JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE FULL COURT (WA)
CITATION : SCHLAFRIG -v- PAYNE & ANOR [1999] WASCA 174
CORAM : IPP J
HEARD : 6 AUGUST 1999
DELIVERED : 10 SEPTEMBER 1999
FILE NO/S : CIV 1559 of 1998
MATTER : Application for a Writ of Certiorari against ROGER FRANCIS PAYNE, Chief Executive Officer of the Waters and Rivers Commission and a Writ of Prohibition Against ROGER FRANCIS PAYNE and RICHARD LANCELOT HOOKER, investigator appointed under Section 81 of the Public Sector Management Act 1994
BETWEEN : JOHN ERNEST SCHLAFRIG
Applicant
AND
ROGER FRANCIS PAYNE
First Respondent
RICHARD LANCELOT HOOKER
Second Respondent
(Page 2)
Catchwords:
Administrative law - Application for a writ of certiorari - Decision by the first respondent refusing applicant permission to engage in business in terms of s 102(1) of the Public Sector Management Act - Whether applicant was engaged in business in terms of s 102(1) - "Business" includes a person's efforts to increase the value of that person's substantial shareholding - Conflict of interest in performance of duties - Reasonable opportunity to be given to answer allegations of conflict of interest - Application dismissed
Administrative law - Application for writ of prohibition - Investigations into suspected breaches of discipline - Code of Conduct Supplementary Provisions - Unlawful for public sector employer to impose principles of conduct without statutory force - Application partially granted
Legislation:
Public Sector Management Act 1994 s 3, s 5, s 9, s 81, s 83, s 102
Result:
Application for writ of certiorari refused
Application for writ of prohibition partially granted
Representation:
Counsel:
Applicant : Mr L A Stein & Mr M G Clay
First Respondent : Ms L Jenkins
Second Respondent : No appearance
Solicitors:
Applicant : Martin de Haas
First Respondent : State Crown Solicitor
Second Respondent : No appearance
Case(s) referred to in judgment(s):
Aberdeen Railway Company v Blaikie Brothers (1854) 1 Macq 461
Bennett v The Commonwealth [1980] 1 NSWLR 581
(Page 3)
Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66
Colpitts v Australian Telecommunications Commission (1986) 9 FCR 52
Ex Parte James (1803) 8 Ves 337
Green and Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR
Hot Holdings Pty Ltd v Creasy (1996) 185 CLR 149
Kioa v West (1985) 159 CLR 550
Mallesons Stephen Jaques v KPMG Peat Marwick (1990) 4 WAR 357
Smith v Anderson (1880) 15 Ch D 247
Welbourn v Australian Postal Commission [1984] VR 257
Case(s) also cited:
Aboriginal & Torres Strait Islanders Affairs, Minister for v Minister for Lands (WA) (1996) 67 FCR 40
Australian Broadcasting Tribunal & Actors Equity of Australia Ltd v Saatchi & Saatchi Compton (Vic) Pty Ltd (1985) 10 FCR 1
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321
Boardman v Phipps (1967) 2 AC 46
Chan v Zacharia (1984) 154 CLR 178
Craig v South Australia (1995) 184 CLR 163
Dornan v Riordan (1990) 95 ALR 451
Ex Parte Hays, unreported; FCt SCt of WA; Library No 980575; 5 October 1998
Ex Parte Meloney, unreported; SCt of WA; Library No 960021; 18 January 1996
Frichot v Zalmstra, unreported; FCt SCt of WA; Library No 980291; 13 May 1998
Kelson v Forward (1996) 60 FCR 39
Mobil Oil Australia Ltd v Commissioner of Taxation (Cth) (1963) 113 CLR 475
Northside Development Pty Ltd v Registrar-General (1990) 170 CLR 146
R v Australian Stevedoring Industry Board; Ex Parte Melbourne Stevedoring Co Pty Ltd (1953) 88 CLR 100
Re Pszon [1946] DLR 507
Short v Treasury Commissioners [1948] 1 KB 116
(Page 4)
The application for writs of certiorari and prohibition
1 The applicant is employed as a project manager in the Strategic Water Resources Planning and Policy Branch of the Water and Rivers Commission ("the Commission"). His position is classified as "Level 6" and, as a project manager, he is a senior officer of the Commission. He is also a director and 33 and one-third per cent shareholder of two proprietary companies, Tidal Energy Australia Pty Ltd ("TEA") and K C Consortium Pty Ltd ("KCP"). He has become embroiled in controversy with the Commission over his interests in these companies.
2 The first respondent, who is the chief executive officer of the Commission, has issued directions to the applicant, requiring him to cease to be a director of TEA and KCP. The first respondent has also caused an investigation to be carried out, under s 81 of the Public Sector Management Act 1994, into certain suspected breaches of discipline on the part of the applicant (which are connected to his interests in TEA).
3 The applicant seeks prerogative relief against the first respondent, by way of certiorari, quashing his decisions "requiring the applicant to cease to hold directorships" in TEA and KCP. Further, the applicant seeks a writ of prohibition prohibiting the continuation of the investigation into the suspected breaches of discipline.
4 The applicant contends that a writ of certiorari should issue on the following grounds:
(1) The first respondent had no power to require the applicant to cease to be a director of TEA and KCP.
