ADMINISTRATIVE REVIEW COUNCIL ADMINISTRATIVE ACCOUNTABILITY IN BUSINESS AREAS SUBJECT TO COMPLEX AND SPECIFIC REGULATION November 2008 Any inquiries about this report should be directed to: The Executive Director Administrative Review Council Robert Garran Offices National Circuit Barton ACT 2600 Telephone: Facsimile: Email: Internet: 02 6250 5800 02 6250 5980 arc.can@ag.gov.au www.law.gov.au/arc © Commonwealth of Australia 2008 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission. ISBN 1 921241 616 ADMINISTRATIVE REVIEW COUNCIL 14 November 2008 The Hon Robert McClelland MP Attorney-General Parliament House CANBERRA ACT 2600 Dear Attorney-General I have pleasure in submitting to you the Council’s response to the terms of reference provided to the Council by your predecessor in office, the Hon Philip Ruddock MP, concerning the most effective and efficient administrative accountability mechanisms in business areas subject to complex and specific regulation. In this report the Council considers accountability for regulatory decision making by government agencies and by industry bodies and other non-government entities through co- and self-regulation. It also considers accountability mechanisms for regulatory decisions made with reference to both ‘black letter’ law and ‘soft law’ business rules. The report confirms the Council’s previous approach to the categories of decisions that should be subject to merits review and notes the adaptations that can be made to tribunal processes in the review of complex regulatory decisions in business areas. Yours sincerely Jillian Segal AM President The Administrative Review Council The following people were members of the Administrative Review Council at the time of publication: Jillian Segal AM (President) Justice Garry Downes AM Professor John McMillan Professor David Weisbrot AM Barbara Belcher Ian Carnell Robert Cornall AO Professor Robin Creyke Andrew Metcalfe Linda Pearson Dr Melissa Perry QC Brigadier Bill Rolfe AO (rtd). Although his term of appointment had ended, Peter Anderson remained a member of the relevant Council sub-committee until the completion of this report. The Council thanks its Executive Director, Margaret Harrison-Smith, and consultant Claire Grose for their contributions to the report. Terms of reference The then Attorney-General, the Hon Philip Ruddock MP, issued to the Council the following terms of reference on 9 August 2006: I, Philip Ruddock, Attorney-General of Australia, HAVING REGARD TO: The increasing complexity of regulatory regimes which apply to Australian business The role of the Commonwealth administrative law system in promoting lawfulness and accountability in government decision making including government decision making relating to business regulation and review; and The importance of maintaining the most efficient and effective interaction between the administrative review system and government business regulation. REFER to the Administrative Review Council for inquiry and report under the Administrative Appeals Tribunal Act 1975, the most effective and efficient administrative accountability mechanisms for decisions in areas of complex and specific business regulation. (1) In carrying out its inquiry, having regard to administrative rules and principles, the Council will consider: (a) the circumstances in which administrative review mechanisms should be available for decisions in areas of complex and specific business regulation (b) the adaptations, if any, that may be desirable to merits review processes to maximise the efficiency and effectiveness of such processes in areas of complex and specific business regulation (c) the potential for the development of a framework of national guideline principles for administrative review, including merits review, of decisions in areas of complex and specific regulation; and (d) any other relevant matters. (2) In carrying out its inquiry, the Council will consult with relevant government agencies, courts and tribunals, their client groups, the legal profession and other interested organisations and individuals. (3) The Council may report in stages or in one report with a first report to be produced by no later than 30 September 2007. Administrative accountability in business areas subject to complex and specific regulation vii Contents Terms of reference .......................................................................................................v Summary ..................................................................................................................... ix 1 Introduction ......................................................................................................1 Background ................................................................................................................. 1 Scope of this report .................................................................................................... 2 Consultation................................................................................................................ 2 2 The regulatory landscape ................................................................................4 Effective and efficient accountability mechanisms ............................................... 4 The tools of regulation .............................................................................................. 5 Standards Australia ................................................................................................. 10 3 Administrative review of business rules ......................................................11 The need for broad parameters .............................................................................. 11 Accountability to individuals: government agencies ......................................... 11 The reach of administrative law ............................................................................ 12 Administrative accountability and soft law developed and used by government agencies ............................................................................................... 13 Administrative accountability and non-government soft law .......................... 14 4 Accountability: review mechanisms in areas of co- and selfregulation ........................................................................................................16 The Australian Securities Exchange ...................................................................... 16 The Takeovers Panel ................................................................................................ 18 Industry codes and dispute resolution ................................................................. 19 Monitoring and external review ............................................................................ 22 viii Administrative accountability in business areas subject to complex and specific regulation 5 Accountability: development and monitoring .............................................27 Consultation in relation to business regulation ................................................... 28 Other best-practice regulation requirements ....................................................... 29 Consultation in relation to soft law regulation developed by industry bodies and others ..................................................................................................... 29 Drafting of regulatory materials ............................................................................ 30 Internal and external monitoring of business rules ............................................ 31 6 Availability of and adaptations to merits review ........................................34 What is merits review? ............................................................................................ 34 What decisions should be subject to merits review? .......................................... 34 Adaptations to merits review processes ............................................................... 36 7 Concluding comments ...................................................................................40 A framework of guideline principles .................................................................... 40 Specific matters ........................................................................................................ 41 Appendix A Organisations consulted and submissions received ........................ 42 Appendix B Section 51 of the Administrative Appeals Tribunal Act ................. 44 Administrative accountability in business areas subject to complex and specific regulation ix Summary Using the formal federal system of administrative law as its benchmark, the Administrative Review Council considers in this report the most effective and efficient accountability mechanisms for regulatory decisions made in areas of complex business regulation. Federal administrative law provides important accountability mechanisms when government and government agencies make decisions that affect private interests, including decisions relating to government regulation of business and other activities. Among the formal administrative law accountability mechanisms for decisions by regulatory agencies are judicial review under the Administrative Decisions (Judicial Review) Act 1977 (Cth), s 75(v) of the Constitution, and s 39B of the Judiciary Act 1903 (Cth); merits review, such as review by the Administrative Appeals Tribunal; and review by investigatory bodies such as the Commonwealth Ombudsman pursuant to the Ombudsman Act 1976 (Cth). These formal mechanisms are referred to generically in this report as administrative law review mechanisms. In the report the Council confirms the approach adopted in its earlier guideline publication What Decisions Should Be Subject to Merits Review?—that, with very limited exceptions, a decision of government that will or is likely to affect the interests of a person should be subject to merits review. The Council also considers that at present the Administrative Appeals Tribunal has the capacity to adapt merits review processes in order to ensure that they do not impose unwarranted burdens on business. People with the necessary expertise and ability to deal with matters arising in connection with complex business regulation can be and are appointed to the AAT. As the following diagram shows, however, a complex regulatory environment is likely to be characterised not only by regulation by government agencies but also by co- and self-regulation by industry bodies and other non-government entities. Although integral to effective and efficient business regulation, decisions made by such entities in the course of co- and self-regulation fall largely outside the reach of the formal administrative law review mechanisms just referred to. In these areas, accountability can be achieved, for example, through review by industry ombudsmen, through peer review, or through monitoring and review by regulatory agencies. The Council is strongly of the view that administrative accountability need not be diminished when there is a move to a different form of regulation such as selfregulation or co-regulation. x Pyramid of Business Rules Accountability Mechanisms Administrative law accountability mechanisms; consultation; sound drafting standards; parliamentary scrutiny; periodic review Some administrative law accountability mechanisms; consultation; reporting Black letter law Legislation Legislative Instruments Government soft law codes, guidelines, and so on Non-government soft law codes, guidelines, and so on Aspirational edicts Peer review; external and internal dispute resolution; other restraints (eg contract); often consultation; review; reporting requirements Administrative law accountability mechanisms generally not applicable B l a c k L e t t e r L a w Business rules Soft law Administrative accountability in business areas subject to complex and specific regulation Administrative law accountability mechanisms; consultation; sound drafting standards; parliamentary scrutiny Administrative accountability in business areas subject to complex and specific regulation xi Soft law Non-legislative materials—such as codes of practice and codes of ethics developed by industry bodies and other non-government entities involved in self-regulation of business areas or regulation in conjunction with government (co-regulation)—are important regulatory tools. They are referred to in this report as ‘soft law’; the expression also takes in the guidelines, codes and other non-legislative materials that are used increasingly by government regulatory agencies. Soft law is not binding by force of statute but may be binding in other ways—for example, through agreement. As a result, failure to comply with soft law rules can have legal consequences for individuals and corporations. Government soft law is generally not subject to the range of administrative law review mechanisms applicable to the ‘black letter’ law that is also administered by government agencies. The Council makes many references in this report to ‘business rules’. Unless otherwise specified, these references cover legislation (including subordinate legislation), soft law materials developed by government agencies, and soft law materials developed by industry bodies and other non-government entities for the purposes of co- and self-regulation. Accountability and the application of business rules It is the Council’s view that the application of all business rules should be consistent with the administrative law values of lawfulness, fairness, rationality, openness (or transparency) and efficiency. All decisions that are made on the basis of business rules and that affect or are likely to affect individual interests should be subject to effective accountability and review mechanisms. The Council considers, however, that effectiveness and efficiency would not be enhanced if one were to seek to extend the full range of administrative law review mechanisms to regulatory decisions made by industry and other non-government entities on the basis of soft law. The conclusion the Council reached is that, although differing from administrative law review mechanisms, redress mechanisms such as peer review and external dispute-resolution schemes associated with the application of soft law business rules can be effective and efficient. The Council also concluded that, if developed with regard to the following guideline principles, these redress mechanisms might be consistent with administrative law values in significant respects. A further conclusion is that administrative review and other redress mechanisms available in business areas should be responsive to changes in regulatory needs as business areas evolve. Additionally, the Council considers that sound consultation and drafting practices for all business rules—together with regular internal and external review of the rules—are integral to ensuring an effective level of accountability for the making of such rules. All the processes involved in the development of business rules should be consistent with administrative law values. xii Administrative accountability in business areas subject to complex and specific regulation These views are brought together in the following framework of guideline principles and recommended actions for government agencies and industry bodies and other non-government entities involved in the development and application of business rules. The principles and actions are directed at achieving effectiveness and efficiency in the development, application, review and monitoring of business rules. They are also amenable to application to rules in other regulatory areas. Framework of guideline principles and recommended actions The development of business rules 1. The development of all business rules should be open and transparent, and there should exist procedures for effective and timely consultation with people whose interests are likely to be affected by the application of the rules. In general, consultation with interested parties should occur at all stages in the development of business rules. The nature of this consultation should reflect the character, scope and effect of a business rule. The circumstances in which consultation will not be appropriate are limited—for example, where prior public notification would be inappropriate because the rule is designed to foreclose a tax avoidance loophole or to prevent an imminent threat to financial markets. The Australian Government’s Best Practice Regulation Handbook outlines procedures designed to ensure that government agencies consult fully in the development of business rules arising under both legislation and soft law. The Government should also endorse a set of consultation benchmarks developed by industry bodies and other non-government entities to guide them in the development of co- and self-regulatory soft law business rules. To ensure their effectiveness and efficiency, the benchmarks should be consistent with the consultation procedures described in the Best Practice Regulation Handbook. 