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Ministerial Directions to Statutory Corporations ISSN 1328-7478

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Ministerial Directions to Statutory Corporations ISSN 1328-7478 Department of the INFORMATION AND RESEARCH SERVICES Parliamentary Library -....~.....l,.L- Research Paper No.7 1998-99 Ministerial Directions to Statutory Corporations ISSN 1328-7478 © Copyright Commonwealth ofAustralia 1998 Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means including information storage and retrieval systems, without the prior written consent ofthe Department ofthe Parliamentary Library, other than by Senators and Members ofthe Australian Parliament in the course oftheir official duties. This paper has been prepared for general distribution to Senators and Members ofthe Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time ofproduction. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document. IRS staff are available to discuss the paper's contents with Senators and Members and their staffbutnot with members ofthe public. Published by the Department ofthe Parliamentary Library, 1998 INFORMATION AND RESEARCH SERVICES Research Paper No. 7 1998-99 Ministerial Directions to Statutory Corporations Christos Mantziaris, Consultant Law & Bills Digest Group 8 November 1998 Acknowledgments This paper draws from material which will appear in a paper by the author entitled 'Ministerial Directions to Statutory Corporations: What does a theory of responsible govermnent deliver?' forthcoming in (1998) 26(2) Federal Law Review. The author wishes to acknowledge Bob Bennett, Stephen Bottomley, Nick Seddon and Jane Stapleton for their comments on a draft version ofthis paper and reserves the responsibility for errors to himself. Inquiries Further copies ofthis publication may be purchased from the: Publications Distribution Officer Telephone: (02) 6277 2720 Information and Research Services publications are available on the ParlInfo database. On the Internet the Department ofthe Parliamentary Library can be found at: http://www.aph.gov.au/library/ A list ofIRS publications may be obtained from the: IRS Publications Office Telephone: (02) 6277 2760 Contents Major Issues Summary .............................................. .. 1 Introduction ...................................................... .. 1 The problem ofinfonnal Minister-board communication 1 The governance structure ofstatutory corporations ...................... .. 2 The evidence on infonnal Minister-board communication. ................ .. 4 The propriety ofinfonnal Minister-board communication. ................ .. 5 Structural reasons for the problem. .................................. .. 5 Ministerial powers ofdirection as a solution ........................... .. 7 The position ofstatutory corporations in the framework ofresponsible government .. .. 8 The meaning ofresponsible government. " 8 The principle ofministerial responsibility , 10 The uncertain requirements ofresponsible government for statutory corporations. 10 Is ministerial responsibility for a statutory corporation required by the Constitution?! 1 The view ofacademics , 11 The emerging view ofthe courts. ................................ .. 13 Interpreting ministerial directions powers , 14 Litigation context , 14 The interpretative choices , 14 Parliamentary intention and the weak fonn approach , 15 Literal construction , 16 Purposive construction ........................................ ., 16 Strong fonn approach. ........................................ .. 17 Hughes v Airservices Australia. ................................. .. 17 The strong fonn approach to responsible government in Hughes , 18 Responsible government and historical change - the problems of a strong fonn approach , 21 Conclusion , 22 Endnotes. ....................................................... .. 22 Ministerial Directions to Statutory Corporations Major Issues Summary Over the past ten years, the Commonwealth Government has withdrawn from the oversight ofthe day-to-day operation ofmany ofits business and statutory authorities. The managers have been allowed to manage, while government has concentrated on policy formulation and the overall steering ofthese entities. Yet the government's withdrawal from the operational level has not been complete. The government is not an ordinary business owner and it has preserved its ability to intervene, where necessary, in the affairs of entities under its control. Needless to say, such interventions can be politically controversial. Parliament has sought to regularise the means by which the executive may intervene in the affairs ofstatutory corporations by granting the portfolio Minister a formal power to direct the corporation. The breadth ofthese powers varies. The power might extend to all ofthe activities ofthe corporation, a specified range ofactivities, or specific transactions. Two problems have emerged with this form of regulation. First, as the recent case of Hughes v Airservices Australia (1997) 146 ALR 1 illustrates, Ministers have ignored the statutory power of direction, and have continued to exercise informal influence over the corporation. These informal communications between Ministers and boards occur in a zone of moral and legal uncertainty. No firm rule has developed for their regulation. Company law norms regulating this practice are difficult to apply, as it is difficult to reconcile the structure of the statutory corporation and the ministerial directions power with the governance arrangements ofthe private sector company. The second problem lies in the judicial interpretation of statutory directions powers. Up until recently, the courts were quite content to interpret these provisions through conventional methods of statutory interpretation (i.e. the 'purposive' and 'literal' construction methods). But the decision of the High Court in Lange v ABC (1997) 145 ALR 96 and that of the Federal Court in Hughes, indicates that courts are now more willing to interpret the accountability structures of statutory corporations by reference to implications drawn from the Constitution. The Lange case established that specific sections of the Constitution prescribed a system of 'responsible government' for the Commonwealth. The court had little to say about the requirements ofresponsible government. Indeed, these requirements have been kept vague by courts, so as to preserve the flexibility of Parliament to pass legislation allowing the executive to organise its activities in new ways. The Hughes case appears to restrict this flexibility by adopting a much stronger and narrower approach to the requirements of 'responsible government'. In particular, the case suggests that the Constitution requires statutory corporations to be accountable to Parliament through the principle of ministerial responsibility notwithstanding any I Ministerial Directions to Statutory Corporations additional means that Parliament may choose (e.g. approval of corporate plans, financial reporting, dividend policy, imposition of directors' duties). This emphasis on ministerial responsibility allowed the court in Hughes to interpret a ministerial directions power as being broad enough (i) to allow a Minister to intervene in any aspect of the board's decision making, provided he or she did so through the use ofthe statutory power; and (ii) to support the Minister's right to receive any corporate information he or she required (whether confidential or not) in order to exercise that power. This strong form approach to responsible government gives cause for concern. First, it appears to lack constitutional foundation. Secondly, it runs the danger of placing undue emphasis on a particular form of relationship between Parliament and the executive, that of ministerial responsibility. This emphasis might frustrate Parliament's ability to create other forms of executive accountability, which might better accommodate the changed nature of contemporary social and economic phenomena. Private sector style corporate governance techniques for statutory corporations are one example. The use of companies incorporated under the Corporations Law are another. This paper restricts itself to Commonwealth bodies which are cast in the form of the statutory corporation rather than the Corporations Law Company. But the elucidation of the theory ofresponsible government is also relevant for the latter. The ability of a theory of responsible government to remain flexible is critical to the evolution of the working Constitution. 11 Ministerial Directions to Statutory Corporations Introduction This Research Paper addresses the problem ofinformal communication between Ministers and the boards of statutory corporations and Parliament's attempt to regulate these communications through the enactment of formal ministerial powers ofdirection over the corporation. Directions powers are an attempt to reconcile two conflicting needs-the executive's need to delegate decision-making to an agent and the executive's need to preserve its capacity to intervene in the agent's decision-making. Formal directions provisions do not necessarily resolve the problem of informal
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