(2) In requiring the applicant to cease to be a director of TEA and KCP, the first respondent breached the rules of natural justice.
(3) The decision to require the applicant to cease to be a director of TEA and KCP was based on irrelevant considerations.
(4) The first respondent committed an error of law in making that decision by failing to give adequate reasons.
5 The application for a writ of prohibition is based on the argument that the first respondent did not have power to order an investigation under s 81(1) of the Act.
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The decisions requiring the applicant to terminate his directorships
6 The decisions sought to be quashed by the writ of certiorari were communicated to the applicant by letters dated 15 December 1997 and 29 April 1998. Counsel for the applicant and the respondents referred to the letters of 15 December 1997 and 29 April 1998 as "directions". It is convenient to continue with this nomenclature, and I shall refer to the letter of 15 December 1997 as the "First Direction" and the letter of 29 April 1998 as the "Second Direction" and to them, collectively, as the "Directions".
7 In the First Direction the first respondent referred to a request by the applicant for permission to hold positions as a director of TEA and KCP. The first respondent stated that, in that connection, he had received legal advice that the applicant had been "undertaking business as a principal within the meaning of s 102(1) of the Public Sector Management Act 1994 in respect of [TEA] and [KCP]". He informed the applicant that his request for permission was refused and directed the applicant to cease to be a director of the two companies.
8 By the Second Direction, the first respondent informed the applicant that he had reconsidered his decision to require the applicant to terminate his directorships in TEA and KCP. The first respondent, nevertheless, repeated his refusal to permit the applicant to be a director of these companies and again directed the applicant to terminate his directorships. He warned the applicant that a failure to follow this direction might lead to disciplinary action being instituted against him under the Act.
9 Counsel for the respondent submitted that, properly construed, the Directions reflect only decisions by the first respondent to refuse permission to the applicant, pursuant to s 102(1) of the Act, to engage in or undertake a business of the kind referred to in s 102(1)(b). The letters in question, however, expressly direct the applicant to terminate his directorships with TEA and KCP and it cannot be gainsaid that they reflect decisions by the first respondent directing the applicant to effect such a termination. These are the decisions sought to be quashed by the writ of certiorari.
10 The first respondent's primary contention was that, at the time the Directions were given, the applicant was engaging in or undertaking a business as a principal within the meaning of s 102(1)(c) of the Act. It was said that, as he had been refused written permission to so be engaged in or undertake such a business, he was acting in contravention of
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s 102(1)(c). Hence, the decisions requiring the applicant to terminate his directorships were within power. The applicant, in turn, accepted that, if he was carrying on a business in contravention of s 102(1)(c), then the decisions requiring him to terminate his directorships were lawful.
11 In the alternative, the first respondent submitted that the decisions requiring the applicant to terminate his directorships were within power as they were necessitated by the applicant's failure to comply with the general principles of official conduct, laid down by s 9 of the Act, that are to be observed by public sector employees. The applicant, in turn, accepted that were it to be established that he had not observed those principles, the decisions in question were within power.
The factual background
12 As a project manager in the Strategic Water Resources Planning and Policy Branch of the Commission, the applicant is concerned mainly with water efficiency. Thus, for example, his "job description form" describes his "key responsibility" as "provid[ing] advice and develop[ing] methodologies for water efficiency investigations and advis[ing] on the implementation of water efficiency programs and the evaluation of their effectiveness". However, the applicant has a range of other duties which touch on the work of the Commission generally. Thus, the job description form includes "represent[ing] the Commission, as authorised, in consultations and negotiations with water industry groups, customer and community groups, government agencies and local authorities and other interested parties", "maintain[ing] liaison within the Commission with all functional areas having an interest in, or will (sic) be impacted by, the results or by-products of the water efficiency projects", and manag[ing] and co-ordinat[ing] the activities, finances and focus of project teams."
13 TEA is a proprietary company whose "core business" was described by the applicant as "tidal power investigation, commercialisation and operation". The applicant is a "non-executive" director and 33 and one-third per cent shareholder of the company. As a director he has been involved in "strategic planning". According to the managing director of TEA:
"[The applicant] has properly conducted himself by declaring his position at Board meetings and only attending those Board meetings when it was convenient for him to do so.
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His association with [TEA] began in February 1993. He sits on our Board as a Non-Executive Director. He is not involved in our day to day operations but there has been need on occasion for him to provide input to studies and he has undertaken this outside normal working hours. The Board is grateful for the advice and assistance we have received from [the applicant] and his presence has broadened our base of understanding.
In the course of our work in identifying energy markets in the Pilbara we have investigated the possible need for desalination plants. Those investigations were undertaken personally by myself and although I spoke with people in the DRD, the Water Corporation and the Water and Rivers Commission the involvement of [the applicant] has been avoided."
By letter dated 2 September 1996 the applicant stated:
"A major submission has been made by the Company [TEA] to Western Power regarding the installation of two tidal power stations in the Pilbara and Kimberley. This work has mostly involved the Managing Director, and, where my involvement was required, has been carried out after hours or time made up."
By a communication to the first respondent dated 15 January 1997, the applicant stated:
"There is no salary, honorarium or regular payment made to me by virtue of my shareholding [in TEA]. From time to time, studies are undertaken which may require my input which would be recompensed at hourly rates for times recorded. These activities are undertaken outside the working hours of the Commission."
