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Trade Union Regulation and the Accountability of Union Office-Holders: Examining the Corporate Model

Anthony Forsyth* Australian trade unions have traditionally been subjected to high levels of legal regulation. This has resulted in the development of a substantial body of federal law imposing standards of accountability on unions, and regulating the conduct of their officials. In recent years, the federal government has suggested that unions should be subjected to further regulation. In particular, the government has proposed that new accountability measures borrowed from corporations law should be imposed on unions. This article examines the government’s proposals, focussing on those that would fix union officials with fiduciary and other duties similar to those applying to company directors. The conclusion is reached that the many differences between unions and companies — in terms of the reasons they exist, the purposes they serve, the interests created in their members and the role and functions of their managers — are such that the imposition of a corporate model of regulation on trade unions is inherently flawed. For this and other reasons, including the decline of the arbitration system and the statutory support it provided to unions, it is argued no justification can be made out for the government’s proposals.

Introduction In recent years, Australian trade unions have been confronted with a series of legislative changes, at both state and federal level, which have challenged their traditional role and influence in the workplace. For example, laws have been introduced with the aim of dismantling some of the pillars of ‘union security’ (such as preference clauses in awards), and to provide for ‘voluntary unionism’ or ‘freedom of association’.1 These changes have usually been implemented as part of ‘reform packages’ that have fundamentally re-shaped

* Centre for Employment and Labour Relations Law, The University of Melbourne. This article emanates from a research project I conducted between July and December 1999, which was jointly sponsored by the Centre and my then employer, the Transport Workers’ Union of Australia (Vic/Tas branch). I am extremely grateful to the Branch Secretary, Bill Noonan and the Branch Committee of Management of the TWU for allowing me to undertake this research. I also wish to thank those who, in one way or another, assisted me with the research project including Prof Richard Mitchell (who supervised the research), Helen Bird (who provided invaluable assistance on the corporate law aspects of the research), Prof Keith Ewing, Justice Peter Gray, Prof Ron McCallum, Linda Rubinstein and Susan Zeitz. The comments of the Journal’s anonymous referee were also appreciated. 1 See, eg, R Naughton, ‘Sailing into Uncharted Seas: The Role of Unions under the Workplace Relations Act 1996 (Cth)’ (1997) 10 AJLL 112; M Otlowski, ‘The Industrial Relations Amendment (Enterprise Agreements and Workplace Freedom) Act 1992 (Tas)’ (1994) 7 AJLL 77 at 86-8; R J Owens, ‘Legislating for Change: The Industrial and Employee Relations Act 1994 (SA)’ (1995) 8 AJLL 137 at 150-1; and A Coulthard, ‘Workplace Relations Act 1997 (Qld) and Industrial Organisations Act 1997 (Qld) — Workplace Bargaining and Freedom of Choice’ (1998) 11 AJLL 120 at 127.

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Australia’s industrial laws and institutions, primarily by weakening (or altogether abolishing) long-standing conciliation and arbitration systems and ousting award regulation of terms and conditions of employment in favour of individual work agreements, with unions being sidelined in these new bargaining arrangements.2 A feature of this process that has received little attention to date is the extent to which it has also involved increased legal regulation of the internal affairs of unions, and the imposition on unions of standards of accountability borrowed from laws regulating corporations. This has been the effect of legislative changes introduced in a number of Australian states in the last few years. These state laws, and recent proposals by the federal government to adopt a similar approach, invite renewed consideration of the nature and extent of trade union regulation in Australia. The notion that unions should be regulated in the same way as companies appears to be based on the premise that they are similar types of organisations. In this article I wish to question that premise, and consider whether the ‘corporate model’ of regulation is really suitable for unions. In this context, I will focus in particular on the legal duties imposed on union office-holders. Before doing so, it is first necessary to consider how unions have traditionally been regulated in Australia, and the rationale for such regulation. The Historical Context: Trade Union Regulation and the Arbitration System From the commencement of the federal conciliation and arbitration system in 1904, Australian unions have been subjected to a much higher degree of state regulation of their affairs than their counterparts in comparable overseas countries.3 The types of legal controls imposed on unions over the course of the last century or so have included: regulation of the scope and content of union rules; extensive requirements to keep and lodge accounts and records; measures to ensure accountability of union leaders to their members (such as provision for the striking down of union rules that are considered ‘oppressive, unreasonable or unjust’, and allowing members to make application to a court for observance of the rules); provisions regulating the conduct of union elections (including supervisory powers for the courts through ‘election inquiries’) and union amalgamations; and the capacity for unions to be deregistered in certain circumstances.4 However, unions have traditionally accepted this extensive level of regulation as the price to be paid for the substantial benefits that they have obtained from participation in the formal industrial relations framework.

2 See M Vranken, ‘Demise of the Australasian Model of Labour Law in the 1990s’ (1994) 16 Comparative Labor Law Journal 1; and A Coulthard, ‘The Individualisation of Australian Labour Law’ (1997) 13 International Journal of Comparative Labour Law and Industrial Relations 95. 3 RC McCallum, ‘Federal Controls Upon Trade Unions: The Australian Enigma’ in Changing Industrial Law, D Rawson and C Fisher (Eds), Croom Helm, Sydney, 1984, pp 174-5, 194. 4 For a detailed account of the development of these and other legal controls on Australian unions between 1904 and 1983 see McCallum, above n 3, at pp 177-94. See also A Boulton, ‘Government Regulation of the Internal Affairs of Unions’ in Power, Conflict and Control in Australian Trade Unions, K Cole (Ed), Penguin Books, Ringwood, 1982, pp 216-36. JOBNAME: No Job Name PAGE: 3 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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Australia’s federal arbitration system, from its inception, promoted and encouraged unions5 and unionism in a number of ways. Once registered under the federal statute, unions could force employers into either negotiation or the making of an award in settlement of a log of claims, giving unions a de facto right of recognition. Registered unions also obtained corporate legal personality, exclusive representational rights over all workers within their area of constitutional coverage, rights of ‘preference’ for their members in respect of employment and other matters (effectively, a form of compulsory unionism), and the legal right to enter employers’ premises and inspect records to ensure compliance with awards and other industrial instruments.6 While ‘(T)he founders of compulsory arbitration supported the participation of unions in bargaining and awards because they believed that the protection and representation of workers’ interests could only be achieved on a collective basis’,7 they also considered it necessary to subject unions to extensive legal regulation.8 If unions were to enjoy rights and privileges under the system, they would also have to accept the imposition of legal measures in the public interest aimed at ensuring that they remained democratic and properly managed, and did not abuse their power.9 However it has been suggested that, despite the high level of state interference in their affairs, the considerable legal and institutional support unions obtained from the arbitration system contributed greatly to the growth and organisational security of the Australian trade union movement for much of the twentieth century.10 Current Federal Law on Union Accountability and the Duties of Union Office-Holders An important dimension of the legal regulation of Australian unions since the commencement of the arbitration system has been the development of a