2. All business rules should be expressed in clear, understandable language and be readily accessible. Legislation, including legislative instruments to which the Legislative Instruments Act 2003 (Cth) applies, is subject to rigorous drafting standards and parliamentary scrutiny. To ensure their effectiveness and efficiency, government and non-government soft law business rules should also be drafted in plain language, the drafting process being overseen by someone with legal training and expertise in the relevant area. All new and amended business rules and complaint-handling and review mechanisms should be widely accessible to those to whom they relate. The information should be available on a well-publicised internet site and in print. Administrative accountability in business areas subject to complex and specific regulation xiii Targeted education programs should be considered where new or amended business rules effect major changes to the regulatory environment. The application of business rules 3. All business rules should be applied in a manner consistent with the administrative law values of lawfulness, fairness, rationality, openness (or transparency) and efficiency. Government regulation of business areas must comply with the administrative law values of lawfulness, fairness, rationality, openness (or transparency) and efficiency. Application of those values provides essential protection for individual interests and bolsters public confidence in regulatory decisions. Application of the values in business areas subject to co- and self-regulation is also essential. Review of business rules 4. There should be an opportunity to seek review of any decision that applies a business rule in a way that directly affects the rights or interests of a person or business. Administrative law review is generally available if the decision of a government agency affects or is likely to affect a person or business in an individual manner. A right to seek review of a decision should similarly exist where the application of a non-government business rule has a direct effect on the individual rights or entitlements of a person or business as a result of a decision that relates specifically to that person or business. The mechanisms for seeking review might differ from the administrative law review mechanisms that apply to government regulation. Examples of the sorts of mechanisms that can be adopted to achieve these ends are peer review, remedies under codes, and industry dispute-resolution schemes. A balance should be maintained between cost and accountability in all review mechanisms for decisions made with regard to business rules. Monitoring of business rules 5. There should be continuing monitoring of the accountability mechanisms that apply to action taken on the basis of soft law business rules, whether the action is taken by a government or a non-government agency. Government regulation and decision making are generally subject to administrative law review mechanisms. A range of internal and external monitoring and reporting requirements apply to the operation of such mechanisms. Regulation by non-government bodies and co-regulation by government and nongovernment bodies are subject to different accountability requirements. Continuing monitoring and internal quality controls should apply to those accountability xiv Administrative accountability in business areas subject to complex and specific regulation requirements, to ensure that business rules are applied properly and in accordance with administrative law values. In the case of co- or self-regulation, an independent external evaluation should be conducted within at least three years of the introduction of business rules and at regular intervals thereafter, to gauge the effectiveness of the accountability mechanisms applying to the regulation. Administrative accountability in business areas subject to complex and specific regulation 1 1 Introduction On 9 August 2006 the then Attorney-General, the Hon Philip Ruddock MP, issued to the Administrative Review Council terms of reference asking the Council to inquire into and report on—under the Administrative Appeals Tribunal Act 1975 (Cth)—the most effective and efficient accountability mechanisms for decisions in business areas subject to complex and specific regulation. The Council was asked to consider the circumstances in which administrative review mechanisms should be available in business areas, the adaptations to merits review that could be made to maximise its efficiency and effectiveness, and the potential for developing guideline principles for administrative accountability in such areas. The regulatory landscape in business areas is typically characterised by a complex mix of government regulation and co- and self-regulation by industry bodies and private entities. The terms of reference therefore offered the Council the opportunity to explore the extent to which administrative law review mechanisms and values should extend into areas that are regulated by non-government entities through codes, standards, and so on, and that are substantially beyond the reach of administrative law. In responding to this opportunity, the Council considered it important to encourage a cohesive and consistent approach designed to ensure that accountability mechanisms within a regulatory space share a degree of consistency across the regulatory spectrum. Background The increasing complexity of business regulation is well documented. An apparent catalyst for the Attorney-General’s reference to the Council was the August 2006 report of the Taskforce on Reducing Regulatory Burdens on Business, Rethinking Regulation.1 That report identified inconsistent, complex and excessive regulation in a number of business sectors. It also recognised the need for a balanced, consistent and transparent approach to regulatory decision making and enforcement.2 Further, it recognised the role of administrative law in encouraging good decision making by government agencies and the role that accountability mechanisms such as judicial review, merits review and ombudsman review can play in ensuring good regulation and in boosting stakeholder confidence. 1 2 Rethinking Regulation—report of the Taskforce on Reducing Regulatory Burdens on Business, Commonwealth of Australia, Canberra, January 2006. ibid., p. 93. 2 Administrative accountability in business areas subject to complex and specific regulation In particular, the taskforce recommended that, in order to determine the types of regulatory decisions that should be subject to merits review, an approach based on the Council’s guidelines publication, What Decisions Should be Subject to Merits Review? should be adopted.3 The momentum generated by Rethinking Regulation and other initiatives continues, the prevailing environment being one that is directed at ensuring ‘that new regulation is enacted only where absolutely necessary and at a minimum cost to consumers and business’.4 Scope of this report The Council’s report focuses on a limited number of regulatory areas. The findings will, however, be relevant to other business areas subject to complex and specific regulation. The report documents a complex regulatory landscape in which legislation is supplemented by soft law codes and guideline materials generated by government regulators and industry groups and other non-government entities involved in coand self-regulation. The effectiveness and efficiency of a range of administrative law and nonadministrative law accountability mechanisms are assessed against the administrative law values of lawfulness, fairness, rationality, openness (or transparency) and efficiency and in relation to administrative law review mechanisms such as merits review by tribunals. The report confirms that the accountability mechanisms for soft law regulation of business areas by industry groups and other non-government entities should reflect administrative law values. Additionally, it identifies a framework of guideline principles, consistent with administrative law values, the Council considers will promote effective, efficient and accountable soft law regulation. The report also explores the potential for adapting merits review in areas where business is subject to complex and specific regulation. Consultation In February 2008 the Council developed an issues paper entitled Administrative Accountability in Areas where Business Activities Are Subject to Complex Regulation. The Council used the paper as the basis for discussion at three forums focusing on existing accountability mechanisms for business regulation by government agencies and industry groups and other non-government entities. Participants described the 3 4 ibid. The Hon Lindsay Tanner MP, Minister for Finance and Deregulation, ‘Relieving the burden on business’, Address to the Sydney Institute, 26 February 2008, p. 2, <http://www.financeminister.gov.au/speeches/2008/sp_20080226.html>. Administrative accountability in business areas subject to complex and specific regulation range of regulatory mechanisms operating in their area and the underlying policy development processes. All participants emphasised the importance of effective consultation with stakeholders at all stages of the regulatory cycle as an element of regulatory accountability.5 Good drafting practices were also seen to be a crucial element of effective and efficient regulation. The consultations confirmed that administrative law values are often embedded in regulatory practices and accountability mechanisms in a variety of ways. The Council extends its sincere thanks to the individuals and representatives of organisations who attended the forums, met with the Council, and provided often extensive written submissions to this review. These contributions were invaluable. Appendix A lists all those the Council consulted in developing this report. Appendix B sets out the functions of the Council under s 51 of the Administrative Appeals Tribunal Act 1975 (Cth). 5 Also reflected in Rethinking Regulation, op. cit., p. 147 and rec. 7.1. 3 4 2 Administrative accountability in business areas subject to complex and specific regulation The regulatory landscape This chapter provides an overview of the regulatory landscape in business areas subject to complex regulation. For the purposes of this report, the Council interpreted ‘regulation’ in the terms of reference as meaning any ‘business rule’6 endorsed by government or by an industry group or other non-government entity where there is an expectation of compliance.7 Consistent with the definition of ‘business rules’ for the purposes of this report, within this definition regulation ranges from government regulation in accordance with ‘black letter’ law, where non-compliance can lead to stiff penalties and sometimes even to imprisonment, through to light-touch ‘soft law’ regulation (selfregulatory charters, for example) developed and administered by industry bodies.8 In a complex regulatory environment, different types of regulation are likely to coexist in a single business area. Moreover, the regulatory landscape is not static. To be ‘effective’ in responding to identified problems and ‘efficient’ in maximising regulatory benefit taking account of costs9, regulation must be pitched at the right level as a business area develops and matures. In considering new or revised regulation, a range of feasible policy options (including self-regulatory and co-regulatory approaches) should be identified and their benefits and costs (including compliance costs) assessed within an appropriate framework.10 Effective and efficient accountability mechanisms The terms of reference ask the Council to report on the most ‘effective and efficient accountability mechanisms’ for decisions in business areas subject to complex and specific regulation. Effectiveness and efficiency are at once distinguishable and interdependent concepts, suggestive of a fine balance between the expenditure of physical and/or financial effort and the achievement of a desired outcome. As concepts, they are rarely mutually exclusive. Indeed, this is the case with administrative accountability 6 7 8 9 10 For this report ‘business rules’ covers legislation (including subordinate legislation), soft law materials developed by government agencies, and soft law materials developed by industry bodies and other non-government entities for the purposes of co- and self-regulation. This definition builds on the definition of ‘regulation’ as ‘[a]ny “business rule” endorsed by government or by an industry group where there is an expectation of compliance’ in Australian Government, Best Practice Regulation Handbook, August 2007, p. XIII. For example, the Australian Associated Motor Insurers Customer Charter, <http://www.aami.com.au/aaami_customer_service/customer_charter.asp.> That is, regulatory and compliance costs—Best Practice Regulation Handbook, op. cit., p. 1. Rethinking Regulation: Australian government response, 15 August 2006. Administrative accountability in business areas subject to complex and specific regulation 5 mechanisms, where regulated and regulator share an interest in striking the best balance between effective and efficient regulation, openness and accountability, fairness and the upholding of individual rights. In determining what constitutes an ‘effective and efficient’ administrative accountability mechanism for the purposes of this report, the Council seeks to identify a suitable balance between these differently weighted yet related concepts. The tools of regulation Business is regulated principally by legislation administered by government agencies. Legislation in this context includes subordinate legislation (for example, regulations made by the Executive when it has statutory power to do so) as well as laws enacted by the Parliament and is, of course, subject to interpretation by the courts. Soft law (often referred to as quasi-regulation or grey letter law) is also increasingly used by government agencies as a regulatory tool. It is the vehicle used for co- and self-regulation by industry groups and other non-government entities. Soft law ‘Soft law’ refers to a vast and varied range of instruments, among them codes of practice, advisory notes, guidelines and rules of conduct11, recommendations12, operational memorandums, directives and oral instructions, employee handbooks13, rules, manuals, correspondence, circulars, protocols, bulletins, and training materials.14 Although using different vehicles, a number of project participants agreed that in practice soft law can be as influential in modifying behaviour as black letter law. The huge variety of instruments that can potentially fall within the definition of soft law strongly suggests the need for further delineation. Soft law has been described in terms of rules of conduct or commitment that are set out in instruments that are without legal force although not devoid of all legal effect and that are intended to have some practical effect on behaviour.15 11 12 13 14 15 Office of Regulation Review, Report of the Commonwealth Interdepartmental Committee on Quasiregulation, 1997, p. ix—the Grey Letter Law report. L Senden, ‘Soft law, self-regulation and co-regulation in European law: where do they meet?’, Electronic Journal of Comparative Law, vol. 9.1, January 2005, pp. 1, 23. L Sossin, ‘The politics of soft law: how judicial decisions influence bureaucracy in Canada’, in S Halliday & M Hertogh (eds), Judicial Review and Bureaucratic Impact: international and interdisciplinary perspectives, Cambridge University Press, London, 2004, p. 130. L Sossin & Smith, ‘Hard choices and soft law: ethical codes, policy guidelines and the rule of the courts in regulating government’, (2003) 40 Alberta Law Review, p. 867, 871. A summary of words of definition is included in Senden, ‘Soft law, self-regulation and coregulation in European law’, op. cit., p. 130. 