According to the applicant, his only "current duties with TEA" are "providing strategic advice to the board at board meetings as required". He said:
"I attend Board meetings (where possible) and contribute to decisions made by that Board. The Board excludes me from discussions which potentially could involve it (and me) in a conflict of interest ..."
14 According to a letter dated 30 March 1998 written by the applicant's solicitor to the Commission, in 1997 TEA "incorporated" Derby Hydropower Pty Ltd ("DHP") and transferred its tidal power generation
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business to that company. At the same time Infratil Australia Ltd acquired 51 per cent of the share holding in DHP. DHP then became, practically speaking, a joint venture vehicle involving Infratil and TEA.
15 According to information obtained by the Commission from the Australian Securities Commission, on 3 October 1997 the applicant became a director of DHP. The applicant, however, disputes that he was validly appointed a director of DHP. He asserts that he was only appointed an alternate director and that appointment was invalid as the articles of association of DHP make no provision for the appointment of an alternate director. Further, the applicant asserts that he never acted as a director of DHP.
16 At some stage, presumably after its formation, DHP developed a proposal to build a tidal power scheme at Derby. TEA completed an extensive feasibility study in regard to the project. The Environmental Protection Authority, to whom the proposal was submitted for consideration, referred it to the Commission for assessment. The Policy and Planning Division of the Commission considered the proposal and as there was a potential for a conflict the applicant was excluded from the work carried out by the Division.
17 The business of KCP concerns the development of greenhouse gas remedial technology. The applicant is a director, 33 and one-third per cent shareholder and secretary of the company. In a memorandum dated 15 January 1997 to the first respondent, the applicant stated that he had received "no salary, honorarium or regular payments by virtue of my shareholding [in KCP]". He also stated that "occasional studies may require my skills and the remuneration is on the same basis as that for TEA". He said, further:
"I have nominal duties currently with the Board of [KCP] as company secretary for the signing of documents as public officer. I have no day-to-day role in the company's operation but do provide advice to the Board in the strategic areas conflict of interest (sic) to my position with the Commission."
18 To summarise, the applicant is a director and 33 and one-third per cent shareholder in both proprietary companies. The object of both companies is the pursuit of financial gain through commercial enterprise of different kinds. Both conduct "a commercial business" within the meaning of s 102(b) of the Public Sector Management Act. The applicant performs duties for both companies. These duties comprise "studies"
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involving the "strategic review of documents". Despite the fact that in his own words the applicant is recompensed for his work "at hourly rates for times recorded", he appears to contend that he was not in fact remunerated by direct payment for the work he has done for them. Whatever the position may be in this regard, the fact is that the applicant performs services from time to time for these companies, plainly in an effort to build up the value of his shareholding.
Is the applicant carrying on a "business"?
19 The first respondent's primary contention was that, by the applicant's involvement with each of TEA and KCP, he was engaged in a business as a principal within the meaning of s 102(1). As mentioned, it was common cause that, were this to be established, the decisions under challenge were within power.
20 Section 102(1) relevantly provides:
"102. Employees not to engage in activities unconnected with their functions
(1) Except with the written permission of his or her employing authority, which permission may at any time be withdrawn, an employee shall not -
(a) …
(b) accept or continue to hold or discharge the duties of or be employed in a paid position in connection with any banking, insurance, mining, mercantile or other commercial business, whether it be carried on by any corporation, company, firm or individual;
(c) engage in or undertake any business referred to in paragraph (b), whether as principal or agent;
(d) engage or continue in the private practice of any profession; or
(e) accept or engage in any employment for reward other than in connection with the functions of his or her office, post or position under the State."
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21 The purpose of s 102(1) is plain, and is manifest from the heading to the section, namely, "Employees not to engage in activities unconnected with their functions". "Employee" is defined by s 3 of the Act as a person employed in the public sector or an "employing authority" as defined by s 5 of the Act. The body of s 102(1) reveals a clear intent to preclude (subject to permission) public sector employees from being privately involved in professional or commercial activities. Thus, s 102(1)(b) precludes an employee (as defined) from being a paid employee in connection with any commercial business, or discharging duties for which payment is received in connection with any such business; s 102(1)(d) precludes an employee from being engaged in the private practice of any profession; s 102(1)(e) is a catch-all provision, precluding employment for reward outside the public sector. Against this background, it seems to me, s 102(1)(c) is intended to cover any situation, not covered by s 102(1)(b),(d) or (e), where employees are engaged for reward in professional or commercial activities unconnected with their duties as persons employed in the public sector. Such a construction is consistent with the second reading speech relating to the Public Sector Management Bill where the Premier, being the Minister concerned, stated that the "main thrust of the legislation" was "good management, accountability, ethical official conduct and integrity in government".
22 In this context it would be incongruous, in my view, if an employee in the public sector were to be able to avoid the prohibitions contained in s 102(1), and the clear purpose and intent of that section, by taking a significant share in a proprietary company and using that company as a vehicle for commercial gain by seeking to increase the value of his or her shareholding. This, in effect, is the consequence of the applicant's argument. In my view the section is not capable of being so construed.
