By Gareth Vaughan
Experts in specific fields should be drafting legislation rather than politicians and bureaucrats if New Zealand is to push ahead with the process of over turning 40 years of declining standards that culminated in the collapse of dozens of finance companies and the disastrous leaky homes problem, says Queen's Counsel Tony Molloy.
Molloy, who provided Parliament's commerce select committee with independent advice on its investigation into the collapse of dozens of finance companies which cost "ma and pa" retail investors billions of dollars, told interest.co.nz in a Double Shot interview that New Zealand had lowered its standards "enormously" over the past 30 to 40 years in both the finance sector and elsewhere.
"Apprenticeships and building standards got blown out of the way 30 odd years ago and the result now is that we've got a leaky building problem that really makes the finance company problem pale into insignificance. (There's) two to three times the size of the finance company losses on the leaky buildings," Molloy said.
Molloy, who produced a take no prisoners report for the select committee, argues the finance company meltdown was the inevitable consequence of at least three decades of unreadiness, unwillingness and inability of regulators, enforcers, courts, lawyers and accountants to fulfill their roles with integrity.
Furthermore he argues there has been a culture that has treated investors as prey, rather than as fellow citizens engaged in an enterprise from which all involved could profit to the benefit of the country as a whole. (See full details of the finance company collapses in our Deep Freeze List here).
Asked how New Zealand as a country could repair this damage of the past three or four decades, Molloy said slowly, but noted there were some encouraging signs such as company directors being forced to live up to their responsibilities and the Serious Fraud Office and Financial Markets Authority now providing a "slight glimmer of hope."
'Parliament not the right place to make laws'
Molloy said as for legislation, he doesn't believe Parliament's the right place to make it.
"Parliament's certainly the right place to decide that there's a problem," said Molloy. "But it seems to me that rather than have the acts being drafted by people who just sit around and pool what they think are good ideas, an act really needs to go to somebody who knows what he's doing or what she's doing. Ask them to look at the law as it is and just say do we need any changes?"
He cites the example of Britain's Partnership Act, which was drawn up in the 1890s by Sir Frederick Pollock, an expert who, rather than rely on specific applications of law emphasised underlying principles.
"It (the Partnership Act) is just there to be a framework so that people have got an understanding without being lawyers and they can find their ways around the main principles. That thing is still going after 130 years, it has been adopted all around the world including North America, it has governed billions and billions of business deals and yet it's very simple," Molloy said.
"In 45 years I've had three cases on the Partnership Act and in none of them was the law the problem."
There was currently a very good example of where things could go wrong through "legislative fiddling".
"We've got the Trustee Act being considered by a law reform committee. The people on it, they're all very good lawyers but none of them are proven trust lawyers," said Molloy. "They don't have the background and it makes you wonder why people like that even have to take a job like that on. It would be much better to go to somebody who has done a lot of work in the field over a long period of time who has kept up with all the reading and can probably report that actually there's really nothing wrong with the Trustee Act."
Although you might want to tweak a few things associated with this particular law, beyond that it should be left alone.
"If you've got legislation that is clear and is easily understood, (and) it has got a long history, the case law doesn't have any trouble, the courts don't have any trouble deciding what the law is, then leave it alone," said Molloy.
"In a lot of cases you could strip back the accretions that have occurred over the last 30 or 40 years and look at what you had and then decide whether there was anything that needed to be added to it at all. I think in a lot of cases you'd probably find it worked better before."
'More law is not necessarily better law'
Molloy said the real problem is often not the actual legislation in place. Rather it's the fact that people won't apply it.
"(Government) departments don't understand it and they don't try to understand it so they call for more law. Very often the call for more law is to disguise the fact that the departments haven't been doing their jobs in the first place."
As a country New Zealand hadn't been very smart over the last 40 years, Molloy said.
"(Ernest) Rutherford said somewhere that we don't have much money so we've got to think. Nowadays I think the philosophy seems to be we haven't got much money so we'll borrow more and we won't think anyway and it's really not doing the country a hell of a lot of good."
Early spring of improvement
Nonetheless, Molloy said there are some good signs that things may be improving. He cited the beginning of the Bridgecorp trial in the High Court at Auckland this week and also noted some failed finance company directors have been sentenced to jail and more may follow. National Finance 2000 director Allan Ludlow was last week sentenced to six years jail for theft and false accounting in the toughest sentence yet dished out to a convicted director of a failed finance company.
"One thing that's teaching, at last, is that directors have a job to do and it's a serious job. It's a job that requires competence. It's not just a job that can be shared out among people for whom we must do something and we've done that a lot," said Molloy.
"There are judges in this country who are there because you suspect it was a political reward or something because you have to wonder how the devil they got the job because as lawyers they don't really cut it. And it's the same across the board."
The proper demands need to be made on the people with real responsibilities to investors such as directors, auditors and trustees so they can't shirk them, Molloy believes.
"That's starting to happen with the directors and that's a very good thing. The Serious Fraud Office and the Financial Markets Authority, whether they were steps in the right direction or whether they were something that has been there for a long time in one form or another and have suddenly just got a bit better, that's encouraging," added Molloy "That has got to carry right through on the demands that are made on professional people."
"The FMA and the SFO are a slight glimmer of hope but there really is a huge swathe of other stuff; the legal profession, the accounting profession, the big accounting franchises are a problem...We might have the first glimmering but we don't know whether it's the light at the end of the tunnel or it's another damn train coming. It's very difficult to tell."
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