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Thursday, 24 March 1994
Page: 2240

Senator FAULKNER (Minister for Veterans' Affairs, Minister for Defence Science and Personnel and Minister for Sport and Territories) —Mr Deputy President, I present the government's response to the report of the Standing Committee on Legal and Constitutional Affairs on the doctrine of the Shield of the Crown. I seek leave to incorporate the document in Hansard and move a motion in relation to the document.

  Leave granted.

  The document read as follows



1. The Government thanks the Senate Standing Committee on Legal and Constitutional Affairs ("the Committee") for its Report on the Doctrine of the Shield of the Crown which was tabled in Parliament on 4 May 1993. The Government appreciates the Committee's efforts in addressing this important and complex doctrine and commends the Committee for its clear and useful discussion of a difficult area of law.

Terms of reference

2. On 3 May 1989, the Senate made the following reference to the Committee:

(a) The extent to which, if at all:

(i)the due administration of companies and securities legislation and the Trade Practices Act;

(ii)the rights of third parties under State legislation;

(iii)the operation of efficient, informed and competitive markets for corporations, securities and futures, and goods and services;

have been prejudiced by the operation of the doctrine of `Shield of the Crown';

(b) the continuing relevance of the doctrine;

(c) the consequences of the differential application of the doctrine in relation to:

(i)the Crown in right of the Commonwealth and the Crown in right of the States;

(ii)the Crown in its non-commercial capacities and when carrying on a business;

(d) the status of bodies or persons dealing with those who might be entitled to invoke the Shield of the Crown.

Origin of inquiry

3. The basis for the Committee's inquiry arose from the Report of the Joint Select Committee on Corporations Legislation, which recommended in April 1989 that the matter of the Shield of the Crown be referred to a Parliamentary Committee for further examination. The Joint Select Committee made this recommendation because of concerns expressed during hearings held by the Joint Select Committee on the Corporations Bill 1988 that certain State corporations had relied on the doctrine of the Shield of the Crown to avoid the requirements of statutory commercial frameworks and obstruct the activities of the National Companies and Securities Commission ("NCSC").

4. In its submission to the Joint Select Committee, the NCSC had noted that it had become increasingly common for bodies which enjoyed the Shield of the Crown to rely upon it to avoid regulatory requirements. It was stated that such bodies were under no obligation to make timely disclosure to the market of the type required to be made by any other market participant. Further, the NCSC noted that it could be argued that associates of such Crown bodies were also immune from the obligation to make disclosure.

5. The Committee received 23 written submissions, the most recent on 25 March 1992, from a range of sources, including Commonwealth and State Departments and statutory authorities, local government bodies and legal professional bodies. The Government acknowledges the contributions of all those who made submissions.

Development of the doctrine

6. The doctrine of the Shield of the Crown is concerned with the extension of the immunities and privileges of the Crown to persons and bodies who are separate from the Crown but are closely related to it. The Committee focused on the doctrine in so far as it related to the Crown's immunity from the application of statutes, considering it to be the most significant of the immunities and privileges covered by the doctrine.

7. Over time, the privileges and immunities that were originally enjoyed personally by the Monarch were extended, for example, to the Ministers of the Crown and government departments, and then to some bodies that are not strictly part of the Crown or the government.

8. The Committee found that the modern proliferation of public bodies makes it extremely difficult to accurately categorise the exact types of bodies that may or may not enjoy the benefit of the Crown's immunity from statute. The Committee noted that, during the 19th century, courts in the United Kingdom relied on a `functions test' to determine the status of statutory corporations. This judicial approach survived into the 20th century, and for many years was applied by Australian courts.

9. Later, in the place of the functions test, the courts turned to a test based on the relationship between the corporation and the State. This involved consideration of the extent of control exercised by Ministers of the Crown over the body in question.

10. On the related question of whether statutes bound the Crown, the traditional English rule, as enunciated in Province of Bombay v Municipal Corporation of the City of Bombay [1947] AC 58 held that a statute could only bind the Crown by express words or necessary implication. Until the decision in Bropho v State of Western Australia & Anor [1990] 93 ALR 207, Australian courts also applied the Bombay case.

Continuing relevance of the doctrine

11. While the doctrine of the Shield of the Crown has been a part of English and Australian law for several centuries, in recent times its relevance has been increasingly questioned.

12. Two main factors have contributed to this. The first is the growth in the size and complexity of government, particularly during the last one hundred and fifty years. With this has come a trend for government to operate through statutory corporations and other bodies, with various degrees of autonomy from ministerial control. Many of these corporations and bodies are involved in commercial activities, sometimes in competition with the private sector. This trend must inevitably continue with budgetary pressure on government bodies to recover their costs and to operate within the disciplines to which ordinary commercial bodies are subject.

13. The second factor, related to the first, is the view that governments and government bodies, particularly government bodies performing commercial activities, should not be accorded special privileges and should, so far as possible, operate on an equal footing with ordinary citizens. In relation to government business enterprises, there is also the perception that the existence of special privileges is inconsistent with the general competitive environment in which other businesses operate.

14. A third, lesser but not insignificant, factor is the difficulty often experienced, even by trained lawyers, in determining whether a body shares in the privileges of government or falls within the Shield of the Crown. This exercise often involves time-consuming and costly assessments of the degree of independence from ministerial control enjoyed by the body. Even then there may remain a degree of legal uncertainty which may only be finally settled in costly and time-consuming legal proceedings.