5 In fact it was for many years a principal object of the federal industrial statute to ‘encourage the organisation of representative bodies of employers and employees’: Conciliation and Arbitration Act 1904 (Cth) s 2. Mills and Sorrell suggest that the encouragement of employers’ organisations was a ‘lesser’ purpose of the federal legislation than the encouragement of unions, while noting there had been early judicial acknowledgement (in Federated Engine Drivers and Firemen’s Assn v BHP Co Ltd (1911) 5 CAR 9) that ‘the arbitration system depends on such organisations’: CP Mills and GH Sorrell, Federal Industrial Law, 5th ed, Butterworths, Sydney, 1974, p 15. 6 The benefits and privileges obtained by registered unions under the arbitration system are explored in greater detail in A Frazer, ‘Trade Unions under Compulsory Arbitration and Enterprise Bargaining: A Historical Perspective’ in Enterprise Bargaining, Trade Unions and the Law, P Ronfeldt and R McCallum (Eds), The Federation Press, Sydney, pp 60-5. 7 Above n 6, p 80. 8 Above n 6, pp 54-6. 9 Boulton, above n 4, at 217; D Yerbury, ‘Legal Regulation of Unions in Australia: The Impact of Compulsory Arbitration and Adversary Politics’ in Perspectives on Australian Industrial Relations, WA Howard (Ed), Longman Cheshire, Melbourne, 1984, pp 82-103. 10 McCallum, above n 3, pp 180-1; Boulton, above n 4, at 233; D Peetz, Unions in a Contrary World: The Future of the Australian Trade Union Movement, Cambridge University Press, Melbourne, 1998, p 25. For a more qualified analysis of the contribution of the arbitration system to trade union growth see WB Creighton, WJ Ford and RJ Mitchell, Labour Law: Text and Materials, 2nd ed, Law Book Company, Sydney, 1993, pp 889-91. On another aspect of the relationship between unions and the arbitration system see P Gahan, ‘Did Arbitration Make for Dependent Unionism? Evidence from Historical Case Studies’ (1996) 38 Journal of Industrial Relations 648. JOBNAME: No Job Name PAGE: 4 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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substantial body of law imposing standards of accountability on trade unions and regulating the conduct of their officials, particularly in respect of financial matters. In fact, contrary to the view that ‘the law has traditionally refrained from developing duties for trade union officials’,11 in my view there exists a comprehensive ‘code’ of overlapping legal standards, consisting of statutory provisions, the common law, and trade union rules (both express and implied),12 which I will now turn to examine. The Workplace Relations Act 1996 (Cth) (‘WR Act’) imposes extensive financial accounting and reporting obligations on unions (and employer organisations).13 These include requirements to: maintain accounting records;14 prepare annual accounts;15 make specified financial information available to the union’s members upon request;16 appoint auditors;17 provide audited accounts to the members, and lodge them with the Industrial Registry;18 and notify the registry of loans, grants or donations exceeding $1000.19 Breaches of many of these obligations may constitute offences under the WR Act, resulting in the imposition of fines.20 Further, there are provisions enabling the Industrial Registrar to investigate the management of unions’ financial affairs,21 for example, where a ‘deficiency, failure or shortcoming’ is identified in an auditor’s report,22 where a specified number of members of a union request such an investigation,23 or in a wide range of other circumstances such as where the registrar believes there are ‘reasonable grounds’ for doing so.24 This latter provision, which was inserted in the legislation in 1996, really amounts to a general power of inquiry vested in the registrar ‘where there is a suspicion concerning the union’s financial affairs’.25 If such an inquiry reveals breaches by a union of its financial management obligations under the WR Act or the union’s rules, the registrar can request that action be taken to remedy the situation and (if that request is not complied with) can make application to the Federal Court of Australia for orders to ensure that this occurs.26 In practice, it seems that these new powers have been used only sparingly by the registrar since s 280A of the WR Act became operative on 31 December 1996.

11 M Christie, ‘Legal Duties and Liabilities of Federal Union Officials’ (1986) 15 Melbourne University Law Review 591 at 592. 12 Each of these is examined in detail (as at the mid-1980s) in Christie, above n 11, at 594-610, apparently contradicting his assertion as to the absence of legal regulation in this area. 13 WR Act Pt IX, Divs 10 and 11; see also Workplace Relations Regulations (‘WR Regulations’) Pt VII, Divs 7 and 8. 14 WR Act s 272. 15 WR Act s 273; WR Regulations reg 107. 16 WR Act s 274; WR Regulations reg 110. 17 WR Act ss 275-8. 18 WR Act ss 279-80. 19 WR Act s 269. 20 See WR Act ss 321-31. 21 As to how such investigations are to be conducted see WR Act s 280B. 22 WR Act s 280(2). 23 WR Act ss 280(5)-(6) and (10). 24 WR Act s 280A; WR Regulations reg 107A. 25 Naughton, above n 1, at 127. 26 WR Act ss 280B(3)-(7). JOBNAME: No Job Name PAGE: 5 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

Trade Union Regulation and the Accountability of Union Office-Holders 5

While these extensive statutory requirements generally apply to unions as organisations, rather than directly imposing standards of accountability and financial propriety on individual union office-holders,27 the latter outcome is achieved through a combination of the common law, union rules, and further legislative provisions. Christie, writing in 1986, was able to confidently assert that judicial developments up to that point in time made it clear that ‘the pillars of fiduciary law — the duty of good faith, the conflict of interest rules and duty of confidence — apply to officials’28 of trade unions. He pointed to numerous cases that confirmed the obligations resting on union officials as ‘donees of fiduciary power’,29 and under implied rules based on equitable duties.30 Further, he suggested that the reach of the common law extended so far as to impose a duty on union officials to ‘exercise reasonable care when advising members’ on matters such as long service leave and workers’ compensation.31 More recent decisions have confirmed the position that emerged clearly from the earlier cases, that union leaders occupy positions of trust vis-a`-vis union members, requiring very high standards of conduct especially in respect of financial matters. For example, in Robertson v State Public Services Federation32 French J of the Federal Court expressed the view that: . . . to hold office in a registered industrial organisation is to hold a position of trust which involves the maintenance and advancement of the interests of union members. There are obviously strong fiduciary elements involved in the discharge of the duties of such office. The legislation is intended to be protective of the interests of union members and to ensure that high standards are observed in those who are elected to, or appointed to, office within unions.33 This approach is bolstered by the restraints on financial impropriety contained in the registered rules of many unions,34 the observance of which is secured by judicial supervision under s 209 of the WR Act. This provision allows a union member to apply to the Federal Court for orders requiring ‘the

27 There are some exceptions; see WR Act ss 326-7 and 329, under which fines may be imposed on individuals for the commission of certain offences. 28 Christie, above n 11, at 598. 29 Above n 28, at 599-601; the main decision Christie refers to is that in Allen v Townsend (1977) 31 FLR 431. 30 Above n 28, at 601-9, referring to (among other cases) Gordon v Carroll (1975) 27 FLR 129, Jess v Scott (1984) 1 FCR 40, Scott v Jess (1984) 3 FCR 263 and Porter v Dugmore (1984) 3 FCR 396. 31 Above n 28, at 609-10; see Buckley v NUGMW [1967] 3 All ER 767. See also M Christie, ‘The Union Official and the Age of Superannuation’ (1988) 1 AJLL 208, where it was argued that developments in the law on negligent misstatement raised the potential for liability on the part of union officials involved in advising members on their superannuation entitlements, and managing superannuation funds. 32 (1993) 49 IR 356. 33 (1993) 49 IR 356 at 363. This decision involved consideration of the legislative provisions (now found in Pt IX Div 6 of the WR Act) disqualifying persons convicted of certain offences, including those involving fraud or dishonesty, from holding office in registered organisations for specified periods. 34 See, eg, rr 80-86 of the Rules of the Transport Workers’ Union of Australia, dealing with (inter alia) banking and expenditure, handling of money, audits, inspection of financial accounts, and loans, grants and donations. Union rules are required by the WR Act to make provision for these types of matters: see s 195(1). JOBNAME: No Job Name PAGE: 6 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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performance or observance of any of the rules of an organisation by any person who is under an obligation to perform or observe those rules’.35 The s 209 mechanism has commonly been invoked to ensure that the principles of natural justice are observed in the application of rules to union members,36 and to restrain the inappropriate use of union resources by incumbent officials during election campaigns.37 It has also been used to ensure compliance with union rules relating to the expenditure of funds in a range of other situations, such as where payments have been made to union officials out of the funds,38 or property of the union has been disposed of,39 in breach of the rules.40

Towards a Corporate Model for Trade Union Regulation The WR Act introduced a number of important provisions affecting trade unions41 which, taken together, amounted to a significant reversal of the traditionally supportive treatment of unions under the federal industrial system.42 The changes included: the abolition of union preference arrangements, or any form of compulsory unionism;43 the introduction of a legal right not to belong to a trade union (purportedly based on the notion of ‘freedom of association’);44 restrictions on the exercise by union officials of