23 In my opinion, the phrase "any business" in s 102(1)(c) has to be construed in the same way as Sir George Jessel, MR, construed the word "business" in Smith v Anderson (1880) 15 Ch D 247 (at 258-259). The relevant issue in that case was whether a certain trust, that held shares in a number of telegraph companies, had to be registered. The applicable legislation only required registration if the trust was an association of more than 20 persons formed for the purpose of carrying on a business having as its object the acquisition of gain. The Master of the Rolls (at 258), pointed out that "business" is a word of "large and indefinite import" and, after examining the definitions of "business" in various dictionaries, said:
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"Anything which occupies the time and attention and labour of a man for the purpose of profit is business. It is a word of extensive use and indefinite signification."
Nothing in the judgments of the members of the Court of Appeal (who came to a different conclusion as to the result of the case) cast any doubt on Jessel MR's construction of the word "business" (see, in particular, Brett LJ at 278).
24 In my view, the word "business" is large enough to embrace the utilisation by a person of his time, attention and labour for the purposes of the acquisition of gain, in circumstances where the gain is realised by an increase in the value of that person's substantial shareholding in a proprietary company of which he is a director (albeit a "non-executive" director). In my view, a person who is a substantial shareholder and director of a proprietary company, who attends meetings of the board of the company, advises the board on matters of company business that fall within his professional expertise, undertakes "studies" in regard to matters that fall within his professional expertise, and who gives advice on "strategic issues", all in the hope and with the intent that the value of his shareholding in the company will be increased, is carrying on a "business" as a principal. Accordingly, in my opinion, the applicant's activities as a shareholder and director of TEA and KCP constitute the carrying on of a business by him as a principal within the meaning of s 102(1)(c) of the Act. I would therefore refuse the application for a writ of certiorari.
The failure to comply with the principles of official conduct
25 In the light of the conclusion to which I have come it is not strictly necessary to deal with the alternative basis on which it was said that the decisions requiring the applicant to terminate his directorships were within power, namely that they were lawful orders given to the applicant necessitated by his failure to comply with the general principles of official conduct laid down by s 9 of the Act. Nevertheless, as the matter was fully argued, I propose to deal briefly with the issue. I should say that this argument only concerns the applicant's involvement with TEA, not KCP. It was not suggested that the applicant's conduct in regard to KCP was subject to criticism on this basis.
26 Section 9 provides:
"9. General principles of official conduct
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The principles of conduct that are to be observed by all public sector bodies and employees are that they ¾
(a) are to comply with the provisions of ¾
(i) this Act and any other Act governing their conduct;
(ii) public sector standards and codes of ethics; and
(iii) any code of conduct applicable to the public sector body or employee concerned;
(b) are to act with integrity in the performance of official duties …
(c) …"
27 Mr Stein, counsel for the applicant, accepted that the "Western Australian Public Sector Code of Ethics" (the "Code of Ethics") published in the Western Australian Government Gazette on 7 June 1996 was a code of ethics within the meaning of s 9(a)(ii) that governed the conduct of the applicant.
28 The Code of Ethics requires public sector employees to "avoid making commitments that may bias our judgment or compromise the performance of our public duties". This ethical rule is indistinguishable from the fiduciary duty of an employee described in familiar terms by Lord Cranworth LC in Aberdeen Railway Company v Blaikie Brothers (1854) 1 Macq 461 (at 471):
"It is a rule of universal application, that no one, having such duties to discharge [that is, duties of a fiduciary nature owed by agents towards their principal], shall be allowed to enter into an engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect."
Of course, the possibility of a conflict must not merely be speculative. There must be a "real and sensible possibility" that duty and interest might conflict: Green and Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1 per Burt CJ (at 5).
29 In the present case, the applicant had a "commitment" to TEA, being the fiduciary duties which he owed the company as its director. The
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material before this Court establishes that there were several instances where a real and sensible possibility of a conflict arose between those duties and the duties the applicant owed the Commission. For example, when TEA was investigating the possible need for desalination plants, the company had to avoid involving the applicant. When the Commission considered the Derby tidal power project it had to exclude the applicant from involvement. According to the applicant, the board of TEA has excluded him from discussions "which potentially could involve it [and me] in a conflict of interest".
30 It is open to question whether the mere exclusion of the applicant from discussions that could involve him in a conflict of interest was sufficient to avoid a conflict in fact occurring. For example, a simple query by the DHP board to the applicant as to who in the Commission would be the most likely to look favourably upon the DHP project, or as to how DHP should approach the Commission, or to whom in the Commission should DHP speak, would place the applicant in a situation of conflict. Any situation in which TEA or DHP could obtain some advantage (not available to competitors) from the applicant's position in or knowledge of the Commission would give rise to a conflict, and the evidence reveals that situations of that kind have frequently arisen.
31 Accordingly, this case is distinguishable from Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66, on which the applicant relied. In Blyth Chemical Ltd v Bushnell the manager of the appellant company was dismissed because he had become chairman of directors and principal shareholder in another company. The other company was not carrying on any business that competed with that of the appellant. The appellant, however, was apprehensive that at some unknown time in the future the company might compete with it. This was a mere speculative possibility, and it was held that mere ground for uneasiness as to the company's future conduct was insufficient to result in a breach of duty on the part of the manager. These facts are to be contrasted with the present case where it has been shown that, in several instances, an actual conflict of interest would have resulted had the applicant not withdrawn from participation. This demonstrates that the very nature of the business of TEA and the functions of the Commission are such that there is a likelihood of the applicant being placed in a position of conflict.