15. The Committee also considered that the Shield doctrine could have adverse impacts on commercial markets and regulatory frameworks. Not only could a Crown body use the doctrine to gain unfair advantages in its commercial dealings, but parties dealing with it directly, for example as commercial partners, could also share the benefit of Crown immunity. In the Committee's view, the doctrine seemed in some respects to be fundamentally inconsistent with the policy objectives of reforms to both State and Federal authorities and GBEs. Another possible result of the doctrine might be to frustrate various legislative schemes such as the Trade Practices Act or the Corporations Law.

16. The Committee considered that activities of the State in the commercial field should not enjoy the special privileges and benefits attributable to the Shield of the Crown doctrine. In the view of the Committee, the modern State's pursuit of varied, often commercial, undertakings required that legislation intended to protect and further public goals should apply equally to all sectors of the community—including the State.

Report of Independent Committee of Inquiry into National Competition Policy

17. Since the tabling of the Committee's Report, a Report by an Independent Committee of Inquiry into National Competition Policy (the `Hilmer Report') has also made a recommendation concerning the application of the doctrine of the Shield of the Crown in relation to the Trade Practices Act 1974. The Hilmer Report recommends that the current limitations in the application of competitive conduct rules arising from the Shield of the Crown doctrine be removed from the Crown in right of the Commonwealth, the States and Territories in so far as the Crown in question carries on a business or engages in commercial activity in competition (actual or potential) with other businesses.

The Committee's recommendations

18. The Committee's recommendations, together with the Government's responses, are as follows.

Recommendation 1

The Committee recommends that the common law doctrine of the Shield of the Crown should be clarified and reformed particularly in so far as it applies to government business enterprises and statutory authorities. The Commonwealth, the States and the Territories should consult together about the issue at high level for example, at the meetings of the Council of Australian Governments or through the Standing Committee of Attorneys-General.

19. The Committee noted that the problems created by the doctrine of the Shield of the Crown involved Commonwealth, State and Territory organisations and the relationship between federal and State laws. The Committee said that to achieve effective and consistent legislative change throughout Australia, given our federal system of government, required a cooperative approach.

20. The Government supports this recommendation.

21. The recommendation of the Hilmer Report concerning the application of the doctrine of the Shield of the Crown in relation to the Trade Practices Act 1974 is being addressed by the Council of Australian Governments in the context of its overall consideration of that report.

22. The remaining issues will in the first instance be progressed through the Standing Committee of Attorneys-General. The Commonwealth Attorney-General will write to his State and Territory colleagues on that Committee to seek to have the matter placed on the Committee's agenda at the earliest opportunity.

Recommendation 2

The Committee recommends that in so far as the common law doctrine of the Shield of the Crown presently applies to government business enterprises and statutory authorities, it should be replaced by legislation setting out criteria in the light of which their entitlement to immunity can be determined. The legislation should be based on a modified opt out scheme. This should minimise the need for prolix and costly monitoring of new enactments which might be necessary were a full opt out scheme adopted.

23. The Government proposes to advance this recommendation by the Committee to the Standing Committee of Attorneys-General and ask that Committee give careful consideration to the approach suggested by the Senate Committee.

24. The Commonwealth's legislative powers would not, of course, extend to making provision with respect to the position in relation to the Shield of the Crown generally of State bodies. Any Commonwealth legislation could only address the position of Commonwealth and Territory bodies.

25. While the Commonwealth supports the general proposition that the application of the doctrine of the Shield of the Crown should be clarified and, in the case at least of government business enterprises, abrogated, by legislation, the form which such legislation should take will need to be carefully considered. Legislation which merely set out criteria by which an entitlement to immunity can be determined, as suggested by the Committee, may not be sufficient to remove any uncertainty which has traditionally surrounded this area of law. However, there are a number of other legislative options open to the Commonwealth in relation to its own bodies.

26. One option is that pursued in the Commonwealth's unsuccessful attempt to clarify the application of Commonwealth, State and Territory laws to the Commonwealth and Commonwealth instrumentalities, i.e. in the Government and Government Instrumentalities (Application of Laws) Bill 1990. That Bill provided, in relation to Commonwealth instrumentalities, that all laws would automatically apply to them (subject to a provision for opting out of the application of particular laws through regulations made within 12 months before the provisions relating to Commonwealth instrumentalities came into force). While this aspect of the Bill did not attract opposition, the Bill ultimately foundered because of other matters.

27. Another option would be simply to adopt a policy of expressly covering the matter of Shield of the Crown in legislation setting up new bodies and examining the position of existing bodies on a case by case basis and amending individual constituting legislation, as required.

28. The Government will endeavour to devise a satisfactory legislative solution to the problem of the application of the doctrine of the Shield of the Crown in modern circumstances, at least in so far as it affects government business enterprises and other bodies conducting activities on a commercial basis.

Recommendation 3

The Committee recommends that the Joint Standing Committee on Corporations and Securities inquire into the effect the doctrine of the Shield of the Crown has on the Australian Securities Commission's ability to exercise its powers when dealing with government business enterprises and statutory authorities and to make such recommendations for reform as seem appropriate.

29. The Committee considered that there was a need for a comprehensive inquiry into how the doctrine impacts on the ASC's ability to exercise its relevant powers when dealing with government business enterprises and statutory authorities.

30. The Government endorses this recommendation and will ask the Parliamentary Joint Committee on Corporations and Securities to look into the issues raised at the earliest opportunity.

Senator FAULKNER —I move:

  That the Senate take note of the document.

  Debate (on motion by Senator O'Chee) adjourned.