35 WR Act s 209(9). There are also provisions that may be used to strike down trade union rules that are considered ‘oppressive, unreasonable or unjust’: WR Act ss 196 and 208. It is beyond the scope of this article to consider these statutory provisions and the case law that has developed around them; see, eg, R Tracey, ‘The Legal Approach to the Democratic Control of Trade Unions’ (1985) 15 Melbourne University Law Review 178 at 185-205; Creighton et al, above n 10, pp 945-57, 963-73; and B Creighton and A Stewart, Labour Law: An Introduction, 3rd ed, The Federation Press, 2000, pp 362-3. 36 See R Tracey, ‘The Conduct of Union Disciplinary Hearings’ (1982) 24 Journal of Industrial Relations 204; Creighton et al, above n 10, pp 1070-3, 1079; and Creighton and Stewart, above n 35, p 367. For a recent decision in this area see Dodd v Johnston (1999) 91 IR 352. 37 See Tracey, above n 35, at 206; and RC McCallum, ‘A Modern Renaissance: Industrial Law and Relations Under Federal Wigs 1977-92’ (1992) 14 Sydney Law Review 402 at 413-5. 38 Gordon v Carroll (1975) 6 ALR 579; 27 FLR 396; see also some relevant decisions under state law, ie. Hope v Australasian Society of Engineers, Moulders and Foundry Workers, Industrial Union of Workers, WA branch (1985) 12 IR 271, Boner v Anderson (No 1) (1993) 50 IR 406 and West Australian Locomotive Engine Drivers’ Firemen’s and Cleaners’ Union of Workers v Schmid (1995) 65 IR 15. 39 See Lawrence v Fry (1998) 86 IR 205, which also deals with the interaction between an application under s 209 and an action at common law for negligence and breach of fiduciary duty (invoking the Federal Court’s accrued jurisdiction). 40 As to fairness in the process of dealing with allegations of misappropriation of funds by union officials see, eg, Mellor v Federated Liquor and Allied Industries Employees Union of Australia, Qld branch (1992) 42 IR 55, Boner v Anderson (No 1) (1993) 50 IR 406, and WA Locomotive Engine Drivers’ Firemen’s and Cleaners’ Union of Workers v Schmid (1995) 65 IR 15. 41 In point of fact, these provisions were introduced by the Workplace Relations and Other Legislation Amendment Act 1996 (Cth) (‘WROLA Act’), which substantially amended the Industrial Relations Act 1988 (Cth) and re-titled it the WR Act. 42 For detail see Naughton, above n 1. 43 The power of the federal industrial tribunal to insert preference clauses in awards was removed. A further provision was inserted in 1997 to render inoperative all preference arrangements in both awards and certified agreements: see now WR Act s 298Z. 44 WR Act Pt XA; see especially s 298K and s 298L(1)(b). JOBNAME: No Job Name PAGE: 7 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

Trade Union Regulation and the Accountability of Union Office-Holders 7

their ‘right of entry’ into workplaces;45 and provisions intended to facilitate the formation and registration of small, enterprise-based unions.46 These measures were adopted in pursuit of the newly-elected Coalition Government’s twin desire of exposing unions to competitive forces (or ending union ‘monopolies’), and promoting the rights of individual union members over the interests of ‘trade union bureaucracies’.47 The objects of the federal legislation were also amended to reflect the new-found emphasis on ensuring that unions are ‘representative of and accountable to their members, and are able to operate effectively’.48 While the legislative changes introduced in 1996 did not did not deal with matters of internal union regulation or significantly alter the level of accountability of unions under federal law,49 these issues seem to have been a preoccupation of the federal government over the last three years, spawning a series of reports and now some draft legislation. Early in 1997, the government announced that it would review the financial accounting and reporting requirements imposed on unions.50 The national law firm Blake Dawson Waldron was commissioned to conduct such a review, commencing on 10 March 1998 and delivering its report and recommendations to the government in June of that year (‘BDW Report’).51 Consistent with the terms of reference for the review, the BDW Report contained recommendations as to how the government should implement its objectives of (inter alia) making the financial management and reporting obligations of registered organisations and their officials consistent with the statutory obligations applicable to corporations and other comparable organisations. During the 1998 federal election campaign, the Coalition Government announced that it would ‘increase the accountability of unions to their members in financial and other matters, and foster the creation of greater democratic control of union decision making’.52 Following the government’s re-election in October 1998, the Minister for Employment, Workplace Relations and Small Business indicated that these proposals would be acted upon through implementation of recommendations in the BDW Report ‘intended to ensure that the obligations of federally registered organisations

45 WR Act Pt IX Div 11A. 46 WR Act s 188(1)(c) and s 189(4). 47 See Naughton, above n 1, at 112-13, 117-18. 48 WR Act s 3(g); see Naughton, above n 1, at 118. Note also that one of the objects of the former Pt IX, ie, ‘to encourage and help organisations to develop . . . ’ (see Industrial Relations Act 1988 (Cth) s 187A(d)), was removed by the WROLA Act. 49 An exception was the insertion of s 280A in the WR Act; see nn 24-6 above and text accompanying. 50 The Hon Peter Reith MP, Workplace Relations in 1997, Press Release, 6 January 1997. 51 Department of Workplace Relations and Small Business/Blake Dawson Waldron, Review of Current Arrangements for Governance of Industrial Organisations — Report and Recommendations, June 1998 (‘BDW Report’); for a brief discussion of the BDW Report see M Mourell, ‘Industrial Organisations and Corporate Accountability’ (1999) 12 AJLL 136. 52 Liberal/National Coalition, Workplace Relations Policy, More Jobs, Better Pay, September 1998, p 28. JOBNAME: No Job Name PAGE: 8 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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are relevant and satisfy modern accountability and governance standards’.53 The government has since sought to proceed with the implementation of these measures by issuing a Ministerial Discussion Paper,54 followed by an exposure draft bill that was released for public discussion and comment in December 1999.55 The Ministerial Discussion Paper and the Draft RO Bill contain a number of proposals56 that would impose ‘corporate’ standards of accountability on unions.57 Of greatest interest, for purposes of this article, are the proposals to fix union officials with fiduciary and other duties58 similar to those applying to directors and other company officers under the Corporations Law.59 Thus, union ‘officers’60 would be required by statute to exercise their powers and discharge their duties with care and diligence,61 in good faith and for a proper purpose.62 They would also be prohibited from improperly using their position, or information acquired by virtue of their position, to gain advantage for themselves or others or to cause detriment to their union.63 Breaches of these duties would generally attract civil penalties,64 with the Federal Court

53 The Hon Peter Reith MP, The Continuing Reform of Workplace Relations: Implementation of More Jobs, Better Pay, Implementation Discussion Paper, May 1999, p 28 (‘Implementation Discussion Paper’). 54 Minister for Employment, Workplace Relations and Small Business, Accountability and Democratic Control of Registered Industrial Organisations, Ministerial Discussion Paper, October 1999 (‘Ministerial Discussion Paper’). 55 Registered Organisations Bill 2000, Exposure Draft for Comment (‘Draft RO Bill’). 56 There is a range of other proposals in the Ministerial Discussion Paper and the Draft RO Bill that will be the subject of only passing consideration in this article, such as those relating to the registration requirements for registered organisations, deregistration, amalgamations and withdrawal from amalgamations, and the conduct of elections within organisations; for discussion, see A Forsyth, ‘Ministerial Discussion Paper — Accountability and Democratic Control of Registered Industrial Organisations’ (1999) 12 AJLL 193. 57 These proposals would apply to all registered industrial organisations, ie, both employer bodies and trade unions. However, consistent with the view that the regulation of employer organisations is really only ‘incidental’ to ‘the real focus of attention’ on unions and union leaders (see Yerbury, above n 9, p 97), it is my contention that the proposals are directed primarily at unions. Certainly, my concern in this article is only with the way in which the proposals might impact upon unions, rather than employer organisations. 58 The statutory duty of care imposed on company directors is thought not to be a ‘fiduciary’ duty; see HAJ Ford, RP Austin and IM Ramsay, Ford’s Principles of Corporations Law, 9th ed, Butterworths, Sydney, 1999, pp 281-2. 59 Ministerial Discussion Paper, above n 54, pp 26-7; Draft RO Bill Ch 5 Pt 4. 60 A term defined as ‘a person holding an office’ in the union: Draft RO Bill cl 8. In the industrial law context, it seems that this term does not extend to include employees of the union such as industrial officers: see Creighton and Stewart, above n 35, p 368. Under company law, however, the term has been construed much more broadly, extending to those performing a wide range of management activities in companies where there is involvement in decision-making processes: see CCA (Vic) v Bracht [1989] VR 821, and for a competing view see Holpitt Pty Ltd v Swaab (1992) 33 FCR 474; see also Ford et al, above 58, pp 286-7. Note further that any person ‘involved’ in a breach of the duties contained in Draft RO Bill cll 285-7 may be held liable for such a breach. 61 Draft RO Bill cl 284; see Corporations Law s 180. 62 Draft RO Bill cl 285; see Corporations Law s 181. 63 Draft RO Bill cll 286-7; see Corporations Law ss 182-3. These duties are expressed to apply not only to officers of the union, but also to employees. 64 Draft RO Bill cll 295-6. As to who would be able to bring an action to enforce the duties, see below nn 122-7 and text accompanying. JOBNAME: No Job Name PAGE: 9 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