32 Mr Stein, for the applicant, submitted that there was no real and sensible possibility of a conflict arising as situations of conflict would be avoided by the integrity of the applicant and the other board members of TEA, and the alertness of the relevant officers of the Commission.
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Integrity and alertness of individuals, however, are no answer to proof that a person, in breach of duty, has placed himself or herself in a situation where, objectively speaking, there is a potential conflict between duty and interest. This underlies the rule expressed nearly 200 years ago by Lord Eldon in Ex Parte James (1803) 8 Ves 337 at 345, "No court is equal to the examination and ascertainment of the truth in much of the greater number of cases". This explains why, once the objective facts (irrespective of the subjective integrity of those involved) reveal a real and sensible possibility that duty and interest were in conflict, the Court will not enquire into whether the employee who was placed in such a situation has in fact used the advantages so acquired: Green and Clara Pty Ltd v Bestobell Industries Pty Ltd. As Burt CJ said in that case (at 6):
"[T]he rule that a person in a fiduciary position is not to allow his interest to conflict with his duty is said to be absolute and inflexible. Should he do so then: 'The consequences of such a conflict are not discoverable. Both justice and policy are against their investigation': see Rich, Dixon and Evatt JJ in Furs Ltd v Tomkies (1936) 54 CLR 583 at 592."
This principle also explains why the integrity of the solicitors involved will not prevent an injunction from being ordered against them when it is established that they have placed themselves in a position of potential conflict with their former client: Mallesons Stephen Jaques v KPMG Peat Marwick (1990) 4 WAR 357.
33 It follows, in my opinion, that by accepting his appointment as a director of TEA, a company of which he was a substantial shareholder, the applicant made commitments that could bias his judgments or compromise the performance of his public duties. He thereby acted in contravention of the Code of Ethics and s 9 of the Act.
Natural justice
34 I turn now to the argument raised by the applicant that, in making the decisions under challenge, the first respondent denied him natural justice. Both counsel were in agreement that the principles of natural justice applied to the decisions, but for different reasons. The difference between them arose out of the differences in their approach to the Directions, to which I have already referred. Mr Stein submitted that, if the Directions requiring the applicant to terminate his directorships were within power and were disobeyed by the applicant, they could lead to disciplinary proceedings under s 81 of the Act and prosecution under s 83(b). Hence,
(Page 15)
it was said, the principles of natural justice apply: Hot Holdings Pty Ltd v Creasy (1996) 185 CLR 149. Ms Jenkins, counsel for the respondents, submitted that the Directions, in essence, reflected a decision by the first respondent to refuse permission to the applicant, pursuant to s 102(1), to engage in or undertake a business. She accepted that the principles of natural justice applied to that decision "because it affects [the applicant's] property interests or his legal interests", not because the refusal of permission was a precondition to any steps that might occur under s 81 of the Act in regard to disciplinary proceedings.
35 In my view the Directions embody two categories of decisions, namely the refusal of permission to the applicant to be engaged in a business and the requirement that the applicant terminate his directorships with TEA and KCP. For the reasons conceded by Ms Jenkins, natural justice applies to the decision to refuse permission. As the decision requiring the applicant to terminate his directorships could lead to prosecution should the applicant disobey the directions in that respect, natural justice also applies to that decision.
36 Ms Jenkins was at pains to point out that s 102 stands alone as a power conferred on employing authorities to refuse permission to employees to engage in certain private activities, and it has no effect, direct or indirect, on disciplinary proceedings referred to in s 81 of the Act. I accept these submissions, but they do not answer the contention that disciplinary proceedings could follow were the applicant to disobey the directions requiring him to terminate his directorships.
37 According to the applicant, the principles of natural justice were breached by the first respondent when, prior to the making of the decisions, he failed to disclose three significant documents to the applicant. It was also said that the first respondent reviewed the decisions embodied in the First Direction without informing the applicant that he intended to do so, and this, too, led to unfairness.
38 In Kioa v West (1985) 159 CLR 550 Mason J said at 584-585:
"What is appropriate in terms of natural justice depends on the circumstances of the case and they will include, inter alia, the nature of the enquiry, the subject matter, and the rules under which the decision-maker is acting …
In this respect the expression 'procedural fairness' more aptly conveys the notion of a flexible obligation to adopt fair
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procedures which are appropriate and adapted to the circumstances of the particular case."
In the present context, fairness required the applicant to be apprised of the allegations against him, and to be given a fair and reasonable opportunity to answer those allegations in circumstances under which he knew of the potential consequences to himself should his answers be rejected and the allegations accepted.
39 The documents not disclosed to the applicant were a report dated 5 August 1997 from the Commissioner of Public Sector Standards to the Commission, a letter dated 21 November 1997 from a consultant who reported to the Commission on the applicant's activities, and a memorandum dated 11 December 1997 from another consultant to the first respondent. These documents contained material which, save in one respect, was repetitive of detailed allegations which had previously been disclosed to the applicant prior to the communication to him of the First Direction. The only relevant matter arguably not previously disclosed in detail to the applicant was the following statement in the consultant's memorandum of 11 December 1997:
"Policy and Planning Branch currently has a project afoot which potentially conflict (sic) with the activities of [TEA]. As a consequence, [the applicant] has been excluded from working on the project. Therefore, it is advisable that [the applicants] request be denied."
