Tom Hughes oration – an under-reported address that could lead to some of the most important changes to corporate law ever undertaken by a federal government.

“The Coalition will respond to the Australian Law Reform Commission’s 2023 report and immediately set to work with ASIC to progressively simplify the laws,” Taylor said. “There is no need for further reviews.”

The real test is whether the next government will have the fortitude to accept a recommendation to do away with an appalling legislative tactic known as “notional amendments”.

Unlike orthodox regulations which give effect to laws enacted by parliament, notional amendments change the legal effect of a provision without changing its text.

The written statute no longer means what it says – which is an affront to common sense and every principle of democracy.

During the course of its inquiry the ARLC found 1200 of these notional amendments, and its final report says its interim recommendation to replace them with textual amendments had only been partly implemented. Notional amendments undermine the democratic legitimacy of the law. They permit statutory agencies and the executive branch of government – not the parliament – to change the meaning of the law without changing the text of the relevant statute.

One of the defining tests of a nation’s adherence to the rule of law is whether its laws are accessible, clear and predictable. Until the last notional amendment is eliminated, Australia will fail that test.

Uncertainty about the state of the law has consequences. Why would anyone invest large sums of money in a country where their rights and obligations are outlined in a law that might not mean what it says?

Notional amendments might be convenient for ministers and their agencies, but they impose a terrible cost on everyone else.

Chris Merritt is vice-president of the Rule of Law Institute of Australia.