6 Administrative accountability in business areas subject to complex and specific regulation Soft law regulation and government agencies In the hands of government agencies, soft law can aptly be described as ‘the range of rules, instruments and standards where government influences business to comply, but which does not form part of explicit government regulation’.16 It has also been described as ‘the principal administrative mechanism used to elaborate the legal standards and political values underlying bureaucratic decision making’.17 To fall within these definitions soft law does not have to be directly generated by government: even a voluntary industry code of conduct or standard can constitute soft law where government involvement in developing the code pressures business to comply.18 The agencies the Council consulted said the advantage of government agencies regulating (at least in part) through the vehicle of soft law lies with soft law’s encouragement of a consensual, rather than adversarial, approach to achieving joint industry–government and consumer objectives; its potential for achieving objectives in more collaborative ways than black letter law; and its avoidance of the formality and ‘inscrutability’ of much legislation.19 Soft law can also be helpful in fleshing out broad legal principles and clarifying regulatory requirements. It can, however, represent unnecessary ‘red tape’.20 For example, guidelines placing an entity in a ‘high-risk’ category might result in that entity being subjected to increased surveillance through auditing or create additional barriers before services can be accessed.21 As illustrated by departmental directives, people often find it difficult to distinguish between the mandatory and nonmandatory elements of soft law business rules.22 There is an extensive and increasing range of soft law materials produced by government agencies. Several examples brought to the Council’s attention during the consultation process are the Australian Competition and Consumer Commission’s Merger Guidelines23 and Authorisation Guidelines24 and the Australian Securities and Investments Commission’s extensive range of regulatory guides.25 The Australian Prudential Regulation Authority’s Prudential Practice Guides are also examples of soft law materials. 16 17 18 19 20 21 22 23 24 25 Grey Letter Law report, op. cit., p. 7. Sossin, ‘The politics of soft law’, op. cit., p. 137. See Best Practice Regulation, op. cit., p. XIII. Grey Letter Law report, op. cit., p. xv. See Rethinking Regulation, op. cit., p. 7. This example was provided at one of the Council’s consultation forums. Section 13(5) of the Public Service Act 1999 (Cth) provides, ‘An APS employee must comply with any lawful and reasonable direction given by someone in the employee’s agency who has authority to give direction’. This has been relied on by the Australian Taxation Office to issue corporate practice statements expressed to be directions of the commissioner, breach of which could lead to action for breach of the Australian Public Service Code of Conduct. Australian Competition and Consumer Commission, Merger Guidelines, ACCC, Canberra, June 1999. The guidelines were being updated at the date of consultation. Provision of materials in accordance with the guidelines is mutually beneficial insofar as the ACCC does not have to exercise its coercive information-gathering powers. Australian Competition and Consumer Commission, March 2007. Copies of all ASIC regulatory guides are available at <http:www.asic.gov.au>. Administrative accountability in business areas subject to complex and specific regulation 7 The 1997 National Code of Practice for the Construction Industry, developed jointly by the then Department of Employment and Workplace Relations and the Australian Procurement and Construction Council26, is a further example of soft law. The code applies to all construction projects funded by the Australian Government. In July 2005 application of the code was extended to all Australian-based construction activities of entities that receive construction contracts funded or partly funded by the Australian Government. The code illustrates how soft law can be used to reduce red tape insofar as the code applies nationally, and it stands in stark contrast, for example, to the plethora of planning laws that apply in the different jurisdictions at the state, territory and local levels of government. Failure to comply with soft law guidelines such as those referred to can in many instances lead to regulatory action under the legislation in connection with which the soft law has been developed and in relation to which it seeks to provide clarification. Soft law regulation and industry bodies As noted, soft law is also the vehicle for self-regulation by industry bodies and other non-government entities. Self-regulation occurs where members of a market sector voluntarily bind themselves by a mutually agreed set of rules. The rules govern the relationship of members with the general public, clients, customers and other stakeholders and are enforced by the industry itself, rather than by government or a body established by government. Soft law self-regulatory business rules can provide greater flexibility than regulation by way of black letter law. They can be more quickly revised; they can reflect industry bodies’ understanding of the business environment; and they can encourage direct stakeholder involvement in, and acceptance of, the regulatory process. On the other hand, they are subject to fewer administrative law accountability checks than black letter law. It has been said that self-regulation should be considered where there is no strong public interest concern. For example, this can be the case where one or more of the following exists: There is no public health and safety concern. The problem is a low-risk event of low impact or significance. The incentives (industry survival, market advantage) are sufficient for the problem to be fixed by the market itself.27 Among the areas in which industry-administered self-regulatory schemes exist at the national level are advertising, broadcasting and media, direct marketing, financial 26 27 The code is available at: <http://www.workplace.gov.au/workplace/ Organisation/Industry/BuildingConstruction/>. Grey Letter Law report, op. cit., p. xx. 8 Administrative accountability in business areas subject to complex and specific regulation services, general industry schemes, pharmaceuticals and proprietary medicines, professional associations, retail sector schemes, and telecommunications. Self-regulatory schemes can range from simple codes of ethics to schemes incorporating codes drafted with legislative precision and accompanied by sophisticated customer dispute-resolution mechanisms.28 Legislative instruments Because of the broad definition of ‘legislative instrument’ in the Legislative Instruments Act 2003 (Cth)29, a potentially large amount of soft law material has been registered under that Act.30 Subject to this overlap, soft law produced by government agencies is to be distinguished from registered instruments. Decisions made in the exercise of powers conferred by legislative instruments can be subject to merits review by a tribunal. They can also be amenable to judicial review under the Administrative Decisions (Judicial Review) Act 1977 (Cth) and s 75(v) of the Constitution.31 Under the Legislative Instruments Act consultation ‘considered by rule-makers to be appropriate and that is reasonably practicable to be undertaken’ is required before the making of legislative instruments.32 The form that consultation can take is set out in s 17(3) of the Act. It includes notification either directly or indirectly by way of advertisement of people who are or are likely to be affected by the proposed instrument and envisages inviting submissions or attendance at public hearings. Two examples of situations where consultation may be unnecessary or inappropriate are urgent situations and in relation to instruments of a minor or machinery nature that do not substantially affect existing arrangements (s 18). The reasons for nonconsultation must be set out in the explanatory statement presented to parliament in anticipation of the tabling of a legislative instrument.33 The system is not without its critics: some say there are too many exemptions and that the interface with the consultation requirements for business administered by the Office of Best Practice Regulation needs to be refined.34 28 29 30 31 32 33 34 Taskforce on Industry Self-regulation, Industry Self-regulation in Consumer Markets, TIS, Canberra, August 2000, p. 23—the Industry Self-regulation report. A legislative instrument is defined in s 5(1) as an instrument in writing, that is of a legislative character, and that is or was made in the exercise of a power delegated by the parliament. The Act is being reviewed—see <http://www.ag.gov.au/lia-review>. Section 75(v) of the Constitution confers original jurisdiction on the High Court ‘in all cases in which a writ of Mandamus or prohibition or an injunction is sought against an officer of the Commonwealth’. Subject to certain exclusions, the same jurisdiction is conferred on the Federal Court under s 39B of the Judiciary Act 1903 (Cth). Legislative Instruments Act 2003 (Cth), s 17. See also the discussion of legislative instruments at p. 30. As noted, the Act is being reviewed. It is expected that the review will consider the effectiveness of the consultation requirements under the Act. See also Chapter 5 of this report. Administrative accountability in business areas subject to complex and specific regulation 9 Co-regulation Self-regulation in cooperation with government (referred to here as ‘co-regulation’) is an important supplement to black letter law in complex regulatory areas. A typical co-regulatory framework will involve a legislative framework that sets minimum standards and that is supplemented by industry codes or other mechanisms developed by industry bodies or other non-government entities. These codes and other mechanisms might be monitored or validated by a government regulator. In this way co-regulation seeks to combine the advantages of the predictability and binding nature of legislation with a more flexible self-regulatory approach. A further advantage of this form of regulation is the extent to which it permits harnessing of stakeholder expertise beyond the reach of most government agencies. The schemes of industry codes and standards established under Part 6 of the Telecommunications Act 1997 (Cth) and the Broadcasting Services Act 1992 (Cth) are examples of co-regulation. Both Acts contain regulatory policy statements supporting the establishment of codes by industry sectors35 and encouraging selfregulation.36 The supervisory functions performed by the Australian Securities Exchange under the oversight of and in cooperation with the Australian Securities and Investments Commission under the Corporations Act 2001 (Cth) provide another example of coregulation. The privacy codes in Part IIIAA of the Privacy Act 1988 (Cth) represent yet another co-regulatory approach. The Privacy Act outlines a specific set of requirements that the codes must contain, as well as minimum procedural requirements in relation to complaints and enforcement mechanisms. There is also a statutory mechanism for review by the Privacy Commissioner of decisions made under an approved code. Examples of self-regulatory materials without direct legislative connections are the Australian Direct Marketing Association Code of Practice37, the Medicines Australia Code of Conduct38, the Motor Vehicle Insurance and Repair Industry Code of Conduct39, and the national system of advertising self-regulation administered by the Advertising Standards Board. Among the codes coming within the advertising standards system are the Australian Association of National Advertisers Code of Ethics and the Advertising to Children Code. These regulatory materials are, of course, all examples of soft law. Like government agencies, self-regulating industry bodies and other nongovernment entities produce secondary guideline materials to supplement their 35 36 37 38 39 See s 112 Telecommunications Act 1997 (Cth) and s 59 Broadcasting Services Act 1992 (Cth). For example, s 4 Telecommunications Act 1997 (Cth). See <http://www.adma.com.au/asp/index.asp?pgid=1985>. The code is authorised under s 88(1) of the Trade Practices Act by the Australian Competition and Consumer Commission. See <http://www.medicinesaustralia.com.au/pages/page16.asp>. See <http://www.abrcode.com.au/forms/CodeofConduct.pdf>. 10 Administrative accountability in business areas subject to complex and specific regulation primary soft law mechanisms. Examples are the Medicines Australia Code of Conduct Guidelines40 and the Banking and Finance Division of the Financial Ombudsman Service’s Policies and Procedures Manual and bulletins, which, among other things, set out the division’s approach to particular types of disputes.41 Some of these subsidiary materials are specifically authorised by principal industry body materials. The Banking and Finance Division’s terms of reference42 allow the Ombudsman to develop guidelines for interpreting the terms of reference.43 Standards Australia A further example of soft law is provided by the Australian Standards, which are technical and business standards developed by Standards Australia.44 Although voluntary, compliance with the standards can become mandatory through inclusion in legislation.45 The standards can also be accepted by courts as relevant to determining the standard of care in an industry for the purposes of a negligence action.46 40 41 42 43 44 45 46 See <http://www.medicinesaustralia.com.au/pages/page16.asp>. See <http://www.fos.org.au>. The terms of reference relate to the structure and operation of the scheme and the powers and duties of the Financial Ombudsman Service. Clause 12.6 of the terms of reference—see <http://www.fos.org.au/centric/home_page/about_us/terms_of_reference.jsp>. Through a memorandum of understanding with the Australian Government, Standards Australia is recognised as the peak non-government standards development body in Australia. There are about 7000 standards, covering a large range of topics. Standards Australia has recently announced a New Business Model to transform how Australian Standards are developed involving new and more strategic ways of engaging with stakeholders, a net benefit assessment applied to every project (benefits versus cost), new technology and new development pathways). Further information is available at <http://www.standards.org.au/>. For example, the Corporations Regulations 2001 (Cth), the Gene Technology Regulations 2001 (Cth), and the Health and Safety (Commonwealth Employment) (National Standards) Amendment Regulations (No. 2) 2004. See, for example, Anne Christina Benton v Tea Tree Plaza Nominees (1995) 64 SASR 494, in which a voluntary Australian Standard on kerb height was one of the factors taken into account by the court in determining negligence. Administrative accountability in business areas subject to complex and specific regulation 3 11 Administrative review of business rules In this chapter the Council considers the circumstances in which external administrative review mechanisms should be available, focusing on regulatory decisions that affect people or businesses in an individual manner. It also considers the right to challenge those decisions, having regard to the availability of administrative review under the federal system of administrative law. The need for broad parameters The broad range of regulatory types described in Chapter 2 can be explained on the basis that one size does not necessarily fit all: what will be efficient and effective in one context or at a particular time will not necessarily always be so. The same applies to accountability mechanisms: what will work in one regulatory environment will not necessarily be effective and efficient in another. The prevailing view of project participants was that a sophisticated external review scheme is not required, for example, for actions of a straightforward or uncontroversial nature taken under a code of ethics or a charter. The Council agrees that accountability should be responsive to the level of regulation, but it also needs to have regard to other factors, including the extent to which the interests and entitlements of individuals (including corporations) are affected and the nature of those interests and entitlements. Accountability