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Putting judicial brakes on regulators

08 April 2011

This article was first prepared for Australasian Legal Business​ Online.

The achievement of a single economic market and a seamless trans-Tasman operating environment for business will depend primarily on the executive and legislative arms of government - but also contain implications for the judiciary.

This is particularly so as the judiciary’s role to provide a brake on the misuse of power now has a new importance.  The international trend toward heavier economic regulation in the wake of the global financial crisis is reflected in both countries, and harmonisation brings with it an increased risk that regulatory over-reach enacted on one side of the Tasman may be quickly transplanted onto the other.

The proposition that the judiciary controls the actions of the executive and all its agencies goes back to Entick v. Carrington, a celebrated English case of 1765 in which the Secretary of State sought to defend the seizure of “very seditious” papers against His Majesty’s Government by arguing that the ends justified the means or – more precisely – that “all private mischief must be borne with patience, for preventing a national calamity”.

This argument was rejected by the Lord Chief Justice for the reason that:

“If this is the law, it would be found in our books, but no such law ever existed in this country”.

This same fundamental principle – namely, that the executive must act strictly in accordance with the law and has an obligation of fairness when seeking to enforce the law – was reaffirmed very recently in Courts of Appeal of both New South Wales and New Zealand.  Unfortunately the reaffirmation was much more emphatic in the New South Wales Appellate Court than in the New Zealand one.

Unquestionably, Australia’s more complex constitution – with its interplay of Federal and State powers – gives more scope for direct intervention by the courts, especially over matters such as the regulator’s jurisdiction and appointment.  However there is still room to be disappointed with the more timorous approach taken by the New Zealand Court in this instance.

In Morley v. Australian Securities and Investments Commission the NSW Court of Appeal was highly critical of ASIC’s failure to call as a witness an external adviser who was at the board meeting at which the ASX release relating to James Hardie Industries Ltd’s strategy to reduce its asbestos exposure was allegedly approved. 

The appellate court found that:

  • although ASIC does not bear the same duties as a criminal prosecutor, ASIC’s position does import a duty of fairness to defendants, and greater neutrality than is usually required in civil proceedings, and
  • these types of penalty proceedings are likely to require proof beyond the ordinary civil “balance of probabilities” standard. 

Thresholds of proof are notoriously difficult to define.  After summarising various cases, the NSW Court of Appeal came up with “comfortable satisfaction” and “reasonable satisfaction” to describe the requisite threshold for ASIC.
Of particular relevance in the context of trans-Tasman comity, was the reference by the NSW Court of Appeal to the following passage from the New Zealand Court of Appeal in Moevao v. Department of Labour:

“It is not the purpose of the criminal law to punish the guilty at all costs.  It is not that that end may justify whatever means may have been adopted.  There are two related aspects of the public interest which bear on this.  The first is that the public interest in the due administration of justice necessarily extends to ensuring that the court’s processes are used fairly by state and citizen alike.  And the due administration of justice is a continuous process, not confined to the termination of the particular case.  It follows that in exercising its inherent jurisdiction the court is protecting it ability to function as a court of law in the future as in the case before it.  This leads on to the second aspect of the public interest which is in the maintenance of public confidence in the administration of justice.  It is contrary to the public interest to allow that confidence to be eroded by a concern that the Court’s processes may lend themselves to oppression and injustice.”

It is now over 30 years since Moevao, and the just released NZ Appeal Court decision in Commerce Commission v. Air New Zealand would indicate that it is not as well-remembered on this side of the Tasman as in Australia.

At issue was the Commerce Commission’s decision to maintain s.100 “gagging orders” prohibiting Air New Zealand employees from divulging to Air New Zealand the details of their interviews with the Commission even after the Commission had commenced proceedings against Air New Zealand (and other airlines).  The effect of the continuation was to give the Commission an advantage as a litigator over the other parties.

In the High Court, the Judge found in favour of Air New Zealand, ruling that:

  • extension of the gagging orders beyond the commencement of proceedings was an abuse of process, unreasonable and in breach of s.27 of the New Zealand Bill of Rights Act (BORA), and  
  • the Commission’s power to prohibit disclosure relates only to information provided to the Commission and does not extend to information given by the Commission to persons whom it is interviewing. 

The Commerce Commission appealed but, as the orders were no longer necessary in the case, the appeal related only to issues of principle.  The Court of Appeal found that s.100 is couched in broad terms and there is nothing to warrant any reading in of limitations and qualifications apart from the “obvious and implicit one” that such orders be made for proper purpose. 

But it went on to observe:

“There is however a difference between having wide powers and exercising them.  Making an s.100 order is a serious step and before the Commission does so it should satisfy itself that such an order is necessary in the context of the particular investigation being undertaken.  Any orders made, and their scope and duration, should be kept under review.  Depending on the status of the investigation, the weight to be accorded to different factors may vary”.

The Court expressed its concern that the Commission had not at any stage reviewed whether the orders were still required.  Significantly, however, (and disappointingly) it did not support the High Court’s presumption that the Commission is part of the executive branch of government.  Instead it held that it was not necessary for the purposes of the appeal to decide this question definitively and indicated that it was inclined to the view that, rather than being part of the executive, the Commission was a “body in the performance of a public function”.

The distinction is important because the BORA should imply a higher threshold of behaviour in relation to the appropriate exercise of power for executive bodies than for lesser authorities. 

Further, the Appeal Court’s inclination seems myopic, given the nature and breadth of the powers that the Commerce Commission has – and is exercising with increasing vigour.  The Commission can already compel persons to supply information or documents or give evidence; bring criminal proceedings for breach of s.74D, s.86B and s.103 matters; and can in its own right issue cease and desist orders.  Those are not “public body” powers, and harmonisation is likely to see the Commission given more extensive powers in relation to cartels in the near future.

It is understood that Air New Zealand will not exercise its rights of appeal to the Supreme Court.  That is a pity as the judiciary could have used the opportunity to finally put its foot firmly on the brake and to send a message to the regulators that with increased power comes an increased obligation to be fair and proportionate in the exercise of that power.

Grant David is a Chapman Tripp partner.  The views expressed here are his own.

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