Trade Union Regulation and the Accountability of Union Office-Holders 9

also having the power to award compensation to a union where it has suffered damage arising from a breach.65 However, where a breach is committed intentionally or recklessly, and with dishonesty, this may constitute a criminal offence and criminal penalties may be imposed.66 In addition to the imposition of these new statutory duties derived from corporate law, the minister would be able to issue ‘guidelines’ containing ‘model rules about the conduct of officers and employees’ of unions.67 Changes are also proposed to the provisions dealing with disqualification from holding office in a union.68 The financial accounting and reporting obligations imposed on unions69 would also be aligned, in many respects, with the requirements applicable to companies under the Corporations Law.70 For example, union members would be provided with a right to obtain access to the union’s financial information where there are reasonable grounds for suspecting financial maladministration.71 Union management committees would have to prepare annual ‘operating reports’ detailing matters such as the union’s ‘principal activities’ in the previous year and any significant changes in its financial affairs.72 Further, the investigative powers of the Industrial Registrar in respect of the management of unions’ financial affairs would be enhanced,73 and the sanctions for non-compliance with the accounting and reporting obligations significantly strengthened.74 These proposals to impose a further layer of statutory accountability on trade unions based on the corporate model, particularly those that would impose ‘directors’ duties’ on trade union officials, are not novel. As well as having been considered at the federal level on a number of previous occasions,75 similar laws have been introduced in several Australian states in recent years. New South Wales was the first state to do so in 1991, introducing statutory duties on union officers to act honestly and with care and diligence, to disclose relevant interests, and not to make improper use of their position or information acquired by virtue of it.76 Western Australia imposed similar statutory duties on union officials in 1995,77 although restricting the application of these to those officials ‘who participate directly in the financial

65 Draft RO Bill cl 297. 66 Draft RO Bill cl 288; see Corporations Law s 184. 67 Draft RO Bill cl 152. 68 See Draft RO Bill Ch 4 Pt 4, especially cl 217. 69 Draft RO Bill Ch 5 Pts 2 and 3. 70 On the financial reporting and audit obligations of companies generally, see Corporations Law Ch 2M. 71 Draft RO Bill Ch 5 Pt 3 Div 8; see Corporations Law s 247A. 72 Draft RO Bill cl 248; see Corporations Law ss 298-300. 73 Draft RO Bill Ch 5 Pt 3 Div 6. 74 The sanctions would include referral of the matter to the Director of Public Prosecutions, or application by the Industrial Registrar for cancellation of a union’s registration under the WR Act: see Draft RO Bill cll 118, 125 and 269. 75 See, eg, the recommendation in the Final Report of the Royal Commission on the Activities of the Federated Ship Painters and Dockers Union, Vol III, AGPS, Canberra, 1984, pp 153-9, that Australia should enact similar legislation to that operating in the United States imposing statutory fiduciary obligations on labor union officials. 76 Industrial Relations Act 1991 (NSW) ss 483-6, 489; see now Industrial Relations Act 1996 (NSW) ss 267-9, a watered-down version of the earlier provisions. 77 Industrial Relations Legislation Amendment and Repeal Act 1995 (WA). JOBNAME: No Job Name PAGE: 10 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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management’ of a union.78 Queensland followed suit in 1997.79 The retention of these provisions in essentially the same form by the new Labor Government in Queensland in 1999,80 repeating the earlier experience in New South Wales, could suggest that there is widespread acceptance of the corporate model as an appropriate vehicle for the regulation of trade unions and their officials. However, the fact that some state Labor governments have retained the ‘directors’ duties’ provisions enacted by their conservative predecessors may not be based on any real conviction that corporate standards of accountability are appropriate in the trade union context. It may instead be based on purely political considerations, such as that the removal of the new provisions would be seen simply as an attempt to reduce the accountability of unions to their members, or that (in the case of New South Wales) the repeal of the previous government’s measures would not pass the Upper House of Parliament. I now wish to examine the suitability of the corporate model for the regulation of trade unions. I will then consider whether legislative intervention in this area at the federal level is necessary or desirable at this point in time.

An Evaluation of the Corporate Model While there have been many advocates of the application of corporate governance principles to trade union regulation in recent years, few have articulated the rationale for doing so. The BDW Report, for instance, simply stated that: Some duties are so clear that they should be addressed in the public arena as it is in the public interest that certain standards of conduct be required of all office holders no matter in which entity office is held. This has been clearly recognised in the Corporations Law and is no less relevant in the (WR Act).81 The federal government has expressed similar sentiments in its many pronouncements on this subject over the last few years,82 as did those who were instrumental in the introduction of statutory duties for union officials at the State level.83 To the extent that arguments have been advanced supporting the extension of the corporate model to trade unions, they have usually been based on the suggestion that unions and corporations are similar types of organisations, and therefore they should be regulated in the same way. According to this view, it is ‘inaccurate to regard a modern trade union as analogous to a voluntary,

78 Industrial Relations Act 1979 (WA) s 74. 79 Industrial Organisations Act 1997 (Qld) ss 252-3. 80 See now Industrial Relations Act 1999 (Qld) ss 526-9; see also the Report of the Industrial Relations Taskforce — Review of Industrial Relations in Queensland, December 1998, pp 85-6. 81 BDW Report, above n 51, p 45. 82 The Ministerial Discussion Paper, above n 54, is replete with references to provisions of the Corporations Law, without a single explanation as to why these should form the basis for regulation of trade unions. 83 See, eg, J Fahey, Parliamentary Debates, NSW Legislative Assembly, 28 August 1991, p 722; S Santoro, Parliamentary Debates, Queensland, 26 November 1996, p 4297. JOBNAME: No Job Name PAGE: 11 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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non-profit association’84 which the law has traditionally subjected to only minimal legal regulation. Rather, ‘a union is more similar to a company than to a social club’ and ‘is essentially an economic entity. The fact that a union may be a separate legal entity, so that the union itself does not derive profits, does not detract from this proposition’.85 This view of the union as an ‘economic entity’ sees union members as similar to shareholders, with an economic interest in the union (ie, the achievement of better wages and conditions) comparable to the proprietary interest that shareholders have in companies. Further, modern-day trade union officials ‘often administer large enterprises with large assets and . . . their performance very much determines the financial well-being of members’.86 It is suggested that this, among other factors, necessitates the imposition of similar standards of accountability on union officials as apply to company directors.87 However, in my view, trade unions and companies are very different types of organisations in terms of the reasons for which they are formed, the purposes that they serve, and the interests that their members and shareholders respectively hold. As Elias and Ewing suggest, a consideration of these differences is necessary in any discussion of the regulatory framework that should apply to such bodies: A proper assessment of the role which the law ought to play in the regulation of groups in society must depend largely on the public significance of the functions of these groups, and the methods they employ to pursue them. . . . Both Parliament and the courts should consider the particular needs and objectives of an organization before deciding what, if any, controls should be exercised over it.88 Companies may serve a number of different purposes, but primarily they are vehicles for the carrying on of commercial activity in society.89 While there are a number of different types of companies, the dominant form is the company limited by shares. The main rationale for forming this type of company is that it provides the commercial entity with limited liability, ie, the capacity ‘to conduct an enterprise in such a way that the persons interested in the enterprise have only limited exposure to the liabilities of the enterprise’.90 Most companies are profit-making enterprises and certainly in the case of publicly listed corporations ‘the corporation and its shareholders share a fundamental goal: the generation of revenue by the corporation for the corporation and on behalf of its shareholders’.91 The owning of shares in a company can therefore be said to create rights in its shareholders that are ‘proprietary’ in nature.92 The legal regulation of companies has traditionally