to individuals: government agencies Accountability to individuals for government regulation by legislation or under executive power is achieved principally through the administrative law system, which provides a number of options for administrative review that individuals can turn to, depending on the circumstances of their case. Individuals have the right to do the following: 47 challenge the lawfulness of government decisions by way of judicial review – under specific legislative provisions including the Administrative Decisions (Judicial Review) Act 1977 47 – under s 75(v) of the Australian Constitution Note, however, that there are exceptions to those decisions that can be challenged under the ADJR Act: see the definition of a ‘decision to which this Act applies’ in s 3(1) of the Act, together with Schedule 1, and s 9 of the Act. 12 Administrative accountability in business areas subject to complex and specific regulation in general, seek statements of reasons under the Administrative Decisions (Judicial Review) Act—thereby affording transparency to government decision making and giving efficacy to the primary right to seek judicial review in relation to a wide range of decisions under federal legislation, seek review of the merits of those decisions by an independent tribunal—including (as applicable) the Administrative Appeals Tribunal and the Australian Competition Tribunal seek investigation of administrative action by bodies such as the Commonwealth Ombudsman, the Privacy Commissioner and the Australian Human Rights Commission. Transparency in government processes and accountability for government decision making are promoted and augmented by the right to seek access to documents under the Freedom of Information Act 1982 (Cth) and provisions relating to the appropriate use and storage of information under the Privacy Act 1988 (Cth) and the Archives Act 1983 (Cth). Together, those mechanisms reflect the administrative law values of lawfulness, fairness, rationality, openness (or transparency) and efficiency, to which, in the Council’s view, members of the Australian public are entitled in the exercise of public power by government agencies. The Australian Human Rights Commission, established under the Human Rights and Equal Opportunity Act 1986 (Cth), also provides for individuals a means of resolving complaints of discrimination or breaches of human rights under federal laws conferring functions on the Commission. The reach of administrative law Administrative law is concerned with the exercise of ‘public power’. It involves in most instances the exercise of power by government ministers and officers of government departments and agencies. This understanding of the scope of public power is reflected in much of the legislation underpinning the federal system of administrative law. There are, however, exceptions. The Privacy Act 1988 (Cth), for example, extends to private organisations (including non-profit organisations) with an annual turnover exceeding $3 million and to health service providers.48 A further exception is provided by human rights legislation49, by virtue of which individuals may seek recourse for acts of discrimination against non-government entities through the Australian Human Rights Commission. 48 49 Further extension into the private sector has been recommended by the Australian Law Reform Commission—see For Your Information: Australian privacy law and practice, Report no. 108, ALRC, Sydney, May 2008. For example, the Age Discrimination Act 2004 (Cth), the Disability Discrimination Act 1992 (Cth), the Racial Discrimination Act 1975 (Cth) and the Sex Discrimination Act 1984 (Cth) all extend to the discriminatory actions of private entities. Administrative accountability in business areas subject to complex and specific regulation 13 The jurisdiction of the Commonwealth Ombudsman under the Ombudsman Act 1976 (Cth) was extended in 2005 to take account of the fact that many government services are now provided to the public by non-government bodies on behalf of and pursuant to a contract with a government agency. A complaint to the Commonwealth Ombudsman about the delivery of such a service is to be treated as a complaint against the government agency on whose part the service is being provided. Another amendment to the Ombudsman Act, in 2006, established the office of the Postal Industry Ombudsman (a position held by the Commonwealth Ombudsman), whose jurisdiction extends to private sector postal operators who register to participate in the scheme. The examples illustrate that administrative law mechanisms can be altered to take account of the changed environment in which government operates. The underlying message, which the Council strongly endorses, is that administrative accountability need not be diminished when there is a move to a different form of regulation, such as self-regulation or co-regulation. Administrative accountability and soft law developed and used by government agencies Application of administrative law to soft law administered by government agencies presents a mixed picture. It is necessary to consider each administrative law review mechanism in turn. As to judicial review, the Administrative Decisions (Judicial Review) Act 1977 (Cth) applies only to decisions made ‘under an enactment’. It is thus not possible directly under that Act to seek review of a decision either to make a soft law instrument or to exercise a function conferred by a soft law instrument. Questions of legality that involve soft law instruments can nevertheless arise in proceedings under the Act. For example, a decision that has been influenced by a soft law instrument could be invalid if the instrument introduces an irrelevant consideration into the decision or if the instrument (or policy) is applied inflexibly to the disregard of the individual merits of the case.50 Similarly, failure to consult a person in accordance with an expectation created by a soft law instrument could give rise to a breach of natural justice.51 The same principles about lawful conduct will apply in review proceedings commenced in the High Court under s 75(v) of the Constitution or in the Federal Court under s 39B of the Judiciary Act 1903 (Cth). An important difference, however, is that review proceedings of this kind can extend to decisions made by an officer of the Commonwealth in the exercise of pure (that is, non-statutory) executive power. The restriction imposed by the Administrative Decisions (Judicial Review) Act—that the decision to be reviewed was ‘made under an enactment’—does not apply, and 50 51 Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634; Drake v Minister for Immigration and Ethnic Affairs (1976) 46 FLR 409, 420. Minister for Immigration, Local Government and Ethnic Affairs v Gray (1994) 50 FCR 189. See also Salemi v MacKellar (No. 2) (1977) 137 CLR 396; Henzell v Centrelink [2006] FCA 1844 in relation to legitimate expectation. 14 Administrative accountability in business areas subject to complex and specific regulation there is consequently greater scope for seeking review of a decision to either make or administer a non-statutory soft law instrument. The jurisdiction of the Administrative Appeals Tribunal (and, generally, of other tribunals) is restricted to decisions made under legislation, in respect of which a right of appeal is conferred. There is no similar restriction on the jurisdiction of the Commonwealth Ombudsman, the Privacy Commissioner or the Australian Human Rights Commission. Each can investigate administrative actions that have been taken pursuant to either legislation or an executive instrument (such as a soft law instrument) made or administered by a government agency. The Council’s consultations confirmed that, despite their non-binding character, soft law ‘guidelines’, ‘practice notes’, and so on, developed by government agencies are treated in practice little differently from black letter law. Some of those consulted said that only people with ‘deep pockets’ would be in a position to mount a legal challenge to the validity of soft law produced by government agencies. Administrative accountability and non-government soft law Apart from the exceptions to the general rule under the Privacy Act and human rights legislation, soft law administered by industry bodies and other nongovernment entities falls completely outside the scope of administrative law. The basis for accountability for primary soft law materials—codes, and so on— derives substantially from sources other than administrative law, business entities binding themselves to compliance with standards and obligations set out in selfregulatory instruments. In these circumstances failure to comply with soft law could have legal consequences for individuals and corporations. An example of this is found in the statutory scheme whereby superannuation trustees agree to be bound by decisions of the Superannuation Complaints Tribunal, thereby enabling the trust to obtain the benefit of particular tax concessions.52 Self-regulatory schemes feature a range of non–administrative law accountability mechanisms designed to foster compliance on the part of their members and to provide for people whose interests are affected a means of redress. These include peer review systems such as the Takeovers Panel and the Disciplinary Tribunal of the Australian Securities Exchange, industry-based dispute-resolution schemes, codes of practice or codes of ethics, customer service charters, and internal complaintresolution mechanisms. Although they differ in important respects from administrative law review mechanisms, soft law accountability and review mechanisms can be consistent in important respects with the administrative law values of lawfulness, fairness, rationality, openness (or transparency) and efficiency. 52 Attorney-General (Cth) v Breckler (1999) 197 CLR 83. Administrative accountability in business areas subject to complex and specific regulation 15 The Council does not consider it would necessarily be effective or efficient to seek to extend administrative law review mechanisms to these areas of co- and selfregulation. It would, however, be reasonable to assume that such soft law rules should give rise to an appropriate form of accountability. This was also the prevailing view put forward during the Council’s consultations. 16 4 Administrative accountability in business areas subject to complex and specific regulation Accountability: monitoring and review mechanisms in areas of co- and selfregulation In this chapter the Council looks at a number of the review mechanisms available to people or businesses whose rights or interests are or are likely be affected in an individual manner by a decision made by an industry body or other nongovernment entity. A right of review is just as important in these circumstances as it is for a regulatory decision by a government agency. The chapter focuses particularly on the extent to which each review mechanism reflects the administrative law values of lawfulness, fairness, rationality, openness (or transparency) and efficiency. The examples used illustrate the extensive and complex monitoring and review mechanisms that exist to ensure the appropriate application of business rules. Among these mechanisms are the following: the peer review systems used by the Australian Securities Exchange53 and the Takeovers Panel54 self-regulatory codes of conduct, including ASIC-approved industry codes of conduct55 external review systems, including those approved by ASIC56 the Financial Ombudsman Service Limited57 the Telecommunication Industry Ombudsman.58 ‘Peer review’ can be described as the examination of one member’s performance or practices by another or by other members of the group. The Australian Securities Exchange Under its market rules—a form of soft law—and pursuant to powers delegated by its board59, the ASX has established a Disciplinary Tribunal that, although constituted under the market rules, is independent of the ASX.60 53 54 55 56 57 58 See <http://www.asx.com.au/>. See <http://www.takeovers.gov.au/>. See <http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Codes%20of%20practice>. See <http://www.asic.gov.au/asic/asic.nsf/byheadline/Complaints+resolution+schemes?openDocu ment>. See <http://www. http://www.fos.org.au/centric/home_page.jsp> for information about the divisions of the Financial Ombudsman Service. See <http://www.tio.com.au/>. Administrative accountability in business areas subject to complex and specific regulation 17 The tribunal is vested with responsibility, through a peer review process, for hearing and determining alleged breaches of ASX rules by market participants and allegations of unprofessional conduct on the part of stockbrokers. For proceedings before it the tribunal is constituted from a panel of at least 10 industry professionals nominated by the ASX, taking into account their qualifications, skills and experience. Panel members must abide by a code of ethics that covers matters such as integrity, fairness, independence, conflicts of interest and confidentiality. They must also attend training courses designed to deepen their understanding of how tribunal hearings are conducted and what is expected of members of the tribunal in making determinations and imposing penalties on their peers. Tribunal proceedings are initiated by the ASX following an internal investigation. The broker in question is entitled to appear before the tribunal. The ASX has borrowed key elements from administrative law in establishing the Disciplinary Tribunal and deciding that the tribunal is to handle its proceedings in a way that accords procedural fairness to those who come before it. Panel members are to be independent of the ASX group that instigates proceedings before the tribunal and are to have a good understanding of financial markets and their operation. The broker against whom the allegations are made, must be given full particulars of the alleged misconduct, has a right to be heard, and has a right of appeal. Disciplinary Tribunal members are required to determine each matter on its merits. Among the penalties that can be imposed by the Disciplinary Tribunal are censure, suspension, participating in an education or compliance program, and fines. Tribunal determinations are made public. An appeal tribunal, chaired by a leading barrister and independent of the ASX, hears appeals against decisions of the Disciplinary Tribunal. Details of all disciplinary matters are published on the ASX website. This includes details of the penalty imposed, how the breach occurred, and the actions taken by the named party since identification of the breach. 59 60 ASX Market Rules 28.3.2 and 28.3.7 set out the powers the tribunal can exercise. In Chapmans v Australian Stock Exchange (1996) 67 FCR 402 it was held that a decision by the ASX under its listing requirements to delist a company from the exchange was not a reviewable decision made under an instrument. The court held that it was not enough that the exchange, originally a private body, had been given statutory recognition under the then Securities Act 1980 (Cth). 