12 January 2007
Key Points:
A regulatory authority can settle disputes or proceedings, so long as the terms of the settlement are compatible with the regulator’s statutory functions.
A recent decision of the New South Wales Court of Appeal has confirmed the powers of government regulators to bind themselves in contract, and settle proceedings so long as the contract does not compromise a core statutory function of the regulator under its enacting legislation.
In Civil Aviation Safety Authority v Sydney Heli-Scenic Pty Ltd [2006] NSWCA 111, the Court of Appeal held that there was a binding and enforceable agreement between the Civil Aviation Safety Authority ("CASA") and Heli-Scenic Pty Ltd ("Scenic") to settle a dispute about whether and on what terms Scenic could continue to operate, and, furthermore, the agreement did not fetter any future exercise of discretion or power of CASA.
Background
Scenic was a company owned and operated by Mr and Mrs Webster, with operations in Sydney and Cairns. The business provided helicopter flights for tourists.
Aviation Operation Certificates ("AOC") are necessary in order to operate a commercial airline. CASA has the power to suspend or cancel an AOC if it has concerns about the air safety of the AOC holder.
Because of concerns about Scenic’s compliance with regulations, a delegate of CASA cancelled Scenic’s AOC in October 1998. Scenic applied to the Administrative Appeals Tribunal ("AAT") for review of the cancellation decision, and for a stay. The proceeding was adjourned to allow CASA and Scenic time for discussions. Subsequently, Scenic’s solicitors prepared a document containing a number of undertakings which Scenic offered to allay CASA’s concerns about the Websters continuing role in air operations.
Following discussions, the delegate indicated that CASA would accept Scenic’s undertakings with some agreed amendments, and would agree to settle the AAT proceeding on terms which would allow Scenic to continue to operate from Cairns, if it complied with those undertakings.
However, soon after leaving the meeting, Scenic was told that the delegate had been instructed by CASA to withdraw from the agreement for policy reasons. At midnight on 11 December 1998, Scenic’s AOC expired.
Scenic’s application for a stay was heard by the AAT and, with CASA opposing it, was dismissed. The substantive application to the AAT to set aside CASA’s original decision did not proceed.
Scenic eventually sold its Sydney and Cairns operations, and sued CASA for breach of its agreement to compromise the AAT proceeding.
The decisions
At first instance, Judge Walmsley in the NSW District Court concluded that there had been a binding and enforceable agreement between CASA and Scenic which contained an implied term obliging the parties to approach the AAT jointly, asking it to:
and that CASA had breached that agreement.
The Court accepted that Scenic’s forbearance to sue for the cancellation provided the necessary consideration.
CASA appealed on two grounds:
CASA argued that the trial judge had erred in applying section 13 of the Act (which empowered CASA to enter into contracts) without qualification and without considering the compatibility of a general power to enter into contracts with the paramount safety considerations of the Act.
Contractual obligations
This case makes it clear that although there may not be a business relationship between a regulator and a private company, a regulator can still be bound by contract so long as it had the power under legislation to enter into it and, furthermore, the contract does not impede the statutory function of the regulator.
The Court of Appeal found that the Act clearly empowered CASA to:
The Act also sets out the functions of CASA, the core function being the conduct of safety regulation of civil air operations.
CASA contended that while it had the power to enter into contracts generally, that power did not enlarge or alter the nature of its functions which were meant to be exercised in such a way so as to ensure that safety in civil air operations is paramount, and thus it had no power to enter into contracts in the exercise of its power to regulate air safety.
The Court found that:
In reaching this conclusion, the Court also took into account the fact that the agreement between the parties had been made after Scenic had applied to the AAT for review of CASA’s decision. The Court held that the true nature of the contract was an agreement by the parties to ask the AAT to set aside the decision made by CASA to cancel the AOC, and to make a new decision in substitution, being a decision to grant Scenic an AOC subject to the imposition of the agreed conditions.
A regulatory authority has the power to bind itself to an agreement or compromise of an application for judicial review. However, that power does not extend to a compromise that conflicts with a core statutory function of the enabling legislation.
In this case, CASA had the power to compromise the AAT proceeding, so long as the compromise took proper account of air safety considerations, which the Court found that it did.
Fetter on the exercise of discretionary powers
It is a long-held general principle of law that a public authority cannot enter into a contract or an undertaking that would fetter the future discretionary exercise of its statutory powers (see eg. Ayr Harbour Trustees v Oswald (1883) 8 App Cas 623; Ansett Transport Industries (Operations) Pty Ltd v Commonwealth of Australia (1977) 17 ALR 512). In Rederiaktiebolaget Amphitrite v The King [1921] 3 KB 500, Justice Rowlatt found that Government could bind itself through its officers by commercial contract, but it could not fetter the future exercise of executive power, which should necessarily be determined by the needs of the community as and when a question arises.
The NSW Court of Appeal held that here, there was no anticipatory fetter on the future exercise of a statutory discretion. Rather, CASA had exercised its discretion through its delegate in reaching the agreement with Scenic. The statutory discretion was not the subject of an anticipatory fetter, rather, the discretion was exercised at the moment when the agreement was reached.
Concluding comments
In summary, it is not beyond power for a regulatory authority to settle disputes or proceedings, so long as the terms of the settlement are compatible with the statutory functions of the regulator.
Would the outcome have been any different in a different factual scenario? The short answer is most probably yes.
If the proposed agreement was found to have compromised proper regulation of air safety (and thus the core function of CASA), then the exercise of the discretion by CASA’s delegate would have been found to be beyond the power conferred by legislation and the agreement would have been found to be invalid.
For further information, please contact Tom Mosby .