The "project" to which reference was made was DHP's Derby tidal power project. It was submitted that the statement in question involved an allegation that a potential conflict of interest had arisen between the applicant's duties to the Commission and his interests in DHP and TEA. It was submitted that fairness required the applicant to be given a fair opportunity to answer this allegation, and he had been denied such an opportunity.
40 At the outset, it seems to me that the information that the applicant was excluded from working on the DHP project was merely a particular of the material fact that, by having a substantial shareholding in and being a director of TEA, there was a potential conflict of interest between the applicant's duties to the Commission and his interest in and duties to TEA. The applicant was well aware of this allegation before any of the decisions were made and he had been given ample opportunity to answer it. In any event, as I will attempt to demonstrate, the applicant was
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informed of the relevant allegation before the decisions reflected in the Second Direction were made.
41 By the First Direction, the first respondent informed the applicant that he had been excluded "from a project because of his private interests". By letter of 24 December 1997 the applicant's solicitor sought details of this allegation and stated, "I am instructed by [the applicant] that he will seek a review of your decision. He therefore requests that you extend the time within which he is to comply with your order to a date subsequent to a decision on the review". In response the first respondent, by letter dated 22 January 1998, formally notified the applicant that he was suspected of breaches of discipline under s 80(b) of the Act and advised him that until the issue was resolved he should not participate in any decision making role of DHP nor carry out any work associated with the Derby tidal power project.
42 In a letter to the applicant's solicitor dated 22 January 1998, the first respondent stated, "the Policy and Planning Division has not been able to include [the applicant] in work being carried out by the Division into the Derby tidal power project". The first respondent observed that this illustrated the potential for a conflict of interest.
43 By letter dated 22 January 1998 to the applicant himself, the first respondent noted that it had come to his attention that the applicant had become a director of DHP on 3 October 1997. This was relevant, according to the first respondent as "[t]he statutory referral of the Consultative Environmental Review for the Derby Tidal Power Project … was referred to Policy and Planning Division of the Commission and is a proposal by [DHP] to build a tidal power scheme".
44 The applicant's solicitor replied by letter dated 30 January 1998 and informed the first respondent that the applicant would be seeking a review of the first respondent's decision. In addition, the applicant's solicitor made further submissions concerning what he described as the "non-inclusion" of the applicant in the assessment of the proposal for the Derby hydro-power scheme. The argument advanced by the applicant's solicitor was that the applicant was excluded from the project for reasons other than conflict of interest. It was said that there was "no connection between the power project and [the applicant's] duties to the Commission". Further, the applicant's solicitor stated that "in order to avoid unnecessary escalation of the dispute with the Commission [the applicant] has agreed to resign as … alternate [director] of DPH".
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45 By letter dated 12 March 1998, the applicant's solicitor made further submissions. These included lengthy arguments concerning the applicant's involvement with DHP and the Derby tidal power project.
46 The applicant's involvement in DHP, and the Derby tidal power project in particular, led to the first respondent again informing the applicant that he was suspected of breaches of disciplines under s 80(b) of the Act and requiring from him, pursuant to s 81(1), a written explanation relating to the allegations against him. By letter dated 30 March 1998, the applicant's solicitors sought to explain and refute the allegations. The letter in question was some eight pages long and was almost entirely devoted to answering the allegations made against the applicant concerning his involvement with DHP. A very full explanation was given concerning the applicant's interests in DHP, how he became an alternate director of DHP, the validity of his appointment as an alternate director and related matters. The letter concluded with the solicitor denying all allegations of impropriety on the part of the applicant. This letter was intended to be the applicant's answer to the serious allegations made against him and sought to marshal all the arguments that could be made.
47 In all the circumstances, having reviewed all the relevant correspondence, I am satisfied that the applicant was given a full and fair opportunity to answer, in detail, all the relevant allegations against him. The applicant, indeed, took advantage of that opportunity. The material before the Court contains several lengthy letters written by the applicant's solicitors dealing in considerable detail with every argument put against the applicant.
48 I accept that the applicant was not told, expressly, that the first respondent was reviewing the decisions communicated to the applicant by the First Direction. Nevertheless, at a relatively early stage, the applicant's solicitor informed the first respondent that the applicant sought a review of those decisions and, as I have indicated, there was a full exchange of letters between the applicant's solicitor and the first respondent thereafter in which all the allegations made against the applicant were fully canvassed. This was in the context where the first respondent had called upon the applicant to submit a written explanation of the allegations concerning the suspected breaches of s 102(1) of the Act.
49 In my view, by 29 April 1998, when the Second Direction was communicated to the applicant, the applicant was under no misapprehension as to the case against him, and he had been given every
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opportunity to answer it. Moreover, the applicant had indeed answered that case, and had done so in full appreciation of the serious consequences that could ensue should the first respondent's decision be adverse to him. He knew well that the submissions that he was making in this connection were going to be vitally important to the final decision made by the first respondent. In my opinion, by 29 April 1998, any failure of natural justice in connection with the decisions embodied in the First Direction was cured by the subsequent exchanges that occurred between the applicant and the first respondent prior to the taking of the decisions embodied in the Second Direction.