84 Christie, above n 11, at 592-3. 85 Christie, above n 11, at 593. 86 Christie, above n 11, at 594. 87 Christie, above n 11, at 594, 615-6. 88 P Elias and K Ewing, Trade Union Democracy: Members’ Rights and the Law, Mansell Publishing, London, 1987, p 260. 89 See Ford et al, above n 58, pp 4-7. 90 Ford et al, above n 58, p 4. 91 H Bird, ‘A Critique of the Proprietary Nature of Share Rights in Australian Publicly Listed Corporations’ (1998) 22 Melbourne University Law Review 131 at 132. 92 Gambotto v WCP Ltd (1995) 182 CLR 432, 446 (per Mason CJ, Brennan, Deane and Dawson JJ), and 456 (per McHugh J); for a competing view see Bird, above n 91. JOBNAME: No Job Name PAGE: 12 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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been aimed at protecting the interests of shareholders, whom the law views as the ‘owners’ of the corporation.93 This end has been achieved by providing shareholders with access to information, and ensuring that management power within companies is exercised legitimately (eg, by setting standards of behaviour for companies and their officers).94 Unions, on the other hand, are bodies formed predominantly for the purpose of improving the working conditions of their members, and the social standing of workers generally.95 In performing this role, which includes the provision of industrial representation and a range of other services to their members, unions participate in the industrial, economic and political processes. Unlike companies, unions are not formed for the purpose of carrying on commercial activity, nor for the accumulation of profits for distribution among their members. Accordingly, the interest that union members hold in their union is vastly different from the property rights vested in shareholders.96 Christie attempted to argue that a union member’s interest in the union was a proprietary one, because union membership was effectively compulsory in many workplaces — it was necessary to be a union member to obtain ‘the right to work’, and therefore to earn income.97 However, given that the law now explicitly recognises that union membership is voluntary and protects the rights of those who do not wish to join a union,98 this argument is no longer sustainable (if indeed it ever was). The union member’s interest, rather than being ‘financial’ or ‘proprietary’, might be described as a ‘democratic’ interest in ensuring that the union is properly and fairly administered. Certainly, it is this type of interest that the legal regulation of the internal affairs of Australian unions has traditionally attempted to advance. But union membership connotes much more than simply the right to participate in the union’s affairs and to have the union run fairly. Workers join unions primarily because of the industrial protection they provide. This creates very different interests from the economic interests of shareholders in corporations. At the same time, there are some similarities between unions and companies. First, in terms of the size and activities of unions, Christie’s observation that unions (by the mid-1980s) had become ‘large enterprises with large assets’99 is even more accurate today. Following the intensive amalgamation process of the early-to-mid 1990s, most Australian trade unions

93 See J Hill, ‘The Shareholder as Cerberus: Redefining the Shareholder’s Role in Modern Australian Corporate Law’ in Proceedings of the 5th National Corporate Law Teachers Conference, Business Law Education Centre, Vol One, 1995, pp 7-25 at pp 8-9. 94 Ford et al, above n 58, pp 8-9, 54. 95 See Creighton et al, above n 10, p 887; and DW Rawson, ‘The Law and the Objects of Federal Unions’ (1981) 23 Journal of Industrial Relations 295 at 299. 96 The Australian Council of Trade Unions (‘ACTU’) has submitted that ‘It needs to be understood that shareholders in a corporation have property rights in the corporation which can and are (sic) traded in a manner which is not the case for members of a trade union. For this reason, the needs of a union member for information are completely different from that of a shareholder, who may be making daily decisions in relation to trading which are highly dependent on that information’: ACTU, Submission to the Review of Accounting, Auditing and Reporting Obligations of Industrial Organisations, April 1998, p 3. 97 Christie, above n 11, at 592-3, 612; for a similar view see A Riches, ‘Union Accounts — A Three-Ringed Circus’ (1984) 58 Australian Law Journal 96 at 105. 98 See above n 44 and text accompanying. 99 Christie, above n 11, at 594. JOBNAME: No Job Name PAGE: 13 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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are now large, industry-based conglomerates.100 In response to the decline in levels of union membership in recent years,101 many of these ‘super unions’ have begun to provide non-traditional services to their members102 — such as health insurance, financial advice, discount home loans and other consumer products — that border on ‘commercial’ activity. While not seeking to ‘turn a profit’ in the sense that most companies do, modern unions must place considerable emphasis on their financial viability so that they can continue to provide their members with these new services, as well as performing their more traditional industrial role. Secondly, and of greater relevance here, unions registered under federal industrial legislation have long been fixed with many of the features of corporate legal personality. Under the WR Act, a union is considered to be a ‘body corporate’, having perpetual succession, the power at law to own and deal with property, and the capacity to sue and be sued.103 In Williams v Hursey,104 the High Court of Australia decided that the effect of the predecessor to this provision was to endow federal trade unions, upon registration, with: . . . a corporate character — an independent existence as a legal person. It is given a personality, which is distinct from that of all or any of its members, and which continues to subsist unchanged notwithstanding the changes which are bound to occur from time-to-time in its membership . . .105 However, this affixation with some of the characteristics of corporate legal personality does not bestow upon trade unions one of the main benefits of incorporation — limited liability.106 This is a benefit, which is conferred only by incorporation under the Corporations Law.107 Further, it does not automatically follow that the corporate model of regulation should be applied

100 See, eg, B Dabscheck, The Struggle for Australian Industrial Relations, Oxford University Press, South Melbourne, 1995, pp 123-31; and M Wooden, ‘Union Amalgamations and the Decline in Union Density’ (1999) 41 Journal of Industrial Relations 35. 101 As to which see further below n 165 and accompanying text. 102 See Peetz, above n 10, pp 188-9. 103 WR Act s 192. A similar provision, although not expressly conferring corporate status on registered unions, was contained in the original Conciliation and Arbitration Act 1904 (Cth) (s 58). The situation under Australian law stands in contrast to that in England, where unions came to be regarded as entities separate and distinct from their members so that they could be fixed with liability in tort for the wrongful acts of their agents (particularly in relation to industrial action): see, eg, Taff Vale Railway Co v Amalgamated Society of Railway Servants [1901] AC 426. English trade unions had been accorded recognition (and even some minor advantages) under the Trade Union Act 1871 (UK), but not corporate legal status: see Lord Wedderburn, The Worker and the Law, 3rd ed, Penguin Books, Harmondsworth, 1986, p 524. The Industrial Relations Act 1971 (UK) gave unions full corporate status under a registration system: see Wedderburn, pp 528-9. Now, s 10 of the Trade Union and Labour Relations (Consolidation) Act 1992 (UK) confers ‘quasi-corporate’ status on unions, by providing that a trade union is not a body corporate, but is able to make contracts, sue and be sued, and have criminal proceedings brought against it. 104 (1959) 103 CLR 30. 105 (1959) 103 CLR 30, 52. See also Jumbunna Coal Mine, No Liability v Victorian Coal Miners Assn (1908) 6 CLR 309. 106 It is clear that s 192 of the WR Act does not confer limited liability on unions: see CCH, Australian Labour Law Reporter, para 7-325. 107 Trade unions are specifically prevented from registering under the Corporations Law: Corporations Law s 116. JOBNAME: No Job Name PAGE: 14 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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to unions, simply because they have corporate personality. It is important to understand that the regulation of companies has not only been directed at protecting the interests of shareholders, but has also been considered justifiable on broader public interest grounds, given that: . . . companies, particularly listed public companies, are prominent and powerful actors in our public life. They are major employers and taxpayers; their actions, collectively and individually, have considerable impact on our social and economic structures and the environment.108 In this respect comparisons are often made with trade unions, which (it has been suggested) ‘have been granted by society the protection and the privileges which have enabled them to grow into institutions of tremendous power’.109 According to this view, the activities of unions should be regulated to ensure that their power is not abused, not only in the interests of union members but also because of the harmful economic and other effects of excessive union power on the public at large.110 Of course, to the extent that unions wield economic power through the taking of industrial action, this has been for many years, and remains, the subject of extensive legal restrictions.111 Whatever force there may be in the view that unions are like companies because they both occupy a powerful and influential position in society, this does not (of itself) mean that they should be subjected to the same kind of regulation. Having explored the many differences and some similarities between unions and companies, it is now important for the purposes of this article to consider the role and functions of company directors as against those of trade union officials. This is necessary in order to consider some of the issues associated with the application to union officials of the duties that have traditionally applied to directors. Fundamentally, directors are responsible for ensuring that companies are properly managed.112 This may include formulating corporate strategy and business plans, approving budgets, monitoring performance, reporting to shareholders, and making decisions about such matters as capital expenditure, business acquisitions, restructuring and refinancing.113 In carrying out these functions, directors are generally accountable to the members (shareholders) of the company in general meeting,114 although the general meeting has no power to intervene in the day-to-day exercise of managerial power.115 Union officials, especially union secretaries and members of union committees of management, also have overall responsibility for the effective