18 Administrative accountability in business areas subject to complex and specific regulation The Takeovers Panel The Takeovers Panel is the primary forum for resolving disputes about a takeover bid until the bid period has ended. The panel is a peer review body, its part-time members being appointed from among the active members of Australia’s takeovers and business communities.61 The panel is established under s 171 of the Australian Securities and Investments Commission Act 2001 (Cth). It is given various powers under Part 6.10 of the Corporations Act 2001 (Cth). Its primary power is to declare when circumstances in relation to a takeover or to the control of an Australian company are unacceptable. It also has the power to make orders to protect the rights of people (especially target company shareholders) during a takeover bid and to ensure that a takeover bid proceeds (as far as possible) in the way it would have proceeded had the unacceptable circumstances not arisen. The panel reviews ASIC decisions to grant exemptions and modifications to Chapter 6 (Takeovers) of the Corporations Act as it applies to a takeover bid. This function replaces merits review by the Administrative Appeals Tribunal. Panel members are appointed on the strength of their knowledge or experience in at least one of the fields of business, administration of companies, financial markets, financial products and services, law, economics and accounting.62 When a matter is referred to it, the panel must decide whether it will initiate proceedings in relation to the matter. If it decides to do so, the substantive president of the panel appoints three members to be the ‘sitting panel’. The panel (constituted by different members) also reviews its own decisions, in which event the review decision is final. In each case review is of the merits of the decision, which may be affirmed, varied, set aside and substituted, or set aside and sent back for reconsideration. The panel makes soft law rules that govern its proceedings. Although the rules of evidence do not apply, the panel is bound to follow the rules of procedural fairness (to the extent that they are not inconsistent with the panel’s legislation63) and has power to ensure the confidentiality of information that is commercially sensitive.64 Panel proceedings must be fair and reasonable and be conducted with as little formality and in as timely a manner as the law and proper consideration of matters before the panel permit.65 61 62 63 64 65 A useful insight into the Panel’s powers is provided in the recent decision of the High Court in Attorney-General (Cth) v Alinta Limited (2008) 82 ALJR 382. Australian Securities and Investments Commission Act 2001 (Cth), s 172(4). ibid., s 195(4). The rules are available at <http://www.takeovers.gov.au/display.asp?ContentID=122>. Australian Securities and Investments Commission Act 2001 (Cth), ss 186, 190. Australian Securities and Investments Commission Regulations 2001 (Cth), r 13. One study found that over five years decisions of the panel took an average of a little over two weeks—see Emma Armson, ‘An empirical study of the first five years of the Takeovers Panel’, Sydney Law Review, vol. 27, no. 4 December 2005, pp. 665, 676. Administrative accountability in business areas subject to complex and specific regulation 19 The panel publishes statements of reasons for its decisions. A distinctive feature of its operations has been the frequent practice of accepting undertakings rather than making declarations of unacceptable circumstances and/or orders.66 Proceedings are primarily determined on written submissions. The panel may, however, convene a conference. It has significant powers at a conference, including powers to take evidence on oath, subpoena witnesses, examine witnesses and subpoena documents. The panel also has power to make rules clarifying and supplementing Chapter 6 of the Corporations Act.67 It issues guidance notes on how it will exercise its powers; this includes guidance on consultation procedures and merits review, public consultation and conflict of interest.68 The guidance notes have been said to give the market greater certainty, deal with important matters, and help panel members make decisions in a timely, consistent and predictable way. Accountability in takeovers is achieved through the authority of a specialist review body, where actions of the regulatory agency and parties to takeovers are explained and justified to those who have the knowledge to understand and evaluate the actions.69 Industry codes and dispute resolution In areas of business regulation the co-regulatory interconnections between selfregulatory mechanisms and government legislation can be complex. This is well illustrated by the scheme for approving voluntary codes. ASIC approval and monitoring of voluntary financial services sector codes of conduct The Corporations Act and the ASIC Act establish a framework for the approval and monitoring by ASIC of financial services industry codes of conduct. Development of codes by industry is wholly voluntary, the benefit being in their endorsement by ASIC. To be approved, a code must meet the requirements set out in ASIC Regulatory Guide 183, Approval of Financial Services Sector Codes of Conduct.70 Among the nonlegislative matters that may be taken into account by ASIC in approving a code are whether the code provides for adequate dispute-resolution procedures, remedies and 66 67 68 69 70 Armson, op. cit., p. 680. Decisions of the panel are also subject to judicial review, albeit that judicial review in the Federal Court is limited in certain circumstances. The jurisdiction of the High Court under s 75(5) is expressly preserved (and could not, of course, have been limited in any event by parliament). This power exists under s 658C of the Corporations Act 2001 (Cth). Available at <http://www.takeovers.gov.au/display.asp?ContentID=122>. See, generally, Armson, op. cit. Corporations Act 2001 (Cth) s 912A and ASIC Regulatory Guide 183, issued 23 February 2005 and amended 4 March 2005. 20 Administrative accountability in business areas subject to complex and specific regulation sanctions.71 There are at present no ASIC-approved industry codes under the Corporations Act, although there have been in the past.72 Additionally, under s 12A(3) of the ASIC Act, ASIC has the function of monitoring and promoting market integrity and consumer protection in relation to the payments system. Two ways of doing this are by promoting the adoption of approved industry standards and codes of practice and by promoting sound customer–banker relationships, including through monitoring the operation of and compliance with industry codes of practice. This monitoring and promotional role supports ASIC’s role in administering the Electronic Funds Transfer Code of Conduct, which became ASIC’s responsibility in 1998 in response to the recommendations of the Financial System Inquiry.73 Clause 24 of the code provides for regular review by ASIC. Other industry codes Among the voluntary industry codes in the financial area are the Financial Planning Code of Ethics and Rules of Professional Conduct74, the General Insurance Code of Conduct75, the General Insurance Brokers Code of Conduct76, the Code of Banking Practice77, and the Credit Union Code of Practice.78 Many industry associations, such as the Financial Planning Association of Australia, the Australian Financial Markets Association, and Investment and Financial Services Australia, have developed codes of ethics and conduct to be adhered to by members as a condition of membership of the organisation. The codes are reviewed regularly and updated to reflect current market conditions. 71 72 73 74 75 76 77 78 Regulatory Guide 183.62–183.72. The General Insurance Code of Practice was approved by ASIC on 3 August 2000 under s 12FA of the ASIC Act (which was repealed and replaced by s 1101A of the Corporations Act in 2001). See ASIC Information Release, ‘ASIC approves general insurance code of practice and insurance enquiries and complaints scheme’, 3 August 2000. The code was revised in 2005, and the revised code was implemented in 2006. Following discussions with ASIC, the Insurance Council of Australia decided not to seek approval for the revised code under the Corporations Act. Financial System Inquiry, Financial System Inquiry Final Report, Australian Government Publishing Service, Canberra, 1997. See <http://www.fpa.asn.au/FPA_Content.aspx?Doc_id=1032>. See <http://www.asic.gov.au/fido/fido.nsf/byheadline/ General+Insurance+Code+of+Practice+fido+page?opendocument>. See <http://www.asic.gov.au/fido/fido.nsf/byheadline/ General+Insurance+Brokers’+Code+of+Practice?opendocument>. See <http://www.bankers.asn.au/Default.aspx?ArticleID=446> . See <http://www.abacus.org.au/credit_unions/docs/CodePractice.pdf>. Administrative accountability in business areas subject to complex and specific regulation 21 Financial Planning Association The Financial Planning Association Code of Ethics covers topics such as integrity, competence, fairness, confidentiality and objectivity, and the Rules of Professional Conduct complement the code by promoting high standards of professional behaviour.79 The Professional Standards and Ethics Committee monitors compliance with the code. Alleged breaches are investigated by FPA staff and, where appropriate, are referred to a disciplinary committee for hearing and determination. Sanctions include fines, suspension and expulsion from membership. Consumers may take claims for financial loss suffered as a result of a breach of FPA professional standards to the Financial Industry Complaint Service. Disciplinary powers derive from the FPA constitution, to which a financial planner agrees to be bound on joining the association. The FPA board strives to be accountable to its members by ensuring that the association’s governance structure and decision-making processes are transparent, open and inclusive, so that members can be confident that the association works for their benefit. Australian Financial Markets Association The Australian Financial Markets Association codes80 cover topics such as reputation, confidentiality, fairness, honesty and conflicts of interest. The codes apply to all member organisations and their representatives, who agree to abide by them in the conduct of their business. The code of ethics raises members’ awareness of the relevant considerations and promotes responsible decision making; the code of conduct identifies rules of behaviour to be followed by members in their business dealings. Observance of the codes is monitored by the AFMA Self-Regulatory Committee. Investment and Financial Services Association The Investment and Financial Services Association represents the retail and wholesale funds management, superannuation and life insurance industries and has over 145 members. All members must comply with the IFSA code of ethics and conduct81 and commit to adapting the standards of conduct for use more generally in their own organisations. The code covers matters such as integrity, fairness, competence and conflicts of interest. Members self-report on compliance with the IFSA code and standards. Each year members must lodge with IFSA a resolution of their board confirming that it is satisfied the member has complied with the code and all other IFSA standards that 79 80 81 The code, rules and other standards are available at <http://www.fpa.asn.au>. Available at <http://www.afma.com.au> The code and other standards are available at <http://www.ifsa.com.au>. The code was updated with effect from 1 July 2007. 22 Administrative accountability in business areas subject to complex and specific regulation are relevant to the organisation’s business. Failure to lodge the resolution is itself a breach of the code. Compliance with the code is monitored by peer review. The Standards Oversight Disciplinary Committee, comprising three members of the IFSA board, can take disciplinary action against a member who fails to comply with a standard. The penalties include private or public censure, suspension of membership and expulsion from membership. There is a right of appeal to the full IFSA board. IFSA reports that to date it has investigated potential breaches of the code, but the committee has not yet had occasion to discipline any member. Summary These examples show that industry associations take self-regulation seriously. They have developed systems designed to ensure that their governing bodies and staff are accountable to members, both in establishing codes and standards to which members agree to be bound and in monitoring and enforcing compliance with those codes and standards. The systems strongly resonate with well-established administrative law processes and draw to a large extent on administrative law values. Monitoring and external review Most codes have associated dispute-resolution schemes for use in circumstances where people believe an industry code has been breached. The Motor Vehicle Insurance and Repair Industry Code of Conduct82 is illustrative. Although mandated by legislation in New South Wales, in other Australian jurisdictions the code is a voluntary national code that applies to all smash repairers and insurance companies that subscribe to it. The code is intended to promote transparent, informed, effective and cooperative relationships between smash repairers and insurance companies, based on mutual respect and open communication. The code is administered by the Code Administration Committee, which, among other things, is charged with the task of developing a protocol for the appointment, establishment and operation of a national panel of mediators, monitoring compliance with the code, and producing a publicly available annual report on the code; a copy of the annual report must be provided to the relevant Australian government minister. The code provides for two stages of dispute resolution. In the first instance disputes should be raised under internal dispute resolution. Should a dispute not be resolved in this way, the code provides for an external dispute-resolution process, which is available through the LEADR group of mediators. The process rests on the provision of full written details of the matters in dispute and supporting evidence of the concern and the redress sought. 82 See <http://www.abrcode.com.au/>. Administrative accountability in business areas subject to complex and specific regulation 23 Dispute-resolution schemes Corporations that provide financial services or sell financial products are required to be members of one or more external dispute-resolution schemes. To date, ASIC has approved eight such schemes, although three have now merged to form the Financial Ombudsman Service.83 The considerations ASIC is required to take into account when determining whether to approve an external dispute-resolution scheme are set out in the Corporations Regulations84 and are expanded on in ASIC Regulatory Guide 139, Approval of External Complaints Resolution Schemes. In order to gain approval a scheme must produce decisions that are fair and seen to be fair by observing the principles of procedural fairness, by making decisions on the information before it, and by having specific criteria on which its decisions are based. The ASIC Regulatory Guide incorporates the key principles set out in the Benchmarks for Industry-based Customer Dispute Resolution Schemes85—consistency with the requirements outlined in the regulations, accessibility, independence, fairness, accountability, efficiency and effectiveness. The guide supplements the principles in certain respects: in relation to decision making, it specifies that as a general rule written reasons should be given for a decision and that, in reaching a decision about a complaint, a scheme should not be entitled to rely on information that is not available to all parties.86 It is also the responsibility of an external dispute-resolution scheme to identify systemic problems and to specify time frames for internal review of complaints with reference to the time frames specified in the Australian Standard ‘Customer Satisfaction—guidelines for complaints handling in organisations’ (ISO 10002: 2004, MOD). The scheme must also publish its determinations and information about complaints, highlighting any systemic industry problems, and conduct periodic independent reviews of the scheme’s performance; a period of three years is specified in the guidelines. 83 84 85 86 The Financial Ombudsman Service resulted from the ASIC-approved merger of the Insurance Ombudsman Service, the Banking and Financial Services Ombudsman and the Financial Industry Complaints Service Ltd. The other approved schemes are the Credit Ombudsman Service Limited, the Credit Union Dispute Resolution Centre, the Financial Co-operative Dispute Resolution Scheme, and the Insurance Brokers Disputes Ltd. If all the services provided by a corporation are covered by the statutory Superannuation Complaints Tribunal it is not necessary for the corporation to join an approved scheme. Corporations Regulations 2001 (Cth), r 7.6.02. Department of Industry, Science and Tourism, Benchmarks for Industry-based Customer Dispute Resolution Schemes, DIST, Canberra, 1997. See ASIC Regulatory Guide 139, Approval of External Complaints Resolution Schemes, RG 139.47. 