Can Private Government Contractors Claim Crown Immunities?
Christos Mantziaris
Consultant, Law and Bills Digest Group
29 June 1999
In litigation with citizens, the government and governmental bodies are
often able to claim certain immunities or privileges on the basis that
these are inherent to 'the Crown'.
There are two legal questions which courts are often asked to answer
in this context.(1) The first question is which bodies may claim
the immunity. The second is whether the immunity operates in the way suggested
by the body claiming it. The most important immunity claimed by bodies
is immunity from the application of a statute.
This Research Note concerns the first question. This issue usually arises
in the case of statutory corporations or incorporated companies owned
or controlled by the government. But since the Bradken case,(2)
there has been concern about the extent to which private contractors to
government may be able to claim Crown immunities as well ('derivative
Crown immunity').
The derivative Crown immunity issue is now at the centre of a litigation
saga involving private contractors to the New South Wales government.
Decisions in this litigation have placed the law into a state of uncertainty.
This affects the legal status of contractors to all Australian governments.
A contracting-out policy issue
The Commonwealth government and its various agencies now 'contract-out'
to private companies the performance of a large number of services.
The derivative Crown immunity question creates a policy dilemma. The
unique characteristics of many governmental services may require that
the service provider be given special treatment by way of immunity from
statute. For example, the provision of a service to wide groups of consumers
might expose the service provider to such large or indeterminate liabilities
arising under statute-based legal actions that it would not undertake
the provision of services unless immunity against certain types
of legal claims is offered. If a government-owned service provider is
already granted these immunities, why should the mere fact of private
ownership disable the contractor from claiming the same immunities?
On the other hand, if private contractors to government bodies -and government
itself-are able to claim immunities from statute, many of the objectives
of the national competition policy are compromised.(3) The expansion
of the law on Crown immunities to cover private contractors goes against
four important legal trends:
- the gradual elimination or erosion of many Crown immunities by the
courts
- the expansive interpretation of Federal, State and Territory Crown
proceedings legislation provisions requiring courts to treat the government(4)
the same as ordinary citizens or to treat the government, 'as nearly
as possible',(5) the same as an ordinary citizen
- the increased use of explicit statutory provisions which state that
the statute binds the Crown, and
- suggestions in the High Court that it is difficult for a government
or a governmental body to claim exemption from the operation of legislation
of general application dealing with matters which have no special governmental
or public aspect.(6)
Whether derivative Crown immunity ought to be available to private companies
contracted to government is thus an important policy issue which stands
at the centre of the contemporary practice of government contracting.
The policy issue came to the fore in the recent Homefund case.(7)
The Homefund litigation
This litigation arose from a New South Wales Government scheme to provide
fixed interest home loans to low income earners. The Government used private
sector companies as finance-providers. Many of the borrowers found, however,
that the capital sum owing was increased rather than reduced by their
monthly repayments.
The borrowers brought a class action against the Government and the companies
in the Federal Court, seeking review of the contracts. They also alleged
misleading and deceptive conduct under the Trade Practices Act 1974
(Cwth) and the Fair Trading Act 1987 (NSW).
The trial judge directed that certain preliminary questions be answered
by the Full Federal Court but did not settle the agreed statement of facts
upon which the questions were based. Notwithstanding this deficiency,
the Full Federal Court proceeded to answer these questions, and held,
among other things, that private sector companies could claim ('derivative')
Crown immunity where they are retained by the Crown. This meant that the
private finance companies in the Homefund scheme should be immune from
the application of the Trade Practices Act.
Upon appeal, the High Court focused on the deficiency in the statement
of facts and held that all but one of the questions should not have been
dealt with by the Full Federal Court because they were hypothetical.(8)
As a result, the High Court decided that the Full Federal Court should
not have answered the derivative immunity question and considered it inappropriate
to answer the question itself. The issues now fall to be tried by the
Federal Court in a new phase of litigation.
The current position
The High Court decision in the Homefund case has left the law
in a state of uncertainty. The Full Federal Court's decision is now only
of persuasive value. Legislation, or yet another case, is required to
resolve the issue.
In so far as the Full Federal Court decision can assist in ascertaining
the state of the law, its most important statement of principle is that:
the immunity that attaches to the Crown itself, from the effect of a
statute making unlawful a particular act, extends also to persons retained
by the Crown to perform the act, whatever the precise nature of the relationship
between the Crown and them.(9)
The Full Federal Court said that it would 'make a mockery of Crown immunity'
if private companies, retained by the Crown to perform a particular act,
were bound by a statute to which the Crown itself was immune. Nevertheless,
persons such as private contractors to the Crown could not claim derivative
Crown immunity merely because the interests of the Crown would be adversely
affected if the immunity were refused.(10) Furthermore, unless the Crown
was significantly prejudiced by a refusal of derivative Crown immunity,
such persons cannot claim immunity for acts which arise from their independent
initiative and which are not 'within the scope of the Crown agency'.(11)
The concepts of 'agency' and 'independent initiative' are very troublesome.
Legal relations between the government and private contractors often do
not use the language of agency and, in some cases, specifically avoid
it. The concept of agency takes upon different meanings in various areas
of private and public law and has been severely distorted by more than
a century of contradictory case law on Crown immunities. Similarly it
will be difficult to distinguish an independent initiative from an obligation,
when the contractor is under a duty to exercise its discretion.(12)
Conclusion
The current law on Crown immunities provides no clear answer to the derivative
immunity question. A clear standard is needed for deciding whether the
immunity is available or not. This standard must accommodate the increased
use of contract by government. Federal-State cooperation on law reform
initiatives is also desirable, as the issue affects the national competition
policy and all governments.
- See generally, N. Seddon, Government Contracts: Federal, State
and Local, 2nd ed, Federation Press, 1999, ch. 4.
- Bradken Consolidated v Broken Hill Pty Ltd (1979) 145 CLR 107.
- Independent Committee of Inquiry, National Competition Policy,
AGPS, 1993-'the Hilmer Report'.
- Crown Proceedings Act 1992 (ACT), s. 5(1); Crown Proceedings
Act 1993 (NT), s 5(1); Crown Proceedings Act 1992 (SA), s.
5(1); Crown Proceedings Act 1993 (Tas), s. 5(1).
- Judiciary Act 1903 (Cwth), s. 64; Crown Proceedings Act
1988 (NSW), s 5(2); Crown Proceedings Act 1980 (Qld), s.
9(2); Crown Proceedings Act 1958 (Vic), s. 25.
- Bropho v State of Western Australia (1990) 171 CLR 1; State
Authorities Superannuation Board v Commissioner of State Taxation for
the State of Western Australia (1996) 189 CLR 253; Re Residential
Tenancies Tribunal of NSW; Ex parte Defence Housing Authority (1997)
146 ALR 495.
- Bass v Permanent Trustee Company Ltd [1999] HCA 9; Woodlands
v Permanent Trustee Company Ltd (1996) 68 FCR 213; 139 ALR 127 (FFC).
- Under the Constitution, the judicial power of the Commonwealth can
only be exercised in respect of a 'matter'. This is taken to exclude
hypothetical questions.
- Woodlands v Permanent Trustee Company Ltd (1996) 68 FCR 213
at 230 (FFC).
- ibid at 231.
- ibid at 236.
- Some of these issues are explored by N. Seddon, 'Crown Immunity and
Private Bodies' (1999) Public Law Review (forthcoming).
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