108 S Bottomley, ‘From Contractualism to Constitutionalism: A Framework for Corporate Governance’ (1997) 19 Sydney Law Review 277 at 291. 109 A Turner (Ed), Union Power, Heinemann, Melbourne, 1975, p 55. 110 See, eg, Trade Unions: Public Goods or Public ‘Bads’?, The Institute of Economic Affairs, London, 1978. For a defence of trade unions against allegations that they possess too much power, or that they exercise their power irresponsibly, see R Taylor, The Fifth Estate: Britain’s Unions in the Seventies, Routledge and Kegan Paul, London, 1978. 111 See Creighton and Stewart, above n 35, Ch 13. 112 Ford et al, above n 58, p 202. 113 Ford et al, above n 58, p 200. 114 Ford et al, above n 58, p 202. 115 Bottomley, above n 108, at 280. JOBNAME: No Job Name PAGE: 15 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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management of their union, including financial administration. However, beyond this over-arching role, they perform very different functions from company directors. Returning to the raison d’eˆtre of unions, the primary duties of their officials are arguably those relating to the provision of industrial representation and services to members. In this capacity they carry out a diverse range of tasks, such as conducting enterprise bargaining negotiations with employers, making important decisions in the course of industrial disputes, and providing advice and assistance to members about workplace issues like unfair dismissal, underpayment of wages, and occupational health and safety. Bearing these differences in mind, a number of difficulties may arise from the application of the standards imposed on company directors to their ‘counterparts’ in trade unions. The first relates to precisely who may be subject to the duties in the trade union context. I have already noted that the company law duties apply not only to directors, but potentially to anyone involved in some way in the management of the company.116 If the duties proposed in the Draft RO Bill were to be similarly construed, they might conceivably apply to a wide range of non-elected union officials who perform functions that somehow relate to ‘management’ of the union’s affairs, such as industrial officers, in-house legal advisers, and health and safety officers.117 Secondly, there is the question of which functions of union officials the duties might apply to. On their face, the proposed statutory duties on union office-holders to act with care and diligence and in good faith118 would appear to apply to the exercise by officials of all of their powers, and the discharge of all of their duties, rather than just those relating to financial management of the union.119 As I have pointed out, the powers and functions of union officials extend far beyond control over the union’s finances. However, the potentially broad application of the proposed duties for union officials sits uneasily with one of the main purposes of directors’ duties in company law. I concede that these duties restrain the activities of directors in relation to a wide range of matters, and not simply their financial management role. But the purposes of directors’ duties largely reflect the position of directors as ‘fiduciaries’, and the need to protect shareholders in situations where their interests and those of directors diverge.120 The proposed duties for union officials seem capable of much broader application than those applying to directors. Thirdly, practical problems could arise if the proposed statutory duties for union officials were to apply, say, to decisions that officials might make in the course of an industrial dispute, or during protracted enterprise bargaining

116 See above n 60 and text accompanying. 117 The ACTU has expressed concern about the potential impact of the duties on the many unionists who hold office in part-time or honorary capacities: see ACTU, Comments on the Exposure Draft of the Registered Organisations Bill 2000, February 2000, p 12. 118 Draft RO Bill cll 284-5. 119 This seems to be the deliberate intent of the relevant provisions, as the Ministerial Discussion Paper, above n 54, p 26, had stated that ‘these duties could apply to the range of functions that office holders perform or alternatively, a limited range of fiduciary duties could apply to the powers and functions relating to the financial management of the organisation’. 120 Ford et al, above n 58, pp 280-2. JOBNAME: No Job Name PAGE: 16 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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negotiations.121 For example, it would be difficult to determine whether an officer has discharged his or her duties in ‘the best interests of the organisation’,122 given the myriad of competing interests within unions when dealing with such matters. More importantly, the duties may have a stultifying impact on decision-making by union officials, whose focus will inevitably be upon potential legal liability at the expense of service provision. Given their potentially broad application, the proposed duties for union officials fail to strike a balance between ‘accountability’ on the one hand and, on the other, the decision-making discretion officials require (or what in the company law context would be called ‘risk-taking’).123 It is also important to consider who would be able to bring an action for breach of the proposed statutory duties under the Draft RO Bill. It seems that the union concerned (as well as the Industrial Registrar and the Employment Advocate) would be able to seek Federal Court orders consequent upon a union official’s breach of duty.124 That the union should be able to bring such an action, rather than individual members of the union, is consistent with the position in company law.125 There, according to the rule in Foss v Harbottle,126 duties are owed to the corporate entity rather than to individual shareholders, so that only the corporate entity can bring an action for enforcement of the duties. The exceptions to this rule seem intended, at least in part, to protect the interests of minority shareholders.127 No such exceptions are proposed under the Draft RO Bill, although the Ministerial Discussion Paper stated clearly that any proposed legislation would ‘ensure the right of members to seek redress from officials who fail to meet their statutory obligations through the introduction of statutory fiduciary duties’.128 It is surprising that the government has not followed through with the provision of such a right to individual union members,129 given its desire to enhance the rights of individual unionists. Interestingly, the proposed application to union officials of the statutory

121 According to the ACTU ‘ . . . the duties should apply only to decisions concerning the financial management of the organisation, including expenditure, rather than to the full range of industrial and associated decision-making. (H)owever, . . . many decisions which are not, on their face, about financial issues, will have financial implications and so would be subject to the fiduciary duties.’: ACTU, Response to the Ministerial Discussion Paper on Accountability and Democratic Control of Registered Industrial Organisations, November 1999, p 14. 122 Draft RO Bill, cl 285. 123 See Ford et al, above n 58, p 282. 124 Draft RO Bill cl 300. 125 It is also consistent with the position in relation to the common law duties currently owed by union officials, which are generally only enforceable at the instance of the union ‘so that aggrieved individual members have no right of recourse unless they gain control of the organisation’: Creighton and Stewart, above n 35, p 368. See also Christie, above n 11, at 610-11. 126 (1843) 2 Hare 461; 67 ER 189; for a detailed explanation (including discussion of the exceptions to the rule) see Ford et al, above n 58, pp 514-7. 127 See E Boros, Minority Shareholders’ Remedies, Clarendon University Press, New York, 1995. 128 Ministerial Discussion Paper, above n 54, p 24. 129 Christie asserts that this would be unnecessary, because ‘unlike a minority shareholder in a company, a trade union member’s interest in the union will necessarily be tiny’; above n 11, at 611. JOBNAME: No Job Name PAGE: 17 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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fiduciary duties of directors under company law comes at a time when the purpose and content of those duties have been the subject of considerable debate130 and, indeed, recent legislative amendment. Changes were made to the directors’ duties provisions of the Corporations Law in late 1999,131 with revised formulations of the duty of care and diligence and the duty of good faith being introduced.132 A statutory business judgment rule was also introduced, under which a director is taken to meet the statutory duty of care and diligence in respect of a ‘business judgment’ if (inter alia) the director rationally believes that the judgment is in the best interests of the company, and does not have a material personal interest in the subject matter of the judgment.133 Also known as the ‘safe harbour’ rule, the new business judgment rule could be seen as reducing directors’ exposure to liability in certain circumstances. The debate over the content of directors’ duties is one aspect of the ‘corporate governance’ debate that has been taking place for some time. The other aspect of that debate concerns who the duties should be owed to, or what interests should be taken into account in the management of companies — those simply of the shareholders, or those also of other ‘stakeholders’ such as employees,134 and the community generally?135 That the regulation of corporations has itself been so substantially revisited in recent times136 should perhaps sound a note of caution to those who would simply adapt the corporate model to the regulation of trade unions, without proper consideration of the potential implications.

