Key Points:
An understanding of these mechanisms is essential when dealing with moral, rather than purely legal, claims against the Commonwealth.
The Department of Finance and Administration has issued revised guidance on the implementation of discretionary compensation mechanisms available to the Commonwealth. An understanding of these mechanisms is essential when dealing with moral, rather than purely legal, claims against the Commonwealth.
At the end of our paper we also refer to a number of comparable discretionary relief schemes that operate in State and Territory jurisdictions.
What’s covered?
The mechanisms covered by the new Finance Circular 2006/05,[1] issued on 11 August 2006, are:
- payments made under the scheme for "Compensation for Detriment caused by Defective Administration" (the CDDA Scheme) – intended to cover losses (economic, non-economic and property losses), due to administrative failure, where no legal liability to compensate arises;
- payments made under section 33 of the Financial Management and Accountability Act 1997 (the FMA Act) or act of grace payments – constituting one-off or periodic payments for losses occurring as a direct result of an unintended consequence of an agency’s involvement in an individual’s circumstances, or of the application of Commonwealth legislation;
- non-statutory ex gratia payments, granted "as of favour" – to deliver financial relief, required at short notice, and delivered on a case-by-case basis to produce workable outcomes, generally for groups of people affected by natural disasters; and
- waiver, postponement or deferral of debts under section 34 of the FMA Act – open where no other viable mechanism to extinguish a debt is available, and in circumstances like those giving rise to section 33 or act of grace payments.
What’s changed?
The new Finance Circular updates, and at the same time replaces, Finance Circular 2001/01, Commonwealth Compensation ‘Schemes’, Debt Waiver and Write-Offs.
While the underlying principles remain essentially unchanged, the new Finance Circular contains more detailed policy and operational guidance, particularly in relation to the CDDA Scheme.
At the same time, the compensation mechanisms remain permissive, in enabling decision makers to approve payments, but not obliging them to do so.
How the more detailed, but still permissive, guidance will operate in practice remains to be seen. As the implementation of the compensation mechanisms remains a matter for the relevant officials that deal with moral claims against the Commonwealth, they will have to ensure that their discretion is not affected by the increased level of detail in the new Finance Circular.
What’s the same?
What remains the same is the basis or authority for the compensation mechanisms, either: the FMA Act, for act of grace payments and the waiver of debts; or, the executive power, under section 61 of the Constitution, for the CDDA Scheme and ex gratia payments.
It also remains the case that the available compensation mechanisms for dealing with claims form a continuum. Consequently, different mechanisms may offer alternative means, for resolving similar claims in different circumstances.
Closest on the continuum of the discretionary compensation mechanisms are the CDDA Scheme and act of grace payments under section 33 of the FMA Act. As observed in the new Finance Circular itself, a claim relating to a loss that usually arises under the CDDA Scheme may, in some circumstances, merit act of grace considerations, where a moral obligation relating to issues other than purely administrative ones also arises from an initial examination of the claim.
However, it remains the case that, in relation to each compensation mechanism, the responsibility for decisions on claims varies, largely dependent on the basis or authority for each mechanism:
- CDDA Scheme decisions are always made by a portfolio Minister or an authorised official in the agency concerned;
- act of grace decisions are always made by the Finance Minister, the Parliamentary Secretary or a delegate of the Finance Minister;
- waiver decisions, apart from a few exceptions, are made in the same way as act of grace decisions; and
- ex gratia decisions are always made by the Prime Minister and/or the Cabinet.
What else to consider?
The new Finance Circular does not affect other relief mechanisms, whether in relation to legal claims or founded in statute, including:
- compensation paid in settling claims for which the Commonwealth is likely to be liable at law – under the Attorney-General's Directions on Handling Monetary Claims, at Appendix C of the Legal Services Directions 2005;
- compensation paid for statutory entitlements, particularly for losses arising from workplace injuries – under the Safety, Rehabilitation and Compensation Act 1988;
- ex gratia and employment payments, for amounts up to $100,000 – under section 73 of the Public Service Act 1999; and
- the write-off of debts – under section 47 of the FMA Act, particularly for debts that are uneconomic to pursue.
Further practical guidance, on the implementation of discretionary compensation mechanisms, can be found in the ANAO’s Audit Report No.35 2003-04, Compensation Payment and Debt Relief in Special Circumstances.[2]
Treatment in other jurisdictions
Discretionary relief schemes also exist in the States and Territories. Their structures vary and payments may be ad hoc. For example:
- NSW – each Minister has a discretion to consider ex gratia payments relating to issues within the Minister’s portfolio. A payment may be made if a person has suffered a financial loss or other detriment, directly as a result of the workings of Government, which cannot be remedied or compensated through recourse to legal proceedings (or, where it is impractical to do so) (NSW Treasury Circular 05/05).
- Queensland – the Chief Executive of a Department may authorise special payments from the Departmental accounts (Financial Administration and Audit Act 1977 (Qld), section 106). In some circumstances, the Government may make ex gratia payments to victims of crimes who are not compensated under the Criminal Offence Victims Act 1995 (Qld).
- South Australia – ex gratia payments are generally authorised under particular legislation, eg., the Housing Improvement Act 1940 (SA), Irrigation (Land Tenure) Act 1930 (SA), Victims of Crime Act 2001 (SA), and the Primary Industry Funding Schemes (Sheep Industry Fund) Regulations 1999 (SA). Other ad hoc schemes are also established under the Government’s executive power.
- ACT – if appropriate to do so, because of special circumstances, the Treasurer may authorise a Department to make a payment to a person, although the payment of that amount is not otherwise authorised by law or required to meet a legal liability (Financial Administration Act 1996 (ACT), section 130).
[1] Discretionary Compensation Mechanisms
[2] ANAO's Audit Report No.35 2003-04
For further information, please contact Philip Harrison.