50 In my view, the decision in Colpitts v Australian Telecommunications Commission (1986) 9 FCR 52, relied upon by the applicant, is not presently relevant. That case concerned the question whether, under the legislation governing the issues in that case, a fair hearing before a review tribunal could cure a prior invalid decision by a different body. Burchett J held that as, by the legislation concerned, the applicant was only accorded limited rights in that review, the originally invalid decision could not be cured by a subsequent hearing. The present case is entirely different. The first respondent, himself, reviewed the decisions communicated by the First Direction and, in doing so, gave the applicant a full, unrestricted and fair hearing. In my view, no failure of natural justice attends the decisions made pursuant to that hearing (and embodied in the Second Direction).
Irrelevant considerations
51 The applicant argued that the decisions under challenge were based upon irrelevant considerations and the first respondent thereby committed an error of jurisdiction.
52 The argument is based on material that the first respondent took into account when making the decisions embodied in the First Direction. There is no evidence that these matters were taken into account when the decisions embodied in the Second Direction was made. On this ground alone, the contentions in this respect fail. I shall however proceed to deal with the particular arguments made in this regard.
53 In the First Directions, the first respondent stated, "the overriding presumption in the regulatory framework is that private work will be discouraged". It was submitted that this was an irrelevant consideration. I do not accept this argument. The heading to s 102 is, "Employees not to engage in activities unconnected with their functions". The entire tenor of
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s 102 is consistent with the heading. Generally, in my view, s 102 could fairly be described as giving rise to a presumption that private work by public sector employees is to be discouraged.
54 A further statement was made in the First Direction that the first respondent was "concerned not to expose the Commission to perceptions or allegations that private work is being undertaken and might relate to public duties". It was said that the public perception was an irrelevant consideration. During the second reading speech relating to the Public Sector Management Bill, the Premier (who as I mentioned, was the minister responsible for the moving of the Bill) stated that the Bill "seeks to address long standing deficiencies in the Public Service Act and other problems identified by the Royal Commission Into Commercial Activities of Government and Other Matters". The Royal Commission itself, in its findings, pointed to the need for public confidence in the institutions of government to be restored and maintained. In my view, the public perception of inappropriate conduct by public sector employees was a perfectly legitimate consideration for the first respondent to take into account.
55 Next, the applicant contended that the first responded took into account a certain code of conduct described as "Code of Conduct, Supplementary Provisions" (the "Supplementary Code"). It was submitted that the Supplementary Code was not a relevant document as it had no legal effect. I shall deal with this argument later when considering the application for a writ of prohibition. It is sufficient to state at this stage that I accept that the Supplementary Code had no legal force. This does not mean, however, that by taking it into account the first respondent relied upon irrelevant considerations. The Supplementary Code contains materials relating to conflicts of interest entirely consistent with those contained in the Code of Ethics (which is conceded to be of force). Although the two codes differ in detail they do not differ in principle and there is nothing, in my view, in the Supplementary Code that could be classified as an irrelevant consideration which renders nugatory the decisions now under challenge.
56 Finally, in this regard, it was said that the first respondent relied on legal advice which, in effect, was erroneous. The advice concerned was in the following terms:
"However, the policy behind the [Supplementary Code] is plainly interested in protecting the integrity of the public sector. The Introduction states that it is essential that conflict of interest
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situations are either avoided or resolved in favour of the public interest and this is seen to be done. Therefore if there was even the remotest chance of a conflict arising, and the public's perception of the integrity of the public service being adversely impacted, it is likely that [the applicant] would be asked to give up his position as director of TEA and [KCP], transfer to other duties within [the Commission] where conflict does not arise, or resign from public office."
Exception is taken to the proposition that "if there was even the remotest chance of a conflict arising … it is likely that [the applicant] would be asked to give up his position as director of TEA and [KCP]".
57 In its context the advice in question is more a recommendation based on policy than a statement of the legal position. Underlying the advice is the belief that there is a need to avoid any possibility of the public perceiving there to be some impropriety in the public service by reason of situations of conflict of interest. For the reasons I have already expressed, I do not think that this is an irrelevant consideration.
The adequacy of the reasons for the decisions
58 Lastly, as regards the application for certiorari, it was submitted on the applicant's behalf that the Directions did not disclose adequate reasons for the decisions as required by the applicable Public Sector Standards (published in the Government Gazette on 1 September 1995), and the Code of Ethics.
59 In the First Direction the first respondent gave four relevant reasons for his decision to require the applicant to terminate his directorships. Firstly, the applicant was undertaking a business within the meaning of s 102(1) of the Act "in respect of [TEA] and [KCP]". Secondly, the first respondent was concerned with the fact that "a project the section is undertaking" was not able to include the applicant in the light of what the first respondent described as the applicant's private interests". Thirdly, there was the presumption in the "regulatory framework" that private work would be discouraged. Fourthly, the first respondent "was concerned not to expose the Commission to perceptions or allegations that private work was being undertaken and might relate to public duties".
60 It is implicit in the Second Direction that the reasons for the decisions reflected therein were the same as those set out in the First Direction. In addition, by letter dated 22 January 1998, the first
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respondent advised the applicant's solicitor of the reasons for his view that the applicant was "engaging in or undertaking any business" within the meaning of s 102(1). He explained that there was "a potential for conflicts of interest to arise in relation to [the applicant's] duties as a director of [TEA] and [KCP]" and he referred to the need to protect the integrity of the public sector.