Rejecting the Corporate Model for Trade Union Regulation My examination of the nature and functions of trade unions and companies respectively has revealed, I believe, a number of important differences between the two types of organisations. Taken together, these differences are the major reason for rejecting the notion that unions should be subjected to the same type of regulation of their internal management as applies to corporations. It would make little sense to do so, given the fundamental

130 See Ford et al, above n 58, pp 270-5, particularly the discussion of the reports of various committees formed to examine corporate governance issues in Australia and England in recent years. 131 Corporate Law Economic Reform Program Act 1999 (Cth); for detail see HAJ Ford, RP Austin and IM Ramsay, An Introduction to the CLERP Act 1999 — Australia’s New Company Law, Butterworths, Sydney, 2000. 132 See Ford et al, above n 131, pp 14-8. The statutory duties proposed in the Draft RO Bill are modelled on these revised formulations of the directors’ duties in the Corporations Law. 133 Ford et al, above n 131, pp 15-6. The duty of care and diligence provision in the Draft RO Bill contains an equivalent to the business judgment rule: see cl 284(2). 134 See J Hill, ‘The Accountability of Management under Enterprise Bargaining Law’ in Ronfeldt and McCallum, above n 6, pp 208-31 at pp 214-22. 135 See, eg, S Deakin and A Hughes (Eds), Enterprise and Community: New Directions in Corporate Governance, Blackwell, Oxford, 1997. 136 This phenomenon should be seen in the context of a broader debate about the proper role and function of ‘regulation’ generally; see, for example, C Graham, ‘Is There a Crisis in Regulatory Accountability?’ in A Reader on Regulation, R Baldwin, C Scott and C Hood (Eds), Oxford University Press, Oxford, 1998, pp 482-522. JOBNAME: No Job Name PAGE: 18 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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incompatibility of the two types of organisations. However, there are a number of other important reasons for rejecting the application of the corporate model to the regulation of unions, and therefore for opposing the measures in the Draft RO Bill that have been the subject of this article. These reasons, which I will now explore, go to such matters as the role of trade union regulation in improving democracy within unions, and the place of union regulation in the broader industrial legislative framework. First, it is clear that Australian law already makes extensive provision for the accountability of trade unions and requires high standards of conduct of union officials, especially in relation to the performance of their financial management responsibilities. The combination of statutory provisions, the common law and union rules examined earlier in this article has produced what I have called a comprehensive code of overlapping legal standards. This imposes a more than sufficient level of accountability on trade unions and their officers, and provides several different avenues for legal redress in the event of financial impropriety or mismanagement. Rather than simply ‘clarifying’ the current legal position,137 the proposed statutory duties for union officials in the Draft RO Bill would impose higher standards of conduct on union officials than is now the case.138 None of this is to suggest that unions and their officials should not be held legally accountable. However, as I have stated previously: It is a matter . . . of determining an appropriate level of accountability having regard to the nature and role of . . . unions . . . in the industrial relations system, rather than simply adopting a model of regulation applicable to organisations that exist for very different reasons and perform different functions.139 Secondly, to the extent that the proposals in the Draft RO Bill are motivated by a perceived need to ensure that unions are ‘genuinely accountable to their members’ and to make them more ‘democratic’,140 they are in my submission ill-founded. Apart from the level and sufficiency of unions’ legal accountability, which I have already addressed, it is unclear what other possible ‘deficiencies’ the Government’s proposals are intended to remedy. Unlike the situation in the United States in the 1950s, when a statutory fiduciary duty on labor union officials was introduced, the government has not pointed to any examples of financial mismanagement, abuse of power, or corruption among present-day union officialdom in Australia.141 As for the argument that the proposed changes are necessary to improve democracy

137 See BDW Report, above n 51, p 46. 138 Because, for example, the statutory duties may apply to a wider range of union officials, and to all aspects of their ‘management’ functions rather than just those relating to financial management: see above nn 60 and 117-9 and text accompanying. 139 Forsyth, above n 56, at 197. 140 Implementation Discussion Paper, above n 53, p 28; Ministerial Discussion Paper, above n 53. 141 Large-scale corruption, coercion and violence were the reasons for the introduction of s 501 of the Labor-Management Reporting and Disclosure Act (1959) 29 USC (the Landrum-Griffin Act); see JM McEnany, ‘The Fiduciary Duty Under Section 501 of the LMRDA’ (1975) 75 Columbia Law Review 1189. Similar reasons were behind the recommendation of the Royal Commission into the Federated Ship Painters and Dockers Union that a form of s 501 should be adopted in Australia; see above n 75, and Christie, above n 11, at 612-5. JOBNAME: No Job Name PAGE: 19 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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within unions, this is highly complex, not least because ‘union democracy remains an elusive concept, and there are almost as many theories about it as there are writers on the subject’.142 As I have pointed out, the promotion of democracy within unions has been a central concern of the Australian federal industrial system since its inception. Whether the extensive legal measures adopted over the years have achieved this objective in practice is unclear.143 However, it is clear that further regulation of the type proposed in the Draft RO Bill is no more likely to do so. There is more to ‘union democracy’ than simply the imposition of controls on union leaders aimed at protecting the interests of individual members; the position and rights of unions within the broader industrial relations framework are of equal, if not greater, significance.144 This brings me to the third, and most important, of the additional reasons for objecting to the imposition of further legal controls over the internal affairs of trade unions at this time. Quite simply, given the decline of the federal compulsory arbitration system over recent years — and with it, the substantial legal and institutional support that it provided to unions — no justification for further regulation can be made out. I have observed that, the extensive legal regulation of Australian trade unions was traditionally justified on the basis that unions obtained considerable benefits from participation in the arbitration system, and was largely accepted by unions for this reason. However, the removal of ‘general statutory support for unions’145 since 1996 — including legislative interference with traditional union organisational structures, the abolition of preference arrangements, and reductions in the scope of award protection — has resulted in a significant diminution of those benefits. Mitchell, writing in the mid-1980s, suggested that: If the industrial relations system is to be de-regulated to any substantial degree then the traditional rationale for trade union regulation disappears, and the whole question of the legal regulation of trade unions is re-opened.146 Since then, the deregulation of Australia’s industrial relations arrangements has proceeded apace, including (more recently) a concerted legislative effort to marginalise trade unions. If this means that the question of the legal regulation of unions is now ‘re-opened’, then — bearing in mind the traditional justification for high levels of regulation, and the recent demise of statutory support for unions — there can be no valid basis for increased regulation, whether of the type proposed in the Draft RO Bill or otherwise. Finally, any attempt to subject unions to the level of regulation proposed in

142 Elias and Ewing, above n 88, p 268. 143 See, eg, C Fox, ‘Union Democracy and Collective Bargaining: Public Policy in Transition’ (1999) 41 Journal of Industrial Relations 393 at 415-6. 144 Space does not permit a more comprehensive examination of the concept of union democracy; for discussion see Elias and Ewing, above n 88, pp 267-79 (in particular, their examination of union democracy as ‘member protection’ and ‘member control’); Tracey, above n 35, at 178-82; and Fox, above n 143. 145 See Fox, above n 143, at 415. 146 R Mitchell, ‘Labour Law Research in Australia: A Review of the Literature 1975-85’ in Contemporary Industrial Relations in Australia and New Zealand: Literature Surveys, K Hince and A Williams (Eds), Industrial Relations Centre, Victoria University of Wellington, 1987, Vol One, pp 115-58, at p 132. JOBNAME: No Job Name PAGE: 20 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