24 Administrative accountability in business areas subject to complex and specific regulation The Financial Ombudsman Service The Financial Ombudsman Service was established on 1 July 2008 through the ASICapproved merger of the Insurance Ombudsman Service, the Banking and Financial Services Ombudsman and the Financial Industry Complaints Service Ltd. It consists of three divisions, covering the previous jurisdiction of the three services.87 The Investments, Life Insurance and Superannuation Division Rules88 set out the principles of fairness that are to guide resolution of consumer complaints handled under the scheme. The principles include resolving complaints in accordance with the law in a cooperative, efficient and timely way. They make provision for the exchange of information between the parties to the complaint, stipulate that complaints be in writing and be supported by any relevant documents, and allow for assistance with drafting and lodging a complaint. The process involves conciliation and, if this is unsuccessful, referral to a panel or an adjudicator. Proceedings are inquisitorial, the panel or the adjudicator is not bound by the rules of evidence, and the rules of procedural fairness apply. Except where inappropriate—in the case of suspected fraud, for example—the panel or adjudicator must issue written reasons for their decisions. Before approaching the Financial Ombudsman Service a complainant must have unsuccessfully sought review of their decision by the relevant scheme member. The rules require members’ internal processes to comply with the Australian Standard ‘Customer Satisfaction—guidelines for complaints handling in organisations’ (ISO 10002: 2004, MOD). The processes must also be consistent with any relevant ASIC guidelines. The Banking and Finance Division89 handles disputes primarily between banks and consumers and involving amounts of $280 000 or less. Disputes are to be decided having regard to applicable law, industry codes or guidelines, good industry practice and fairness in all the circumstances. If a dispute relates to privacy, the Banking and Finance Ombudsman may make any decisions the Privacy Commissioner may make under s 52 of the Privacy Act 1988 (Cth). Case managers investigate disputes and issue findings. The parties to a dispute may accept the finding or appeal to the Banking and Finance Ombudsman to review the decision and make a recommendation. The ombudsman also has power to make a determination that is contractually binding on the scheme member if the disputant accepts the determination. There has, however, been no need for the ombudsman to exercise this power to date. Generally, disputes are resolved on findings made by case managers. There are very few appeals. Case managers also examine and resolve problems (systemic problems) raised in a dispute referred to the Banking and Finance Division that appear to affect 87 88 89 See <http://www.fos.org.au/centric/home_page/about_us/terms_of_reference.jsp>. New rules with increased monetary limits for complaints came into effect on 1 July 2008. The division currently has 106 members. Administrative accountability in business areas subject to complex and specific regulation 25 other customers of the scheme member, in addition to the disputant. The division reports quarterly to ASIC on its activities. The Telecommunications Industry Ombudsman Scheme The Telecommunications Act 1997 (Cth) provides that, with the Telecommunications Industry Ombudsman’s consent, an industry code or standard may confer functions or powers on the ombudsman.90 Some of the matters that may be dealt with in codes, including the internal handling of complaints, are listed in the Act.91 Registration of a code by the Australian Communications and Media Authority is subject to, among other things, a balancing of public interest considerations against the potential for the imposition of undue financial and administrative burdens on industry participants.92 With matters of substantial relevance to the community, the authority must be satisfied that there are appropriate community safeguards for the matters covered by the code.93 The office of the Telecommunications Industry Ombudsman is established under the Telecommunications (Consumer Protection and Service Standards) Act 1999 (Cth). Certain carriers and carriage service provides must enter into the scheme, while membership must be open to all. All members must comply with the scheme.94 The activities of the TIO are guided by the principles of accessibility, independence, fairness, accountability, efficiency and effectiveness, as set out in the Benchmarks for Industry-Based Customer Dispute Resolution Schemes. In practical terms this translates to the following objectives: ready access to the TIO’s services by individual consumers independence from all parties at all times decision making that is fair and seen to be fair accountability in decision making—including the provision of clear and reasonable explanations for all actions and decisions adherence to processes that are efficient, clear and understandable as well as fair and equitable maintenance of fair and accurate records. 90 Telecommunications Act 1997 (Cth), s 114. ibid., s 113. ibid., s 112(2). ibid., s 111(1)(d). See Part 6 of the Act. 91 92 93 94 26 Administrative accountability in business areas subject to complex and specific regulation Guidance is also derived from the law, good industry practice and what is fair and reasonable in all the circumstances.95 The TIO publishes position statements setting out its approach to investigating and resolving particular complaints.96 95 96 See <http://www.tio.com.au/POLICIES/organisation%20culture%20%objectives.htm>. See <http://www.tio.com.au/policies/indexc.htm>. Administrative accountability in business areas subject to complex and specific regulation 5 27 Accountability: development and monitoring In this chapter the Council considers methods of achieving accountability that are consistent with administrative law values although not, in themselves, elements of the Australian system of administrative law. Accountability in this context covers situations in which the development or application of a business rule could affect individuals or businesses but not in an individual manner. For regulation in the form of black letter law, in addition to relying on administrative review mechanisms, broad accountability can also be achieved through the parliamentary process, including through review by parliamentary committees and through the tabling requirements of the Legislative Instruments Act 2003 (Cth). Consultation on policy and its means of implementation is another important method of ensuring administrative accountability and transparency in the development of business rules.97 During the Council’s stakeholder forums and discussions with interested parties, consultation was consistently raised as a vital element in the development of business rules, be they in the form of legislation or soft law. As the Council said in its report Rule Making by Commonwealth Agencies: … consultation prior to law making is consistent with the principles of procedural fairness as it enables individuals and groups with a particular interest to put their views. It serves the public interest by enabling decisions to be made in the light of competing interests and requires government to account for its proposals. In the final analysis, rules made following consultation are likely to be more considered and better for having been exposed to the community before being made. 98 Longstanding consultation requirements for government policy departments developing legislative policy are set out in the Cabinet Handbook and the Legislation Handbook.99 The Legislation Handbook recognises that external consultation will not be required in all circumstances. Consultation would not normally be necessary in relation to proposed legislation altering fees or benefits only in accordance with the Budget, proposed legislation that would contain only minor machinery provisions not fundamentally altering existing legislative arrangements, or proposed legislation in 97 98 99 ‘Road testing’ regulations encourages effective and efficient regulation. Administrative Review Council, Rule Making by Commonwealth Agencies, Report no. 35, ARC, Canberra, 1992, [5.2]. Department of the Prime Minister and Cabinet, Cabinet Handbook, 5th edn, DPM&C, Canberra, March 2004, [5.1–5.14]. (Cabinet approval must be obtained for all significant policy proposals involving legislation.) Commonwealth of Australia, Legislation Handbook, 1999 (incl. update of 1 May 2000), Canberra, [1.7–1.11]. 28 Administrative accountability in business areas subject to complex and specific regulation relation to which consultation would give a person or organisation consulted an advantage over others not consulted.100 As noted in Chapter 2, there are also requirements for consultation under the Legislative Instruments Act if the proposed instrument is likely to have a direct or a substantial indirect effect on business or restrict competition.101 Failure to consult does not affect the validity of the legislative instrument.102 Consultation in relation to business regulation Despite the existence of these mechanisms, there was clear acknowledgment in Rethinking Regulation of the need for effective consultation with regulated parties at all stages in the development of regulations.103 That report stated that the majority of business groups saw existing consultation practices as ‘the most important deficiency in regulation making’.104 Efficient consultation is not simply a process: it has an important qualitative aspect and a capacity for those consulted to affect decisions by regulators. Following publication of Rethinking Regulation, the previous Australian government made a commitment to improving mechanisms for consultation with business and supporting consultation on the development of business rules with all relevant stakeholders105—an approach maintained by the current Government.106 The approach involves adoption of a whole-of-government policy on consultation and is set out in the Best Practice Regulation Handbook, developed by the Office of Best Practice Regulation. It is envisaged that the nature of consultation about business rules should be commensurate with the size and potential impact of the proposal107, and the handbook lists seven best-practice principles—continuity, targeting, appropriate timeliness, accessibility, transparency, consistency and flexibility, and evaluation and review by policy agencies—to be applied in the development of business rules.108 Three consultation mechanisms have also been generated for application in the development of business rules—annual regulatory plans, a business consultation website109, and green papers and exposure drafts.110 The requirements extend to soft 100 101 102 103 104 105 106 107 108 109 Legislation Handbook, op. cit., [1.10]. Section 17(1). Section 18 provides an exception to this rule in circumstances where consultation may be unnecessary or inappropriate. Possible exceptions include instruments of a minor or machinery nature and that do not substantially alter existing arrangements, instruments required as a matter of urgency and instruments required because of an matter of national security, and instruments giving effect to certain matters referred to in the Budget. Section 19. Rethinking Regulation, op. cit., p.147. ibid., p. 150. Re-thinking Regulation: Australian government response, op. cit. See speech by the Hon Lindsay Tanner, op. cit. Office of Best Practice Regulation, Best Practice Regulation Handbook, OBPR, Canberra, August 2007 [4.1]. ibid., [1.3]. See <http://consultation.business.gov.au/consultation/>. Administrative accountability in business areas subject to complex and specific regulation 29 law materials produced by government agencies. As noted, the Council’s consultations suggest that the development of soft law is taken seriously by agencies. Rethinking Regulation highlights three useful consultation guides—a 2002 Board of Taxation report that identifies a number of principles for effective tax consultation111, the UK Government’s 2004 Code of Practice on Consultation112, and the International Council of Securities Associations’ Statement on Consultation Practices.113 The Government’s business consultation requirements represent a more targeted version of the UK code, which applies to all public consultations involving UK government departments and agencies. Conversely, the requirements apply more widely than the principles in the Board of Taxation report or the International Council of Securities Associations statement. Other best-practice regulation requirements The best-practice consultation strategy is an element of a larger ‘post–Rethinking Regulation’ strategy; in it, government has mandated a three-tier system for assessing regulation. Administered by the Office of Best Practice Regulation, the strategy makes provision for limited analysis for proposals with no or low compliance costs, quantification of business compliance costs for proposals entailing medium compliance costs, and indepth analysis (involving preparation of a regulation impact statement) for proposals that will have a significant impact on business, individuals or the economy. Both legislation and soft law materials with a likely impact on business are required by government to comply with the best-practice guidelines. Consultation in relation to soft law regulation developed by industry bodies and others The measures just described do not extend to soft law materials developed by industry bodies and other non-government entities. Consultation is, however, equally critical in these areas, at the very least to ensure the credibility of the scheme and to identify what needs to be dealt with, including the broader social or public policy objectives. The consultation should cover the revision and amendment of soft law materials, not only their initial development. 110 111 112 113 Office of Best Practice Regulation, op. cit., [4.1 – 4.5]. Board of Taxation, Government Consultation with the Community on the Development of Taxation Legislation: a report to the Treasurer and the Minister for Revenue and Assistant Treasurer, BOT, March 2002, <http://www.taxboard.gov.au/content/review.asp>. See <http://www.cabinet-office.gov.uk/regulation/consultation/code.htm. The code is currently under review—see Cabinet Office, Effective Consultation, Cabinet Office, London, December 2007, <http://www.consultations.gov.uk>. International Council of Securities Associations, Statement on Regulatory and Self-Regulatory Consultation Practices, ICSA, October 2004, <http://www.icsa.bz/html/statements_and_letters.html>. 