61 In my opinion, the reasons that were given explain quite adequately the grounds on which the first respondent came to the decisions that he did, and the applicant could be under no misapprehension or state of ignorance in that connection.
62 In the circumstances I would dismiss the application for the writ of certiorari.
The application for a writ of prohibition
63 By letter dated 13 May 1998, the first respondent informed the applicant that he had appointed the second respondent to conduct an investigation into the suspected breaches of discipline by the applicant. The suspected breaches of discipline were set out in the letter dated 22 January 1998 from the first respondent to the applicant, and were said to be as follows:
"(a) contravening s 102(1) of the Public Sector Management Act in October 1997 by not seeking the written permission of the Chief Executive Officer to engage in or undertake business as a principal, namely as a director of [DHP];
(b) breaching the [Supplementary Code] in that you failed to declare to officers of the department your interests in [DHP] and Derby tidal power project …"
64 The claim for a writ of prohibition as regards the suspected breach of discipline referred to in sub-paragraph (a) above was based on the proposition that by being a director of DHP the applicant was engaging in or undertaking business as a principal. For the reasons I have expressed, I consider that the applicant's activities as a director of DHP are part of the business he has engaged in as a principal within the meaning of s 102(1). It follows, in my opinion, that that aspect of the application for a writ of prohibition should be dismissed.
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65 I turn now to that part of the writ of prohibition that concerns the enquiry into the suspected breach of discipline described in sub-paragraph (b) of the letter dated 22 January 1998. Mr Stein submitted in this regard that the Supplementary Code had no legal effect and the applicant could not be held to have committed any breach of discipline by failing to comply with its provisions.
66 A "code of conduct" under the Act is defined by s 3 as being a code of conduct developed under s 21(1). Section 21(1) provides that it is a function of the Commissioner For Public Sector Standards "to assist public sector bodies to develop, amend or appeal codes of conduct". Section 21(5) provides that each public sector standard shall be published in the Gazette and under s 21(6) a public sector standard comes into operation on the day on which it is published in the Gazette.
67 The Supplementary Code does not appear to have been established under s 21(1) and there is no evidence that it was published in the Gazette. It is to be contrasted with a code of Public Sector Standards published in the Gazette on 1 September 1995 by the Public Sector Standards Commissioner, acting in accordance with s 21 of the Act. I accept the submission that it has no statutory force. In any event, the Supplementary Code appears to have been subsumed by the later Public Sector Standards, established in accordance with s 21 and published in the Gazette on 1 September 1995.
68 Ms Jenkins submitted that even if the Supplementary Code had no statutory force, the Commission had instructed its employees, including the applicant, to comply with it and thereby a lawful order had been given to the applicant, which he was suspected of having disobeyed. In response, Mr Stein referred to Welbourn v Australian Postal Commission [1984] VR 257 in which the Full Court of the Supreme Court of Victoria held (at 273-274) that the Postal Services Act 1975 (Cth) provided a complete code of the contractual relationship between the Australian Postal Commission and its employees. The Court considered that that Act covered the field in respect of all disciplinary measures which might be imposed upon officers by the Commission, in respect of any failure or refusal to perform duties, whilst the relationship subsisted. The Court adopted the reasoning of Rogers J in Bennett v The Commonwealth [1980] 1 NSWLR 581, who said at 585:
"It can be seen that the Act and the regulations, not only provide for obligations on the part of the officer of the Public Service, but these obligations are accompanied by certain safeguards to
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protect the officer. In these circumstances, it would be surprising if an officer could be suspended for failure to carry out an instruction, and thus effectively be deprived of the safeguards which have been built into both the Act and the regulations."
As it was put in Welbourn's case by Fullagar J at 274:
"[T]he Postal Services Act provides safeguards for the officer who fails to comply with the terms and conditions of his employment, and it would be surprising if the officer could be either suspended without pay, or else deprived of pay although allowed to work, and in either case be deprived of the safeguards."
69 I would adopt, with respect the foregoing reasoning. In my view, s 9 of the Act is a code that establishes the principles of conduct to be observed by all public sector bodies and employees. It is not open to an employer in the public sector to impose principles of conduct otherwise in accordance with s 9. The instruction to comply with the Supplementary Code was such an attempt and in my view did not constitute a lawful order.
70 I would therefore uphold the application for a writ of prohibition in regard to the investigation of the suspected breaches of discipline referred to in sub-paragraph (b) of the letter dated 22 January 1998.
Conclusion
71 In summary, therefore, I would dismiss the application for the writ of certiorari, I would dismiss the application for a writ of prohibition to the extent that the application seeks a prohibition of the investigation into the suspected breaches of discipline referred to in sub-paragraph (a) of the first respondent's letter of 22 January 1998. I would grant the application for a writ of prohibition to the extent that it is sought to prohibit the investigation into the suspected breaches of discipline referred to in sub-paragraph (b) of the first respondent's letter of 22 January 1998.
72 ANDERSON J: I have had the advantage of reading in draft form the judgment of Ipp J. I entirely agree with it and there is nothing I can usefully add.
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73 WHITE J: I have had the advantage of reading in draft the reasons for judgment of Ipp J. I am in agreement with those reasons and have nothing further to add.