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the Draft RO Bill will almost certainly fall foul of international labour laws that allow trade unions to conduct their activities free from intrusive state supervision. Article 3 of Convention 87 of the International Labour Organisation (‘ILO’)147 provides that the state ‘shall refrain from any interference which would restrict . . . or impede the lawful exercise’ of the organisational rights of unions contained in the Convention. While the ILO jurisprudence on Convention 87 allows some limits to be placed on unions’ self-governance rights,148 it has been suggested that existing Australian laws in this area must already ‘sail very close to the wind in terms of interference with the guarantees of organisational autonomy in Article 3 of Convention 87’.149 Further detailed regulation would in my view amount to improper state interference in the internal affairs of Australian unions, placing Australia in breach of international labour standards in an important respect.150

Conclusion The attempt in the Draft RO Bill to impose on trade unions and their officials standards of accountability borrowed from company law, while itself objectionable for the reasons I have outlined, must be viewed in the broader context of the federal government’s policy and legislative record in relation to trade unions. I have indicated that the government’s earliest legislative efforts were directed at dismantling established union organisational structures (eg, by encouraging the formation of competitors to existing unions), removing some of the statutory props supporting union involvement in the system, and promoting the rights of non-unionists. Since then, the government’s antipathy towards unions has manifested itself in a number of legislative proposals aimed at further marginalising them in the industrial relations system and making it difficult for them to function in practice. The first of these was the ill-fated ‘second wave’ legislation of 1999,151

147 ILO Convention No 87 Concerning Freedom of Association and Protection of the Right to Organise 1948. 148 See Elias and Ewing, above n 88, pp 264-7; and International Labour Office, Freedom of Association: Digest of Decisions and Principles of the Freedom of Association Committee of the Governing Body of the ILO, 4th ed, ILO, Geneva, 1996, pp 89-91. 149 B Creighton, ‘The Workplace Relations Act in International Perspective’ (1997) 10 AJLL 31 at 48. 150 On Australian compliance with ILO standards generally see B Creighton, ‘The ILO and the Protection of Fundamental Human Rights in Australia’ (1998) 22 Melbourne University Law Review 239. Note also that Australia has been found in breach of ILO Conventions on several occasions in recent years. First, because of the primacy that the WR Act accords to individual agreements over collective bargaining (see Report of the Committee of Experts on the Application of Conventions and Recommendations, 86th Session, ILC, 1998, Report III (Pt 1A), pp 223-4; this finding was reiterated in March 2000, see S Long, ‘Reith attacks ILO finding on Workplace Relations Act’, The Australian Financial Review, 13 March 2000). Second, because of the failure of Australian law to adequately provide for the right to strike (see Report of the Committee of Experts on the Application of Conventions and Recommendations, 87th Session, ILC, 1999, Report III (Pt 1A), pp 204-7). Third, because of the application of Australian law and practice and the government’s role in the 1998 waterfront dispute (see Report of the Committee on Freedom of Association, 277th Session, ILO Governing Body, paras 143-241). 151 Workplace Relations Legislation Amendment (More Jobs, Better Pay) Bill 1999 (the ‘1999 Bill’). JOBNAME: No Job Name PAGE: 21 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

Trade Union Regulation and the Accountability of Union Office-Holders 21

which contained a raft of proposals that would have taken the government’s original attack on unions in the WR Act a great deal further. This would have been achieved through proposals for mandatory secret ballots to be held prior to the taking of ‘protected’ industrial action,152 a further crackdown on union closed shops (or anything remotely resembling a closed shop),153 and the imposition of substantial new limits on union rights of entry.154 At the same time, the 1999 Bill would have further downgraded award regulation155 and entrenched the primacy of individual agreements over collective bargaining.156 However, these proposals have not passed into law because the government was unable to secure support in the Senate for the passage of the 1999 Bill.157 Secondly, the government has now come forward with the Draft RO Bill, which represents the high-water mark (so far) of its sustained campaign to reduce the power and influence of unions in both the industrial and political arenas. The Draft RO Bill would achieve this objective not only by introducing corporate accountability notions into trade union regulation, but also through a range of other proposals such as those to:158 simplify the process for registration of ‘enterprise unions’;159 make the process of ‘disamalgamation’, or withdrawal from union amalgamations, easier;160 significantly expand the grounds on which unions can be deregistered;161 and impose new restrictions on the making of political donations by unions.162 Indeed, the very process of transferring all of the provisions dealing with registered organisations in the WR Act into a stand-alone statute is demonstrative of the government’s view that unions are not central to the industrial relations process, and that their role should be down-played.163 In this article, I have attempted to show that the imposition of a corporate model of regulation upon trade unions is inherently flawed. I have done this by comparing unions and companies in terms of their reasons for existence, the purposes they serve, the interests created in their members, and the role and functions of those who manage them. This comparison has revealed

152 1999 Bill Sch 12. 153 1999 Bill Sch 14. 154 1999 Bill Sch 13. 155 1999 Bill Sch 6. 156 1999 Bill Schs 8 and 9. 157 C Martin, ‘Reith IR Reforms in Tatters’, The Australian Financial Review, 1 December 1999, p 8. 158 See also the proposed ‘objects’ clause in the Draft RO Bill (cl 6). 159 Draft RO Bill Ch 2 Pt 2 Div 4; ‘enterprise unions’ are the rival form of union representation allowed under the WR Act, but very few applications for registration of enterprise unions have been made to date (see Forsyth, above n 56, at 196; for a recent decision involving the relevant WR Act provisions see Re Postal Delivery Offıcers Union, AIRC Print S3192, 18 February 2000). 160 Draft RO Bill Ch 2 Pt 5. 161 Draft RO Bill Ch 2 Pt 6. 162 Draft RO Bill Ch 3 Pt 2, Div 3 and cl 231. This aspect of the proposals now contained in the Draft RO Bill has probably generated the most controversy; see S Lewis and S Long, ‘Union Blues: Government Targets Party Donations’, The Australian Financial Review, 11 October 1999, p 1. 163 See M Spry, ‘The Industrial Relations Act 1999 (Qld)’ (1999) 12 AJLL 199 at 208, where the same point is made in relation to the 1997 legislative changes in Queensland. JOBNAME: No Job Name PAGE: 22 SESS: 1 OUTPUT: Thu Jul 17 11:41:04 2003 /journals/journal/ajll/vol13/07−00224

22 (2000) 13 Australian Journal of Labour Law

substantial differences between the two types of organisations in all of these areas. I have argued that these differences, combined with a number of other factors — chief among them the recent decline of the arbitration system and the statutory support that it traditionally gave to unions — make the case against further regulation of the type proposed in the Draft RO Bill a convincing one. I have also suggested that the proposals considered in this article must be seen as part of a broader policy design on the part of the current federal government that is hostile to trade unions, sees them as ‘uninvited third parties’,164 and seeks to remove them from meaningful participation in the industrial relations system. By subjecting unions to further detailed regulation, and continually undermining them by legislative means, it seems that the government wishes to capitalise on the recent decline of the Australian union movement,165 and hasten its demise. The proposals to subject trade unions to corporate-style regulation are an important piece of this ideological ‘jigsaw’. However, as I have argued in this article, it should not be assumed that the framework for regulation of corporations can simply be transposed upon trade unions, given the fundamental differences that exist between the two types of organisations.

164 See, eg, Liberal/National Coalition, above n 52. 165 For discussion see Peetz, above n 10; S Deery and J Walsh, ‘Union Decline in Australia: The Role of Human Resource Management Practices and the Union-Hostile Workplace’ (1999) 12 AJLL 21; and T Harcourt, ‘The Future of Australian Unionism in the Global Economy’ in New Voices for Social Democracy, G Patmore and D Glover (Eds), Pluto Press, Melbourne, 1999, pp 86-99.