30 Administrative accountability in business areas subject to complex and specific regulation In some instances in areas of co-regulation, consultation is required by policy or legislation. An example of it being required by policy is ASIC Regulatory Guide 183, Approval of Financial Services Sector Codes of Conduct, which sets out a number of actions that should be taken in the development of a code for the financial services sector. These include at the outset identifying all relevant stakeholders, effectively consulting with stakeholders to identify the matters at issue and debate suitable responses, and adopting transparent procedures such as issuing a discussion paper, recommendations and/or a draft code for public consultation.114 When assessing a code for registration, the Australian Communications and Media Authority must be satisfied that the public, industry, the Australian Competition and Consumer Commission, the Telecommunications Industry Ombudsman, a consumer representative organisation and, for privacy codes, the Privacy Commissioner have all been consulted.115 The Council sees value in the development of a set of government-endorsed benchmarks setting out best-practice guidelines for consultation in the development of self-regulatory codes and other instruments.116 Drafting of regulatory materials The clarity with which a regulation is drafted is central to ensuring its effectiveness and efficiency. Rigorous drafting standards are applied by the Commonwealth Office of the Parliamentary Counsel when drafting statutes and by the Office of Legislative Drafting and Publishing in the Commonwealth Attorney-General’s Department when drafting regulations. Measures are also included in the Legislative Instruments Act to encourage high drafting standards for legislative instruments (s 16). During the Council’s consultations agencies said they have checks and balances to ensure that soft law materials are well drafted and that lawyers are involved, at least in an overseeing role. One agency said there are 39 steps in its soft law development process; another said its business rules can take up to 15 months to develop. Nonetheless, soft law business rules are drafted in agencies and, unlike legislative instruments, there is usually no requirement for them to be tabled in parliament for consideration by the Scrutiny of Bills Committee. In the absence of these safeguards, the Council’s consultations confirmed the view that adequate consultation with stakeholders is a crucial part of the development of clear and intelligible business rules. The Taskforce on Industry Self Regulation recognised the need for clear drafting of soft law for the purposes of self-regulation, concluding, ‘As a general rule … 114 115 116 See ASIC Regulatory Guide 183, op. cit., 183.51. Telecommunications Act 1997 (Cth), s 117(1)(f)–(k). The Industry Benchmarks for Industry-based Customer Dispute Resolution Schemes, op. cit., provide a precedent for this. Administrative accountability in business areas subject to complex and specific regulation 31 standards in a self-regulatory scheme ought to be specific and written in a plain and easy to understand manner’. The taskforce considered this ‘would ensure that consumers understand their rights and industries understand their obligations’ and that ‘clarity in the documentation will also assist dispute schemes interpret legal rights’.117 During the Council’s consultation process several forum participants noted that some soft law rules could be extremely technical and impenetrable. The situation was said to be improving, though, there being increasing use of lawyers with expertise in drafting and a familiarity with the relevant area of business to oversee the drafting process. Other forum participants suggested that their codes and other soft law materials were developed with great care and a considerable degree of consultation. It was also noted that soft law rules are relatively easy to amend if they are found not to be working in the way intended. This is undoubtedly the case, but the Council considers this should not ‘open the door’ to less than rigorous drafting standards. It is essential that all forms of regulation be clearly drafted in plain language, so that business understands its obligations and those whose interests are affected understand their rights. It is also essential that soft law business rules be regularly reviewed and updated and that they be internally consistent. Further, in view of the evolving nature of business regulation, the Council considers it important that soft law business rules be subject to regular review to ensure their continuing effectiveness. Internal and external monitoring of business rules Government monitoring On some occasions contentious legislation or legislation that is perhaps traversing new areas can be made subject to a sunset clause.118 Provision can also be made for review of legislation after a specified period of operation.119 Under s 50 of the Legislative Instruments Act, with some exceptions, instruments automatically cease 10 years after their date of commencement or registration.120 Monitoring can also be done in other ways. For instance, the Integrity Advisor established by the Australian Taxation Office advises on matters such as: 117 118 119 120 Industry Self-regulation report, op. cit., p. 66. A sunset clause is a safeguard and an accountability measure allowing legislation to be reviewed and re-enacted at a nominated time. The Anti-Terrorism Act (No. 2) 2005 (Cth) states that the provisions allowing for the issuing of control and preventative detention orders are subject to a 10-year sunset clause. The Act also provides for review of Schedules to the Act by the Council of Australian Governments after five years. Section 59 of the Legislative Instruments Act provides for review of the operation of that Act after three years. As part of the current review of the Act, the Review Committee has been asked to consider recommendation 7.26 of the Rethinking Regulation report, which recommends reducing the sunset time frame from 10 years to five following implementation. 32 Administrative accountability in business areas subject to complex and specific regulation compliance with the law—tax law and other law such as administrative law conformity with government and ATO policies upholding and promoting the Australian Public Service Values and conforming with the Code of Conduct meeting standards of professionalism, including compliance with the Taxpayers’ Charter. Non-government monitoring Provision for periodic review is also made in industry business rules. The Council’s consultations revealed strong endorsement of this practice and clear recognition of the importance of ensuring that rules continue to reflect community and professional standards and current government legislation. The Rethinking Regulation report said monitoring of self-regulation was ‘essential to ensure that it is still relevant to the industry addressing specific problems and improving market outcomes’.121 The Council’s consultations confirmed that such processes exist in many selfregulatory areas. For example, it is a condition of approval by ASIC of financial services sector codes of conduct that such codes be independently reviewed at no more than three-year intervals. The review process must entail seeking stakeholders’ views on the operation of the code.122 As noted, ASIC Regulatory Guide 139, Approval of External Dispute Resolution Schemes, requires codes to include provision for independent review of the operation and procedures of schemes at least every three years.123 The requirement is accordingly reflected in clause 5.3(c) of the Constitution of the Financial Ombudsman Service, which requires the directors of the service to commission independent reviews of the operations and procedures of the service’s dispute-resolution scheme to meet obligations under the Corporations Act. Provision is made under the General Insurance Code of Practice for monitoring compliance with the code and its operations by the Insurance Brokers’ Compliance Council and for a formal review of the code by the council in consultation with government, consumers and the industry every three years. The code administration committee established under the Motor Vehicle Insurance and Repair Industry Code of Conduct was charged with conducting an initial internal review of the operation of the code 12 months after its commencement on 121 122 123 Industry Self-regulation report, op. cit., p. 6. ASIC Regulatory Guide 183, 183.79–81. The consultation requirements outlined in 183.51 must be followed. Regulatory Guide 139.92–94. Administrative accountability in business areas subject to complex and specific regulation 33 1 December 2006.124 After that time the code provides for external review every three years.125 124 125 The Committee’s Motor Vehicle and Repair Industry Code of Conduct 2007 annual report incorporates this review—see <http://www.abrcode.com.au/>. See <http://www.abrcode.com.au/>. 34 6 Administrative accountability in business areas subject to complex and specific regulation Availability of and adaptations to merits review In this chapter the Council responds to its terms of reference by considering the circumstances in which merits review should be available for decisions by government decision makers in business areas subject to complex and specific regulation and the adaptations that might be made to merits review processes to make them more effective and efficient. What is merits review? In making decisions on the merits, a tribunal takes into account law, facts and policy. Merits review requires the tribunal to determine the correct or preferable decision, taking account of the law, the facts and any relevant policy. In arriving at its decision, a tribunal is often said to ‘stand in the shoes’ of the decision maker. Another feature of merits review is, however, that it is often de novo, which means that the tribunal may make its decision on the basis of new material that was not before the original decision maker. The nature of merits review in the Administrative Appeals Tribunal was recently the subject of detailed consideration by the High Court, which held that, in determining what was the correct or preferable decision, the tribunal was not restricted to a consideration of the events up to the date on which the primary decision maker had made its decision but could consider subsequent events.126 The right to apply for merits review of a decision must be specifically assigned by legislation. In this sense, legislation can restrict the types of decisions that are reviewable or place conditions on the right to review. Not all tribunals are explicitly given the power by legislation to conduct a de novo merits review, although, unless specified otherwise, there will be that capacity.127 What decisions should be subject to merits review? The Legislation Handbook requires that policy-making departments consult with the Administrative Review Council via the Commonwealth Attorney-General’s Department if legislation has implications for administrative review.128 The Council’s views on the types of decisions that should be subject to merits review are set out in What Decisions Should Be Subject to Merits Review?129 This guideline 126 127 128 Shi v Migration Agents Regulation Authority [2008] HCA 31, particularly Kiefel J [140–1] and Crennan J [117]. See also Kirby J [30–42] and Hayne and Heydon JJ [117]. For further discussion of merits review, see Robin Creyke, in Matthew Groves, H P Lee (eds), Australian Administrative Law, Fundamentals, Principles and Doctrines, 2007, ch. 5. Commonwealth of Australia, Legislation Handbook, 1999, op. cit., [4.8]. See also [6.33]. Administrative accountability in business areas subject to complex and specific regulation 35 publication is widely relied on by government departments and agencies when they are developing legislation with administrative law implications. As a matter of principle, the Council considers that a decision that will or is likely to affect the interests of a person should be subject to merits review. This view is limited only by the small category of decisions that are, by their nature, unsuitable for merits review and by particular factors that might justify excluding merits review of a decision that otherwise meets the Council’s test. In What Decisions Should Be Subject to Merits Review? the Council identifies two types of decisions it considers unsuitable for merits review: legislation-like decisions of broad application—which are subject to the accountability safeguards that apply to a legislative decision decisions that automatically follow from the occurrence of a set of circumstances—which leaves no room for merits review to operate.130 The Council also identifies a number of decisions for which the exclusion of merits review might be justified. These include preliminary or procedural decisions131, decisions allocating a finite resource between competing applicants132, and policy decisions of high political content.133 The Council includes in this grouping financial decisions with a significant public interest and either: a need to take rapid action to restore or maintain investor confidence in the market or an aspect that makes the decision essentially a government financial policy decision rather than a decision about the merits of a particular application.134 What Decisions Should Be Subject to Merits Review? received strong endorsement from the Taskforce on Reducing Regulatory Burdens on Business, which recommended it to government for use in identifying which regulatory decisions should be subject to merits review.135 While noting the need for merits review to be ‘well targeted’ to ensure that it ‘does not restrict the ability of regulators to respond to major risks such as systemic instability’136, the taskforce supported the availability of independent ‘merit review 129 130 131 132 133 134 135 136 Administrative Review Council, What Decisions Should Be Subject to Merits Review?, ARC, Canberra, 1999. ibid., [3.3– 3.7]. ibid., [4.3 – 4.7]. ibid., [4.11 – 4.19]. ibid., [4.22 – 4.30]. ibid., [4.34 – 4.38]. Rethinking Regulation, op. cit., p. 93. See also rec. 5.7. ibid., p. 93. 36 Administrative accountability in business areas subject to complex and specific regulation of any administrative decisions that can significantly affect the interests of individuals or enterprises’137 and noted, ‘Merit review by an independent third party not only enhances the accountability of regulators, it can also promote better decision making over time and increase business confidence’.138 The taskforce considered that, where feasible, straightforward review mechanisms and provision for the timely resolution of disputes would promote greater transparency and consistency in administrative decision making and engender confidence in financial and corporate regulatory regimes.139 It recommended the availability of merits review for decisions of APRA, ASIC and the Reserve Bank of Australia.140 What Decisions Should Be Subject to Merits Review? was subsequently relied on by government when developing the merits review framework for APRA decisions provided for in the Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 (Cth). Many regulatory decisions—for example, in the telecommunications and the trade practices areas141—can have a significant impact on individual business enterprises. The Council’s review of complex business regulation suggests that there could be regulatory areas such as these where review of the extent to which merits review is and should be available would be timely. Adaptations to merits review processes An important consideration in relation to the use of review mechanisms is that they do not, of themselves, result in the imposition of unnecessary red tape or additional burdens on business. The Council’s terms of reference also require it to consider ‘the adaptations, if any, that may be desirable to merits review processes to maximise the efficiency and effectiveness of such processes’. In dealing with this question, the Council focused on the flexibility of the concept of merits review and on the range of tribunal practices and procedures that can be brought to bear in the review of decisions in business areas subject to complex regulation. Flexibility, comparatively informal procedures, and an ability to tailor proceedings to the needs of applicants are features of tribunals.142 Additionally, as a general rule, 137 138 139 140 141 142 ibid., p. 163. ibid. ibid. ibid., p. 163, rec. 5.7. The taskforce considered that the minimal comments it received in relation to the ACCC were a consequence of other reviews having recently taken place—for example, the Review of the Competition Provisions of the Trade Practices Act and the Exports and Infrastructure Taskforce’s Rethinking Regulation review. See speech by the Attorney-General, the Hon Robert McClelland MP, to the 11th Annual Australian Institute of Judicial Administration Tribunals Conference, Surfers Paradise, 6 June 2008. Administrative accountability in business areas subject to complex and specific regulation 37 tribunals are not bound by the formal rules of evidence, and their proceedings are less formal than those of a court. A tribunal vested with full merits review powers is usually required to take a more investigative approach. The findings of fact the tribunal makes ‘are those that it, rather than the claimant, and let alone adversarial parties, considers to be necessary for it to make its decision’.143 Tribunals can also obtain evidence before, during and after a hearing.144 This is counterbalanced by the frequent requirement that a tribunal operate in a way that is fair, just, economical, informal and quick. The investigative nature of many tribunal proceedings does not mean that there is no burden of proof on applicants or government agencies. Furthermore, evidence must be probative and generally must meet the civil standard of proof.145 Tribunal flexibility The Administrative Appeals Tribunal illustrates the flexibility that can be achieved within administrative tribunals. The AAT has jurisdiction under more than 400 Acts and legislative instruments; this includes jurisdiction in many complex and specialised areas. The AAT’s efficiency, flexibility and responsiveness to this large and varied remit was enhanced in 2005 by a number of amendments to the Administrative Appeals Tribunal Act. The idea underlying the amendments was that, within its statutory obligation to be ‘fair, just, economical, informal and quick’, it was for the AAT to determine in each case how that was to be achieved. The 2005 amendments provided for an expansion of the powers of the president of the tribunal in order to facilitate more effective case management, expansion of the range of alternative dispute-resolution processes available to the tribunal, removing restrictions on the constitution of the tribunal for particular hearings, and giving the president greater flexibility in managing the tribunal’s workload. The AAT Act gives the tribunal the power to limit the scope of a review by limiting ‘the questions of fact, the evidence and the issues’ it considers.146 The Council’s consultations revealed the importance people attach to the level of expertise available among members of tribunals. For example, several of those the Council consulted were strongly of the view that the specialised Australian Competition Tribunal had the expertise to hear the matters assigned to it. 143 144 145 146 SZFDE v Minister for Immigration and Multicultural Affairs v Wang (2003) 215 CLR 518 at 540–1 [71]. Section 33(1)(c) of the Administrative Appeals Tribunal Act authorises the tribunal to ‘inform itself on any matter in such manner as it thinks appropriate’. For further discussion of merits review, see Robin Creyke, op. cit., p. 77. See also Administrative Review Council, Decision Making: evidence, facts and findings, Best-practice Guide 3, ARC, Canberra, 2007. Administrative Appeals Tribunal Act 1975 (Cth), s 25(4A). 38 Administrative accountability in business areas subject to complex and specific regulation The importance of the availability of specialist tribunal members for certain categories of reviews—such as reviews involving difficult technical, legal, medical, actuarial or scientific matters—has long been recognised.147 Among other categories of reviews that might require adjustments to be made to the constitution (and procedures) of merits review tribunals are reviews with a potentially significant impact on government revenue and reviews of unusual public importance or involving complex questions of law and/or fact.148 The capacity exists to appoint to the Administrative Appeals Tribunal people with diverse expertise, and this does in fact occur. This is something, however, that the AAT, as a tribunal of general jurisdiction, continues to promote. Where de novo merits review is available, it is important to ensure that tribunal members have not only the relevant expertise but also the capacity to deal with the potentially high level of detail. Legislative adaptations to merits review Legislative adaptations such as the following can also be made to merits review processes: imposing preconditions on the availability of review processes specifying the individuals or entities that may apply for review limiting the grounds on which review may be sought imposing time limits on applications for merits review and on tribunals in the conduct of reviews precluding consideration by a tribunal of any matter that was not raised before the original decision maker tailoring the powers and remedies available on review specifying the evidence the review body may take into account. Some of these adaptations were raised for consideration by the Ministerial Council on Energy in its May 2006 Review of Decision-making in the Gas and Electricity Regulatory Frameworks. They are reflected in the approach to merits review subsequently adopted in the National Gas Law, set out in the Schedule to the National Gas (South Australia) Act 2008. That law is to be mirrored in the legislation of all other states and territories apart from Western Australia.149 147 148 149 Steering Committee for the Review of the Administrative Appeals Tribunal, Report of the Review of the Administrative Appeals Tribunal, SCRAAT, Canberra, 1991, [6.84]. ibid. [6.63–6.82]. Western Australia has developed complementary legislation to give effect to the National Gas Law—see <http://www.aph.gov.au/library/Pubs/bd/2007-08/08bd092.htm>. Administrative accountability in business areas subject to complex and specific regulation 39 The Council’s views The Council takes the view that the approach adopted in relation to the Administrative Appeals Tribunal—that of providing to the tribunal itself the flexibility to adapt its procedures to the particular needs of each hearing—is generally preferable to inflexible legislative limitations. Legislative adaptations to merits review processes have the potential sometimes to jeopardise the ultimate objective of merits review, which is correct or preferable decision making. For example, in the interest of preventing delays and speeding up hearings, legislative limits can be imposed on the documents that can be reviewed by a tribunal. This can, however, result in the parties seeing no other option but to present a mass of evidence before the regulator in the first instance in order to cover every conceivable argument that might be raised. Practical difficulties can also arise at the primary decision-making stage if limitations are imposed on the materials to which the parties may refer but those limitations do not apply to submissions that may subsequently be presented to the tribunal in conducting a merits review of the decision reached. In such a circumstance there is an incentive for a complainant not to state their position fully at the primary decision-making stage. Although they encourage tribunals to deal with matters expeditiously, time limits on tribunals’ handling of reviews might also reduce tribunal effectiveness and efficiency. Time limits that are too tight can place pressure on the parties in relation to drafting submissions, and so on, and the tribunal, faced with insufficient time to carry out a comprehensive review of all the matters raised, might provide only limited direction to business or the regulator. Some project participants expressed support for the limitations that exist in the Australian Competition Tribunal to review on the record. Consistent with its approach in What Decisions Should Be Subject to Merits Review?, however, the Council considers that in most instances full de novo merits review is appropriate.150 If tribunal review is limited to review on the record, there is a concern that agencies could be swamped with materials for consideration in the first instance. This would be inefficient. The Council acknowledges, though, that in some situations where the making of a decision has been preceded by an extensive inquiry process this may provide a legitimate basis for excluding merits review. As noted in What Decisions Should Be Subject to Merits Review?, processes such as public inquiries and consultations requiring the participation of many people would come within this category.151 In such circumstances, tribunal review of the subsequent decision might become unwieldy and time-consuming. 150 151 This approach coincides with that in the recent decision of the High Court in Shi v Migration Agents Registration Authority [2008] HCA 31. See especially Kirby J [41–42] and Hayne and Heydon JJ [98– 101]. What Decisions Should Be Subject to Merits Review?, op. cit., [4.53–4.55]. 40 7 Administrative accountability in business areas subject to complex and specific regulation Concluding comments The terms of reference for this project require the Council to consider and report on the most effective and efficient administrative accountability mechanisms for decisions in areas of complex and specific business regulation. In particular, the Council was asked to consider the following: the circumstances in which administrative review mechanisms should be available the adaptations, if any, that may be desirable to merits review processes to maximise their efficiency and effectiveness the potential for the development of a framework of guideline principles for administrative review any other relevant matters. A framework of guideline principles The Council encapsulates its response to the terms of reference in the framework of guideline principles and recommended actions set out in the summary of this report. To foster the most effective and efficient accountability mechanisms for regulation across the business spectrum, the principles advocate the application of administrative law values to business rules at the development, application, monitoring and review stages, regardless of whether the rules have been developed and applied by government agencies, industry bodies or other non-government entities. The principles also reflect the Council’s opinion that accountability mechanisms should be responsive to the regulatory environment. Where individual rights or entitlements are affected, the principles suggest that administrative law review mechanisms, or other redress mechanisms consistent with administrative law values, should be available. The mechanisms used in co- and self-regulated areas should be consistent with the nature of that form of regulation. Where there is no potential for individual rights or entitlements to be directly affected, the principles suggest that other accountability processes—such as adequate consultation, sound drafting, and regular monitoring and review—might be sufficient. Consultation requirements are already embedded in areas subject to regulation by government agencies through black letter law and soft law. The guideline principles suggest that similar consultation requirements should be adopted in areas subject to regulation by industry bodies and other non-government entities. Administrative accountability in business areas subject to complex and specific regulation 41 Specific matters The Council’s view on the specific matters raised for consideration in the terms of reference can be summarised as follows. The Council does not propose any changes to the availability of administrative review mechanisms in areas of complex business regulation. The current mechanisms apply to a large number of decisions, especially those made by government agencies when applying both black letter and soft law business rules. The mechanisms do not generally apply to some other categories of decisions—such as decisions made by industry bodies or non-government entities under co- and selfregulatory schemes. Other review mechanisms directed at the protection of individual rights that operate in those areas can, however, play a similar role in the effective and efficient upholding of administrative law values. Among such mechanisms are peer review, enforcement of industry codes, and industry disputeresolution schemes. In relation to any adaptations to merits review processes that might be desirable to maximise the efficiency and effectiveness of such processes, the Council considers that existing merits review and Administrative Appeals Tribunal processes are sufficiently adaptable and accordingly makes no suggestion for change. In the interests of effectiveness and efficiency, the Council considers that the government should encourage industry bodies and other non-government entities to develop an equivalent to the consultation requirements applicable to black letter law and government soft law materials under the Australian Government’s Best Practice Guidelines. Those consultation requirements should apply to non-government soft law business rules. Additionally, the drafting of all business rules should be of a high standard, and the rules should be subject to regular review by people who have expertise in drafting and are familiar with the business area in question. Administrative accountability mechanisms should also be subject to regular monitoring, to ensure that they are working effectively and efficiently and that they remain appropriate having regard to evolving business environments. All these views are reflected in the Council’s framework of guideline principles and recommended actions. 42 Administrative accountability in business areas subject to complex and specific regulation Appendix A Organisations consulted and submissions received The Council held consultations with and/or received submissions from the following organisations: ACT Independent Competition and Regulatory Commission Administrative Appeals Tribunal Australian Communications and Media Authority Australian Competition and Consumer Commission Australian Competition Tribunal Australian Direct Marketing Association Australian Energy Market Australian Prudential Regulation Authority Australian Securities and Investments Commission Australian Securities Exchange Australian Taxation Office Banking and Financial Services Ombudsman Business Council of Australia Choice Department of Finance and Deregulation Department of the Treasury Department of Water and Energy—New South Wales Energy and Water Ombudsman—Victoria Energy Safe Victoria Essential Services Commission First State Super Franchise Council of Australia Group of 100 Secretariat Independent Pricing and Regulatory Tribunal of New South Wales Institute of Chartered Accountants Insurance Council of Australia Investment and Financial Services Association Law Council of Australia Office of Best Practice Regulation Office of the Commonwealth Ombudsman Standards Australia Superannuation Complaints Tribunal Taxation Institute of Australia Administrative accountability in business areas subject to complex and specific regulation Telstra The Association of Super Funds 43 44 Administrative accountability in business areas subject to complex and specific regulation Appendix B Section 51 of the Administrative Appeals Tribunal Act Section 51 of the Administrative Appeals Tribunal Act 1975 describes the functions and powers of the Administrative Review Council: (1) The functions of the Council are: (aa) to keep the Commonwealth administrative law system under review, monitor developments in administrative law and recommend to the Minister improvements that might be made to the system; and (ab) to inquire into the adequacy of the procedures used by authorities of the Commonwealth and other persons who exercise administrative discretions or make administrative decisions, and consult with and advise them about those procedures, for the purpose of ensuring that the discretions are exercised, or the decisions are made, in a just and equitable manner; and (a) to ascertain, and keep under review, the classes of administrative decisions that are not the subject of review by a court, tribunal or other body; and (b) to make recommendations to the Minister as to whether any of those classes of decisions should be the subject of review by a court, tribunal or other body and, if so, as to the appropriate court, tribunal or other body to make that review; and (c) to inquire into the adequacy of the law and practice relating to the review by courts of administrative decisions and to make recommendations to the Minister as to any improvements that might be made in that law or practice; and (d) to inquire into: (i) the qualification required for membership of authorities of the Commonwealth, and the qualifications required by other persons, engaged in the review of administrative decisions; and (ii) the extent of the jurisdiction to review administrative decisions that is conferred on those authorities and other persons; and (iii) the adequacy of the procedures used by those authorities and other persons in the exercise of that jurisdiction; and to consult with and advise those authorities and other persons about the procedures used by them as mentioned in subparagraph (iii) and recommend to the Minister any improvements that might be Administrative accountability in business areas subject to complex and specific regulation made in respect of any of the matters referred to in subparagraphs (i), (ii) and (iii); and (e) to make recommendations to the Minister as to the manner in which tribunals engaged in the review of administrative decisions should be constituted; and (f) to make recommendations to the Minister as to the desirability of administrative decisions that are the subject of review by tribunals other than the Administrative Appeals Tribunal being made the subject of review by the Administrative Appeals Tribunal; and (g) to facilitate the training of members of authorities of the Commonwealth and other persons in exercising administrative discretions or making administrative decisions; and (h) to promote knowledge about the Commonwealth administrative law system; and (i) to consider, and report to the Minister on, matters referred to the Council by the Minister. (2) The Council may do all things necessary or convenient to be done for or in connexion with the performance of its functions. (3) If the Council holds an inquiry, or gives any advice, referred to in paragraph (1)(ab), the Council must give the Minister a copy of any findings made by the Council in the inquiry or a copy of the advice, as the case may be. 45